Ethical Leader Analysis: Enron

Introduction

Enron is the story of prideful, arrogant, greedy leadership. From CEOs Ken Lay and Jeff Skilling to CFO Andy Fastow, these leaders managed to turn a modest energy company into a financialized house of cards that collapsed spectacularly in a matter of days after seeing its company share price rise into the stratosphere over the course of a few years. That rise was due to fraud, manipulation, and a failure of leadership. Lay was responsible for putting Skilling into power and for turning a blind eye on the questionable tactics Skilling sought to employ at the company. Skilling turned a blind eye on what Fastow was doing to mislead investors. They were all guilty of hiding the companys debt and losses through shell company partnershipsbut in this they were supported by the prestigious auditing firm of Arthur Andersen, which blew up just as spectacularly as Enron did in the wake of the scandal. In fact, this was a story of a failure of leadership at just about every level of administrative oversight. Numerous big banks invested in Fastows shell company set up to do business solely with Enron. All of them should have known betterand they, too, bore some responsibility for what happened at Enron. Thus, to suggest that it is only Enrons leaders who are to blame is to miss the wider conspiracy: the eagerness with which so many stakeholders were willing to enter into the fraud that was Enron is staggering. But for the purposes of this paper, discussion will be limited to some of the specific behaviors Enrons leaders engaged in that precipitated its downfall, how Enrons employees reacted to senior leaderships behaviors and attitudes, and whether the leaders could have been stopped and how.

Behaviors of Enrons Leaders

In spite of their bad actions, Enrons leaders were actually likable individuals: they were popular at the company and exuded charm and charisma. The problem was not their likability; rather it was that they manifested the wrong kind of appealthey appealed to something devious in their followers. There was a sort of rebellious, cavalier spirit among Enrons senior leadership: they were going to do things that no one had ever done before, and they were going to celebrate all the way to bankand no one was going to stop them.

Enrons leadersparticularly Skilling and Fastowwere full of energy and life; they were ambitious and driven, playful, and fun; but they did not ground their energy in an ethical foundation. Fastow had a Cheshire cat smile that beguiled investors. Their authentic selves were not full of virtue but rather of pride and a willingness to engage in deceptive practices that Skilling to this day believes were honorable; Fastow, on the other hand, knew that his tricks were trouble, and he paid a heavy price for cooking the companys books.

Whether Skilling ever believed his lies to be truth is unclearbut after Bethany McLeans article critiquing Enrons value hit the stands, he noted that the journalist called the company a black box, and then he said, Im sorry, its true; its just difficult for us to show people the specifics of...…who did blow the whistle on the Enron were too little and too late. The bandits who could get away did so; others were not so quick. But the fact is that at any stage of developments, leadership within or without Enron could have stepped up and called the company to accountbut it just never happened. It never happened from Lay to the Board to the banks to the audit firm of Arthur Andersen to the regulatory agencies: no one was quick to do anythingwhich should make one wonder how many other companies are out there just like Enron that have never been brought to account and that are still in operation today. At the end of the day, ethical leadership is about accountability, transparency, and taking action. Too many senior leaders did nothing and thus enabled the opaque system set up by Fastow and approved by Lay, Skilling, and the Board to operate under the radar.

Conclusion

Enrons leaders created a toxic environment of hubris and fraud that started, it may be said, with self-deception and a failure to be accountable. Lay and the Board entrusted the company to newcomers Skilling and Fastow and they bought into a phony vision that promised big profits. The leaders used deregulation to engage in tricksand yet no one from outside the company questioned them. Everyone turned a blind eye while the money was good. Some employees feared the worst. Otherslike the banks and accounting firmenjoyed the ride while they could. In the end, Enrons leaders failed because they themselves lacked the ethics needed to be…