INTRODUCTION

Leadership is a very important factor in today’s business world. Having a strong leader can help to motivate staff and lead to gains in this department such as lower labour turnover, absenteeism levels and it can also increase labour productivity which in turn can lead to a quicker turn around in producing goods or carrying out services. Consequently this can help to build a reputable brand image which in the long run will help a business become more successful due to it being seen as a better brand.

As shown by the recent loses announced by British Airways, the motivation for employees is very important. The loss of £401 million in 2009 shows that a strong leader is needed to motivate staff. Although one of the main reasons for this loss was the recession and ultimately the loss in business class passengers, which accounted for 50% of their revenue before the downturn, the demotivated staff couldn’t have helped because having staff like this led to many strikes and disputes, which created a bad image for the company and therefore made it even less likely for people to use BA to fly abroad. A solution to this would have been to have a stronger leader who could have coped with the sudden downturn and change in demand. With a strong leader confidence could have been kept within the company and therefore people would have kept working hard and ultimately they wouldn’t have suffered as much as they did. Due to the leadership issues at BA in the short-term they have suffered greatly from demotivated staff and therefore a loss in brand image, in the long-term this will lead to a slower restart of the business after the recession and in turn it will be very hard to return to their strong brand image due to people seeing the company being led poorly.

On the following pages, the author is intended to discuss on two of the persons in charge of Enron Corporation, Kenneth Lay and Jeffrey Skilling, who are accountable for the downfall of Enron Corporation. The importance of business leadership and leader qualities which should have to prevent the collapse of Enron will be another main topic on this paper.

COMPANY BACKGROUND

Enron Corporation was an American energy company based in Houston, Texas. It was formed in 1985 when Houston Natural Gas merged with Internorth. By early 2001, Enron had morphed into the 7th largest U.S. Company (Gordon, 2002), and the largest U.S. buyer/seller of natural gas and electricity. Enron employed around 21,000 people and was one of the world’s leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000. Once, Fortune named Enron “America’s Most Innovative Company” for 6 consecutive years. After several years of international and domestic expansion involving complicated deals and contracts, Enron was billions of dollars into debt. All of this debt was concealed from shareholders through partnerships with other companies, fraudulent accounting, and illegal loans.

In 1984, Kenneth Lay (1942 – 2006) became CEO of Houston Natural Gas, a big regional pipeline operator. He engineered its merger with Internorth, an Omaha pipeline company, and became CEO of the combined company, which changed its name to Enron. Ken Lay was indicted for his role in the company’s collapse, including 11 counts of securities fraud, wire fraud, and making false and misleading statements. On May 25, 2006, Lay was found guilty on all six counts of conspiracy and fraud. Sentencing was scheduled to take place on October 23, 2006. Ken Lay died of a heart attack in Colorado while vacationing on July 5, 2006.

In 1990, Jeffrey Skilling was hired by Kenneth Lay to work at Enron Corporation. He was named CEO of Enron, replacing Lay in 2001. Amidst the California energy crises, Skilling unexpectedly resigned and sold almost $60 million in Enron shares in August 2001. The company declared bankruptcy in December 2001. In 2006, Skilling was convicted of multiple federal felony charges, including insider trading, securities fraud, and making false statements to auditors. Jeffrey Skilling was fined $45 million and is currently serving a 24-year, 4-month prison sentence at the Federal Correctional Institution in Waseca, Minnesota. His case is currently under appeal.

LITERATURE REVIEW

A simple definition of leadership is that leadership is the art of motivating a group of people to act towards achieving a common goal. It is a process by which one person influences the thoughts, attitudes, and behaviors of others (D. Quinn Mills, 2005). Here the author would like to review literatures of major leadership theories and concepts particularly those that has a bearing on the discussion at hand. The literatures are presented as follows:-

Traits Theories

Stogdill (1974) identified few traits and skills as critical to leaders. McCall and Lombardo (1983) researched both success and failure identified four primary traits by which leaders could succeed or ‘derail’.

Behavioral Theories

Behavioural theories on the other hand were more focused on the study of how leaders behaved in organizational settings and went about dealing with people and the tasks. There were many proponents of behavioral theories. Findings of Ohio State University’s research found two major dimensions of leadership behavior which they termed as initiating structure and consideration (Robbins, 2001). Another research that was done by University of Michigan almost during the same period as Ohio State with similar research objectives also found two dimensions of leadership behavior which they termed as employee oriented and production oriented. The third theory is the Managerial Grid by Blake and Mouton which is a graphical representation of the dimensions of leadership behavior by drawing upon the dimensions of both the Michigan and Ohio studies which were termed as “concern for people” and “concern for production”. These two dimensions were integrated to reveal a nine – by – nine matrix comprising 81 different leadership style (Robbins, 2001). Finally the Scandinavian Studies, where researchers from Finland and Sweden began reviewing the data of Ohio state studies to find other dimensions, found that effective leaders exhibit “development – oriented“ behavior more so in a highly changing environment where leaders are required to pursue reforms and changes in the organization in line with changing requirements and support employees in the change initiative and constantly finds ways and means to develop the organization and its people (Robbins, 2001),

Contingency Theories

Fiedler’s Contingency Theory (Fred Fiedler) shows the relationship between the leader’s orientation/style and group performance under differing situational conditions. The theory is based on determining the orientation of the leader the elements of the situation, and the leader orientation that was found to be most effective as the situation changed from low to moderate to high control. The Hersey-Blanchard situational leadership model (Paul Hersey & Kenneth Blanchard) suggests that successful leaders do adjust their styles. The key issue in making these adjustments is follower maturity, as indicated by their readiness to perform in a given situation. Path-Goal Theory (Robert House) shows leader’s behavior is acceptable to subordinates insofar as they view it as a source of immediate or future satisfaction. Action Centered Leadership (John Adair), emphasizes on what a leader actually need to do. The effectiveness of the leader is dependent upon meeting three areas of need (Task Needs, Team Needs & Individual Needs) within the work group.

Transactional and Transformational Leadership

Transactional leadership represents those exchanges in which both the superior and the subordinate influence one another reciprocally so that each derives something of value (Yukl, 1981). Simply stated, transactional leaders give followers something they want in exchange for something the leaders want. Transactional leaders engage their followers in a relationship of mutual dependence in which the contributions of both sides are acknowledged and rewarded (Kellerrnan, 1984). Transformational leadership originates in the personal values and beliefs of leaders, not in an exchange of commodities between leaders and followers. Both Bass (1985) and Burns (1978) indicated that transformational leaders operate out of deeply held personal value systems that include such values as justice and integrity.

Business Ethics & Ethical Leadership

Ethical leaders embody the purpose, vision, and values of the organization and of the constituents, within an understanding of ethical ideals. They connect the goals of the organization with that of the internal employees and external stakeholders (R. Edward Freeman & Lisa Stewart). In some respects the term “ethical leaders” is redundant—we really are just developing leaders that are focused on delivering value to our customers every day. Leadership should of course be ethical as well (Steve Odland). ERC President Patricia J. Harned has observed: “Right now, we have an ethics bubble, but it’s unlikely to last unless we act to make it permanent. History tells us that when times are tough, ethics improve. When business thrives and regulatory oversight eases, ethics erode.” Ethics in business is gaining quite a bit of attention lately especially as many organizations are getting involved in messy business affairs, corporate scandals, and controversies which are somehow derived from unethical behaviours. The fact remains that these organizations have somehow thrived in their business pursuits at the expense of the public. Such behaviours are only attracting a lot more public and media attention which eventually attracts government attention – who is more likely to respond by way of increased legislations for the benefit of the society.

REVIEW OF THE LEADERSHIP BEHAVIORS

Chima (2005) describes organizational behavior as the result of the decisions of those who have obtained decision-making power, with the decisions reflecting the decision makers’ assessment of what is economically and politically beneficial for themselves and the company. Enron’s executives allowed themselves to be motivated much more by what would benefit them than what would truly benefit the company. The political model of organizational behavior describes this focus on self-interest (Chima, 2005). Money, greed, arrogance, and hubris led company executives to lose focus on working for the good of the company and to act unethically (Gini, 2004).

Kenneth Lay

Ken Lay has been vilified by federal prosecutors and the media as being the key executive in a massive fraud that destroyed jobs, savings, and shareholder wealth. But in reality, Ken Lay was convicted for not being proactive in preventing the fraud or knowing about what was going on inside Enron. He was convicted for ‘honest services fraud’ that did not involve bribes or kickbacks involving the exchange of money (O.C Ferrell & Linda Ferrell). The law is used for alleged transgressions such as making false statements or depriving another of the intangible right of honest service. There were certainly pockets of corruption within Enron, and ethical rule bending was a part of the midlevel management corporate culture. Even Sherron Watkins claims that Ken Lay was some distance from the fraud and was not in any way involved in creating it (Watkins, 2003). Ken Lay was convicted for allegedly not telling the truth about what was happening at Enron. Enron juror Wendy Vaughan said, “I felt it was their duty to know what was going on.” This same theme was echoed by Enron juror Douglas Baggett. “For a man that knew every aspect of that business and seemed to know every deal, why didn‘t he know what was going on?” he asked.

Ken Lay did a good job building the company, but not in managing legal and ethical risks and the company‘s downturn in performance (O.C Ferrell & Linda Ferrell). He was the brainchild of what would have become the world’s most popular power trading house. It was his vision, innovative thinking and undoubtedly intelligence that led Enron to greater heights. He did what every leader desirably should do in going beyond conventional boundaries and taking the off beaten road. But soon it will all turn awry, driven by corporate greed Enron landed into huge trouble.

He avoided finding misconduct and dealing with the individuals involved and continued to claim publicly that all was well with the company, even after he found out that Enron was in trouble. While Ken Lay said he did not know about any misconduct, internal reports told a different story. Internal whistleblower reports had increased 300% between when Lay was CEO and when Skilling took over (Brewer, Chandler, and Ferrell, 2006). This means that there had been a significant increase in reports of misconduct. If Lay had investigated the problems when he returned as CEO and told the employees and public the truth, Enron might have survived (O.C Ferrell & Linda Ferrell).

A particularly ironic example of misinformation, deception and double standards within Enron can be found in its heavily promoted code of ethics, known as ‘RICE’ – an acronym standing for Respect, Integrity, Communication and Excellence. A 64-page booklet was produced, explaining the code in depth. Kenneth Lay issued a memo on the code in July 2000, barely 18 months before Enron declared bankruptcy, in which he concluded that ‘We want to be proud of Enron and to know it enjoys a reputation for fairness and honesty and that it is respected . . . LET’S KEEP THAT REPUTATION HIGH’ (quoted in Cruver, 2003: 333 – emphasis in the original text). As is now known, Enron’s leaders disregarded the code in their daily practice – to such an extent that, to take but one of many examples, a 166-page report was published in 1999 entitled ‘The Enron Corporation: Corporate Complicity in Human Rights Violations’. It documented, amongst much else, how Enron executives paid local law enforcement officers to suppress legitimate and peaceful opposition to its power plant near Mumbai in India (Human Rights Watch, 2002). The code of ethics was thus a dramaturgical device, whose theatrical display cultivated the illusion of noble ideals and generated a convincing spectacle of ethical p