Enron’s Organizational Collapse
In the collapse of one of the world’s largest energy companies, Enron filed for Chapter 11 bankruptcy on December 2, 2001 (Sridharan & Dickes & Caines, 2002). It marked the end of a rise to the top of the American economy for a small natural gas company from Texas, who, due to poor decisions by upper-level management, failed financially. There are a variety of reasons why experts feel Enron failed. Inaccurate financial reporting, illegal consolidation of entities, greedy management, but this all translates to poor organizational behavior. Enron was a corporation organized from the management level down to fail.
To understand why Enron failed because of poor organizational behavior, it is important to understand how a corporation is supposed to be organized under the United States’ securities laws and corporate governance system. Corporations are not run by a single leaders but by a group of leaders known as the Board of Directors who supervise the management of the entire corporation. The thought process being that a corporation can be so large and cumbersome that a group of individuals from different departments and backgrounds can make more educated decisions than a single individual. To further diversify the scope of the corporation, an Audit Committee is created to handle further responsibilities such as “recommending the selection of the company’s external auditors… recommending the fees payable to external auditors…reviewing the firm’s annual financial statements, including whether the firm’s accounting and management systems and reports comply with GAAP” (Sridharan & Dickes & Caines, 2002). The importance of the Audit Committee extends even further as it is the primary contact with the SEC and is the entity in charge of keeping the corporations books legal. When poor management is placed in the Board of Directors, there is a very likely chance that a corporation will fail because of poor decision making. On the...