Danyal Ahmed Leadership 4370.001Dr. LeeFebruary 12, 2012

Movie Critique: Enron: The Smartest Guys in the RoomIn his yearly emails to his CEOs the world renowned top investor, Warren Buffett, says he has two rules, ru1e# 1: make sure you dont lose our shareholders money, rule #2: dont ever forget rule #1. The main objective of a business is to make a profit and plug that profit back into the business until the business is the most successful in the world. However, what happens when the 7th largest company in the world finds a way to keep the perception that it is increasing its profits year after year through fraud and deceptive practices, thorough which they become known as the smartest guys in the world. Inspired by the brilliant book, The Smartest Guys in the Room, written by fortune reporter Bethany McLean, the director Alex Gibney in his documentary Enron: The Smartest Guys in the Room, explores one of the most deceptive companies which went from being the largest power supply company in the world, to being regarded as the company which led the biggest financial scam ever committed. In the film, Enron: The Smartest Guys in the Room (2005), director Alex Gibney takes a pragmatic and objective view on the collapse of the globally recognized corporation Enron. The documentary through interviews with journalists, financial analysts, and Enron insiders unravels the story of Enron. Director, Alex Gibney, does a great job of not having a bias towards the company, or the employees who lost their jobs. There are many documentaries which are biased towards the point of the director, however, Enron : The Smartest Guys in the Room, through verified documents, media reports, and insider interviews presents an unfiltered view of the Enron corporation. The documentary starts with the vivid explanation of the background of CEO Kenneth Lay and his attitude of disregarding ethics and doing whatever it takes to keep making us millions. In the midst of this environment Kenneth Lay hires a new CEO who becomes the center piece in the future success and demise of the company, CEO Jeffrey Skilling, a Harvard graduate with a knack to make money and manipulate systems. By utilizing a mark-to-model accounting system, also known as the mark-to-myth accounting system, and his Darwinian view of the workplace by firing the bottom fifteen percent of his work force each year he takes Enron to a peak it would have never reached otherwise. With the help of accounting firm Arthur Anderson, Enron executives, were able to show that there was profits year after year although they were failing in various projects. Two years after Jeff Skilling cashed his Enron stocks at an estimated $1 billion, the Enron Company filed bankruptcy leaving hundreds of thousands of employees without their retirement funds and jobless. After the collapse of the Enron business many business management companies have studied the steps that led to the eventual bankruptcy. What hasnt been researched as much ,is the leadership personality of both the business as a whole, and individual executives like Jeff Skilling, Kenneth Lay, and Lou Pie. Thorough investigating Path-Goal Theory, Style Theory, and an examination of the Situational approach for the corporation as a whole one can understand the culture that led to the peak and fall of Enron. The Path-Goal Theory emphasizes the relationship between the leaders style and the characteristics of the subordinates in the work setting. As mentioned previously the CEO who had the largest impact on the companys successful reign as the largest energy company was Jeff Skilling. The most interesting facet about the documentary was the in-depth character analysis of the executives in Enron. Jeff Skilling was a top graduate from Harvard University, in his infamous interview with Harvard representatives, Jeff skilling was asked, Are you smart?, to which he responded Im f**ing smart. After an interview with Kenneth Lay, founder of Enron, he was appointed CEO of an upcoming small energy corporation. Jeff Skilling believed that the only purpose for a business is to make profits. He believed that for the company to make any money its employees sole responsibility was to make money for the corporation. So after a further analysis of his leader behavior it is easy to see that his leadership was extremely directive, and specifically Achievement-oriented in methodology. Jeff Skillings directive and achievement-oriented leadership styles manifested itself in the corporations culture. One of the systems that was quickly implemented in the corporation was the 15% rule. This rule basically was that Jeff Skilling required employees to evaluate one another and the bottom 15% rated employees would be automatically terminated. Through this system Jeff Skilling was able to successfully integrate motivation within the employees. This decision had both positive and negative consequences. The positive consequences of an achievement oriented employee base were high numbers and a guaranteed return on shareholder investment. The negative consequences were that there was absolutely no ethical guideline within the corporation, and no comradery. In the documentary, there is a point where Jeff Skilling comes to the realization that his employees, also known as traders, would stomp over him if it came to making more money. This sheds light on the subordinates characteristics which came about as a result of Jeff Skilling system. Also, in path-goal theory the situation isnt perceived as the resultant of the effect. As an example, although the stock market was steadily declining during the early 2000s, Enron expected numbers to increase even if that meant changing the numbers. The executives of the corporation really set a precedent which would be followed by the traders. The best way to analyze their approach is to individually dissect the executives leadership style approach and how they impacted the organizations behavior. The Style approach focuses on how leaders directly affect the organizations their subordinates leadership style. Up until this point the focus has primarily been on Jack Skilling, however, executives like Kenneth Lay, also had impacts on the corporate customs. Kenneth Lay, founder of Enron and former CEO, was focused specifically on making money. Kenneth Lays, achievement oriented behavior, led to him being involved directly with politicians. Kenneth Lays direct connection with the Bush administration led to him gaining an unfair advantage over public policy. Basically after he stepped down as CEO, he hired a CEO who had the same leadership style and was more educated. Under leadership style the McGregor theories focused on two separate theories. One theory under McGregor theory is Theory X. Under Theory X, the main motivator for people is extrinsic such as money, in complete contrast Theory Y focused that the motivator of people is intrinsic such as self-fulfillment. In Enron, the corporate atmosphere completely supported Theory X; this led to employees taking complete control of the corporation and not asking for any ethical guidelines to follow. One example of an extrinsically motivated employee was Lou Pi. Lou Pi, the CEO for Energy Services within the corporations, was most extrinsically motivated executive within the corporation. In the early 2000s Lou Pi made the corporation 500 million dollars. However, according to Forbes reporter, he was never in his office. After Lou Pi received his money he took his 250 million dollar stock payout and moved to Colorado. Many people in the corporation felt that it was a short term career in which they would work countless hours and cash out by retiring at the age of 30. The last approach that the executives were able to use successfully was the situational approach. One thing which is admirable about the executives is their ability to change so rapidly to situations. For example, as stock prices for every corporation started to decrease in the early 2000s the corporate leaders were able to still meet and even surpass the quota which was set. In the documentary the corporation was able to adapt by taking advantage of the deregulated electrical market present in California. The traders traded electricity as if it was a commodity, therefore, they would cause blackouts in California thus causing a higher demand for electricity, after this they would sell this same electricity for 2-10 times the price. Also, as the bush administration changed the Enron executives were able to have a considerable influence on the reinforcement of an free market for natural gas and electricity. Although, the manner in which the corporation responded to certain situations were undoubtedly unethical, their ability to understand and adapt to the situation allowed them to be successful for over a decade. The corporations approach to training traders was also a point of interest. For example, many corporations will take well qualified employees and train them to reach the quota. However, in the case of Enron, the director indicated that most employees would be left to figure it out themselves. Although, the corporation was fully invested in the ideal the people are extrinsically motivated, the company didnt provide a structured means by which they could achieve successful benchmarks. By instituting Jack Skillings Darwinian method in creating a corporate culture the corporation rewarded employees based solely on performance and employee ranking. Therefore, it is safe to come to the realization that there is great creativity in the workplace, however, that creativity must lead to increased performance in both areas of group satisfaction and profit maximization. Through the dissection of the corporations leadership style ,and individual executive leadership approaches it is understandable why the corporation went into bankruptcy. This movie should be recommended to anybody interested in accounting, or working for any corporation. Bethany McLean put it best when commenting on the corporation, Looking at Enron is looking at the flipside of so much possibility, because like with most things that end terribly it didnt start out that way, it started with a lot of people who thought they were changing the world, and over time they become victims of their own greed.

BibliographyEnron. Dir. Alex Gibney. Perf. Enron Executives. Magnolia Home Entertainment, 2006. Film.Northouse, Peter Guy. Leadership: Theory and Practice. Thousand Oaks: SAGE, 2013.