August 31, 2010
The failure of Enron was predictable in light of its organizational structure and management styles. Poor management selection, disregarding prior illegal acts, and ignoring numerous warning signs all contributed to the failure of Enron. By recruiting honest employees and establishing strong leaders, companies can develop a strong organizational structure.
What Happened at Enron
The failure at Enron began when investors, bankers, and credit rating agencies lost confidence in the company and plunged it into a liquidity crisis. According to reports, the crisis might have been averted if top-level management had better handled the situation. Enron CEO, Kenneth Lay, ignored numerous warnings involving high risk over the years allowing the situation to grow in intensity. By the time he realized there was a problem, he was unable to quickly resolve this issue and save the company (Peterson, 2003).
Poor management oversight was another contributing factor to the fall of Enron. Andrew Fastow, Enron’s former Chief Financial Officer, admitted openly to employees that he used insider information to profit at a previous stock trading company. Fastow was reprimanded for discussing this with co-workers but no further punishment was enforced (Peterson, 2003). This is a clear example of how management’s negligence at correcting the issue influenced the decision-making abilities of the company.
A last contributing factor leading to the failure of Enron was the poor selection of top-level managers. There were significant signs in the early stages that neither Jeffery Skilling, Enron executive, nor Fastow had the resources needed to run a major corporation (Peterson, 2003). By selecting officers who were not experienced or educated in running a corporation, Enron was doomed from the beginning.
Organizational structure varies from one organization to the next. The most efficient...