Leadership and Business Ethics: The Enron Corporation's Failure

This report provides an in-depth analysis of the Enron scandal, examining the ethical failures within the company and their impact on its downfall. It explores the lack of ethical leadership, particularly the actions of CEO Jeffrey Skilling, and how this contributed to financial misreporting and the eventual bankruptcy. The report discusses the importance of corporate social responsibility (CSR) and how Enron's failure to adhere to ethical standards and legal compliance led to significant consequences. It evaluates the organizational culture of Enron, highlighting the absence of accountability and transparency, and the influence of ethical leadership on establishing a positive and responsible work environment. Furthermore, the report presents ethical decision-making tools, such as the Potter Box, to help leaders navigate moral dilemmas and make sound ethical choices. The analysis includes the impact of corporate policies and culture on stakeholders and the environment, emphasizing the need for honesty, justice, and loyalty within organizations to avoid similar ethical failures. The report concludes by stressing the crucial role of ethical leadership in ensuring corporate integrity and sustainable business practices.

Running head: LEADERSHIP
Leadership and Business Ethics
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Executive Summary
This current report deals with the ethical issues in the context of Enron. This company provides
oil pipeline and energy service in U.S. However, in 1990 this company has created a financial
scandal, which led this organization to face bankruptcy. The managers and CEO had taken
wrong decision failed to take ethical decision. This organization conducted their financial
operation in an unethical way. However, this organization wanted to improve their financial
performance but they had taken illegal approach to do this. Such financial scandal is occurred
due to inaccuracy in leadership and wrong decision-making process. Moreover, there was lack of
cultural diversity in the workplace and the organizational culture was not ethical. Hence, ethical
leadership could be helpful for this organization to avoid the legal issues.

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Table of Contents
Introduction......................................................................................................................................4
Discussion of the ethical leadership and CSR in the context of Enron...........................................4
Evaluation of the organizational culture and influence of ethical leadership on this culture..........6
Ethical decision-making tools for the leaders to deal with the moral dilemma...............................8
Acceptance of diversity.................................................................................................................10
The impact of corporate policy and culture on stakeholders and the environment.......................12
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

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Introduction
Corporate social responsibility or CSR is an internal organizational policy of an
organization. However, the CSR should be integrated into the business model to improve the
performance of an organization. CSR goes beyond compliance with the legal requirements of an
organization (Schwartz, 2017). A business includes CSR for ethical and strategic purpose. The
strategic purpose of the CSR is to enhance the long-term profit in the business on the other hand,
from the ethical perspective a business needs to adopt CSR to reduce the legal risk. This current
study deals with the Enron scandal that leads this organization to face bankruptcy. Enron case is
the largest report of bankruptcy in U.S. However, Enron is accused for the financial scandal in
U.S. The CSR activities are not maintained in this organization properly, which leads them to
face legal obstacle in their business.
Discussion of the ethical leadership and CSR in the context of Enron
Enron is a U.S based organization. This organization has started their business as a
regional natural gas pipeline company in 1985. However, this organization is blamed for the
financial scandal and faced bankruptcy. Deregulation of the energy market allows this
organization to make bets on the future price. Enron has taken advantages of this situation. Enron
has created a financial website EOL for their electronic trading. In this business they invested
more and finally faced huge loss without any significant return. Jeffrey Skilling the CEO of
Enron tried to hide their finical loss and expressed their organization as a profitable organization.
As a result, after the audit Enron has found as the biggest audit failure in U.S (Consultancy.uk,
2018). It can be said that the leadership style and activity in this organization was not good,
which hampered the reputation of this organization.

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In the context of Enron there was lack of ethical leadership, which leads this organization
to face financial scandal. The CEO of this organization failed to follow the ethics and their
responsibilities. As commented by Bhattacharya et al., (2017), ethical leadership is a kind of
leadership that allows an individual to manage the each and every activity of an organization in
an ethical way. The ethical leader shows professional behavior and maintains the business ethics.
Based on the leadership concept it can be said that leadership is a process of evaluation and
adaption. Leadership and ethics has a close relation in an organization. However, the keeping the
trust of the stakeholders is the major responsibility of an ethical leader. As argued by Shapiro &
Stefkovich, (2016), if the leader fails to build the trust of the stakeholders then it is difficult for
this organization to keep their brand image and to continue their business in the global market. In
the context of Enron it has been seen that the CEO of this organization affected the trust of the
stakeholders as a result, this organization has faced bankruptcy. It is important for an
organization to follow the ethics, rules and responsibility while using the leadership in an
organization (Burnes & By, 2012). In the context of Enron there was lack of ethical leadership in
this organization. However, the financial scandal is an incident of this organization due to the
lack of ethical leadership.
In an organization it is crucial to incorporate the ethics into the leadership. However, it is
important to adopt a good leadership style to improve the performance of the organization
(Demirtas & Akdogan, 2015). In the context of Enron it is seen that Jeffrey Skilling was hired as
the CEO of this organization. However, there was loophole in accounting and they had executed
a poor financial reporting through which they were able to hide billions of dollar. This scandal
occurred as the CEO did not follow the leadership ethics, which led this organization to face
financial scandal. Such financial scandal is the ethical failure in Enron. The leader of this

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organization had a poor ethical choice, which led this organization to create a scandal. For Enron
it is required to incorporate justice and honesty in their leadership style that were lack in their
leadership character. By incorporating such feature in the leadership this organization could be
able to make honesty in their financial decision-making process. For every organization, honesty
and justice should be incorporated in the leadership style, which will enhance the CSR activities
and improve the transparency in the leadership in near future (Smith, 1776).
Corporate social responsibility or CSR is another vital area of the business organization.
However, it is important for an organization to maintain the corporate social responsibility by
following the business ethics in this organization (Walumbwa, Hartnell & Misati, 2015). In the
context of executive compensation, accounting scandal, and pollution the business ethics is
always the important topic. From the financial scandal of Enron, it has been received that they
have not followed the CSR activities in their business. However, CSR enables an organization to
follow the rule and regulation of the government policy as legal compliance is the part of CSR.
Conduction is a fair business is the major part of business ethics. The CSR highlights that a firm
needs to show a good behave in order to become a good corporate citizen. They should obey the
law while conducting the business (Wu et al., 2015). In the context of Enron, they did not
comply with the law as they hide financial loss and caused financial scandal. This incident
ensures that Enron was not able to keep transparency in their operation and failed to maintain the
principle of CSR.
Evaluation of the organizational culture and influence of ethical leadership on this culture
Organizational culture focuses on the value, belief, and way of interacting with the
people within this organization (van Gils et al., 2015). Enron was a popular world’s leading

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energy company that creates innovative and effective energy solution for growing economic.
This organization always focuses on the establishment of a better economy and environment. For
the individuals, Enron always called as the Enron Crop and it was considered as the classic
example of ethical business. In the year 1900 and early 2000s, they started the business of the
wholesale of electricity and natural gas. They did not own the business and act as an
intermediary between the customers and suppliers. During this business, they had faced huge
loss and their accounting procedure is not transparent. Due to lack of accounting transparency
Enron's managers are able to show high financial performance, which was not the actual
performance of this organization. However, the power culture, hierarchy culture and role culture
of this organization were not well. Power culture refers to the decision-making process of the
leaders (Ruggie, 2017). However, the hierarchy of this organization failed to develop a positive
culture in this organization. The organizational showed that they are ethical in their work,
however; they had taken a bad ethical decision. This organization did not have any ethical
culture, which influenced them to create a financial scandal ad to take a wrong ethical decision.
Ethical culture highlights that the employees should have a sense of responsibility and
accountability. In the context of Enron the employees especially the managers had no
accountability as a result; they failed to keep transparency in their financial accounting process.
Therefore, in an ethical culture, the managers need to communicate the significance of integrity
while taking the difficult decision. In Enron, the managers were not able to take a good ethical
decision.
Enron followed a very irresponsible and unethical culture throughout this organization.
However, the financial and decision-making factors made them the worst sufferer and to face the
legal obstacle. Ethical leadership has a great impact on the organizational culture. If the leader of

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an organization adopts ethical leadership then they are able to establish the transparency in the
organizational process (Shapiro, Stefkovich & Gutierrez, 2014). In the context of Enron if the
CEO could follow ethical leadership then they might maintain the accountability of the
employees. It could be helpful for Enron to keep every financial statement updated and maintain
them in a proper way. Ethical leadership helps an organization to build a positive culture in an
organization. It could be helpful for the Enron leader to establish an ethical organizational
culture by following the ethical leadership. Therefore, the employee organizational commitment
was low in Enron. Adoption of ethical leadership increases the employee commitment in an
organization, which ensures a positive working culture in an organization (Lehnert, Park &
Singh, 2015). Adoption of ethical leadership could be helpful for Enron to influence their
employees to follow the business ethics, rules, and CSR activities. Hence, it can be said that the
ethical leadership is effective to establish a transparent organizational culture and to improve the
decision-making process of the hierarchy culture.
Ethical decision-making tools for the leaders to deal with the moral dilemma
Ethical decision-making is a crucial part of any business to reduce the legal obstacle from
the business. As argued by Dane & Sonenshein, (2015), often the leaders face an ethical dilemma
while taking a business related decision. However, a wrong decision may lead an organization to
face challenges in their business. One of the major ethical decision-making tools is the
application of Potter Box. This tool enables the leader to identify the policy or action that causes
the dilemma during the decision-making process. In the context of Enron, the manipulation in the
financial statement is a wrong action that causes dilemma during the decision-making process.
The next step of Potter Box is the analysis of the situation. Often the situation leads the managers
to take a wrong decision and to face an ethical dilemma. The leaders of Enron wanted to hide

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their financial loss and they manipulated the financial data. This situation led this organization to
take a bad ethical decision. The third element of this tool is the value that caused ethical
dilemma. From the scenario of Enron it has been received that there was lack of honesty and
reliability, which led this organization to take a wrong decision. However, the leaders wanted to
keep the financial profit of this organization despite their loss. This ensures the lack of reliability
of this organization. The fourth step of this decision-making tool is the personal belief of the
individuals. However, the managers and CEO of this organization had lack of personality and
they did not believe that theft is always a wrong process. As a result, they became influenced to
create a financial scandal. The fifth element of this tool is loyalty. In Enron, there was lack of
loyalty among the managers and the employees, which led this organization to misuse their
power and to make a scandal for the organizational profit. The final step of this tool is the action
plan to deal with this dilemma. Application of Potter Box is an effective method to take an
ethical decision by resolving the issues of an organization. This tool could be helpful for the
managers of Enron to take an ethical decision during the organizational crisis.
Kidder process is another ethical decision-making tool. This tool enables the leaders to
sort out the ethical issues during the decision-making process. The managers of Enron had faced
the ethical dilemma while taking a financial decision. According to this tool reorganization of the
moral dilemma is crucial to reduce ethical issues from the decision-making process (Lehnert,
Park & Singh, 2015). However, the managers of Enron did not think about the future while
making loopholes in the decision-making. However, it is important for the managers to forecast
the future events that may affect their decision-making process. In the context of Enron, the
managers did not focus on the future impact of their decision-making process on the business. To
keep the profit of the organization they made the financial scandal. The managers faced the

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ethical dilemma when they had been suffering from huge loss as they need to save their business
from loss. Therefore, to determine right versus wrong is vital to take an ethical decision. The
managers of Enron tried to hide the huge loss and to keep the business profitable. However, they
wanted to make a false situation, which ensured that their business was running through a high
profit but the actual scenario was totally different. As a result, they created loopholes in
financial report, which broke the law. Their decision-making process was against the law and
they were not able to make a legal compliance. As a result, the ethical decision-making process
was hampered. Application of the kidder process might be helpful for the Enron to take ethical
decision during their ethical dilemma.
Acceptance of diversity
With globalization and advancement of technology, companies all over the world have
the opportunity to expand their business beyond the geographical boundaries of the country of
operation. This has given rise to the importance of the acceptance of diversity and culture in the
company. When a multinational organization appoints employees in another country, the
company is expected to be at par with the culture and traditions of the country in order to align
the interest of the stakeholders with the objective of the company (White & Stirling, 2013).
Acceptance of diversity in an organization ensures the company new ways of achieving the goals
as the approach towards problems in different culture can be different. The companies must
ensure that the organization provides equal opportunity for all the employees in an unbiased way.
The organisation must. Diversity does not only restrict to culture it also has other demographic
categories as well, such as gender, age, religion etc. With the change in the society and the
development of several rules and regulations by the government of countries, organisation have
adapted to new and improved employment strategies and Organsiational culture in order to

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encourage diversity in the business process. Diversity is something that should not be treated as
an advantageous or beneficial attribute of the company. Rather it should be regarded as
something that is natural and the perks of the process is a part of the business endeavor. It is
essential to include diversity in the core plan for the business because (Özbilgin et al, 2014).
With the changes in the dynamics of the society there are changes that has to be incorporated in
the business product as well as in the process as the companies it ensures development of the
business. In order for a business to thrive there has to be various kind of people whose thought
process do not match with one another (Özbilgin et al, 2014). This will help in getting a number
of perspectives and ideas for the business process. Accepting diversity is opening doors to new
ideas and concepts which can help the company to gain competitive advantage in the market as
well (Hunt et al., 2015)..
Diversity among the organisation can ensure a wider reach towards the customers; the diversity
among the employees will help in understanding the changing needs of the customers and
therefore help the company adapt to the needs and requirements that are evolving (Özbilgin et al,
2014). This can ensure effective communication in the process of business if the company
wanted to cater to a specific target market. Communication is an important advantage in
accepting diversity (White & Stirling, 2013).
Talent acquisition is one of the major aspects of acceptance of diversity in the organization.
When a company recruits the employees based on their qualification and their skills or talent
there are a better chance for the organization to heir people who are focused on their
performance and are also committed towards the organization (Hunt et al., 2015).. High rate of
productivity among the people of the organization is beneficial. If the management of the

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organisation focuses on the development of the people and irrespective of their cultural
background or any other biasness provide the employees with equal benefits then the employees
also remain loyal and hardworking which helps to increase the company’s productivity and profit
(Hunt et al., 2015).
Eron is an organization that with the help of diversity could have understood the ethical nuance
and the severity of the case that they had performed, The company could have achieved their
objective without falsifying the reports, the advantages that has been discussed above state that
the company can connect better to the customers with the help of diversity, similarly the
company can also build a valuable relationship with the other stakeholders of the company as
well (Hunt et al., 2015).. The communication with the stakeholder is what the major issue that
the company had faced (White & Stirling, 2013).
The impact of corporate policy and culture on stakeholders and the environment
There are various business level policies that are formulated by the management of the
company. Strategic management is the process by which rational decisions on these various
levels can be made. Corporate policies of the company are based on the macro environment
aligning the advantage of the micro environment in order to achieve the objective of the business
(Hickman & Silva, 2018). The corporate policies of the company help the organisation establish
its culture and to maintain and build goodwill in the market. The organisations devise corporate
policies to streamline the business process so that the operations are hassle free. The stakeholders
of the company can be divided in two categories: internal and external. The management,
owners, employees are the internal stakeholders, where as the government, investors,