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David Swan BUS 3211 Reflection Questions Dr. Canary

Enron: The Smartest Guys in the Room

1. Which source(s) of power did upper management (top executives) of Enron use to get their employees/followers to do what they wanted? Use specific examples of how they used each source of power you mention.

As the CEO of Enron, Kenneth Lay was masterful at using Expert Power. He used the

knowledge that he gained from past experience to create Enron and surrounded himself with

people using Intrinsic Motivation. Jeffery Skilling and Andy Fastow were obviously not the

obedient type of people; that was displayed in their actions, but Lay developed a high task

structure that Skilling was hard wired to fit right into, that coupled with the Intrinsic Motivation,

Lay had then established his two key people that shared the same vision and held the same

values. This dynamic set up the mastering of the corruption at Enron. Skilling took on Fastow in

his youth, Fastow idealized Skilling and Skilling used a more Coercive Power type over Fastow

to gain a more effective obedience. Intrinsic Motivation then came from Fastow, when he

wanted the investor of Merrill Lynch replaced because he was skeptical of Enron’s projections.

2. What were examples in the movie of how power-as-domination was constructed, maintained, and/or

resisted within the Enron organization and the energy industry at large? As we learned from the TWA –vs- Ozark Airline case. Power-as-Domination is mis-

construed as Power-IS-Domination. Similarities are evident in the Enron situation. When Enron

diversified and purchased Pacific Coast Electrical they not only had a strangle hold on PCE but

then became the gorilla of energy “the only game in town,” when power was cheap to purchase

Enron would cause outages by shutting down power stations to cause a shortage in supply, thus

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raising the demand along with the price. The Power-as-Dominance came into play when you

heard the traders talking and laughing about the millions of dollars they earned from their

actions. Surprisingly Power-as-Dominance had a reverse effect when it came back to bite Stilling

in the butt, his own Enron traders started to realize the power that they had and began to make

their own demands. It was a classic example of the “tail wagging the dog.”

3. What were compliance gaining strategies evident in the Enron story, as told in the movie?

To be an up and coming employee let alone keep your job. Skilling designed “Rank and

Yank” where employees where ranked by superiors if they where at he bottom 10% they where

Yanked or let go. A simple interview could mean unemployment or riches. Pressure to succeed

would also come at the end of quarterly profit earnings, a term “Pump and Dump” was used to

drive projections up with the Mark to Market strategy (projecting future price) and when the

asset went up they would dump (sell) it on the market.

Compliance came from the pressure that Enron traders felt in reaching their margins. One

employee said it best “if I’m going into report earnings and I have to step on a co-workers neck

to make it, I’m going to stomp on him to make it.” Compliance also was evident with a number

of big banks and with Arthur Anderson the outside accounting firm, it was the strategy of money

and the threat of losses that caused them to compromise and comply.

4. What were some “mental shortcuts” evident in the Enron story? That is, what are some examples of

people being unduly influenced because they fell into the trap of being vulnerable to mental shortcut tactics?

The BIG tactic used by Enron was without a doubt, the Mark to Market accounting. How

in the world this concept was ever accepted by Arthur Anderson the world will never know,

because the answers were shredded with the Enron accounting papers.

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In regard to being vulnerable to mental shortcuts; I believe the 1961 Stanley Milgram

experiment, which has always intrigued me, addresses that issue. Based on the conflict between

obedience to authority and personal conscience. It was conducted by Yale University under the

direction of Stanley Milgram examining the justification for acts of genocide in the Nuremberg

trial. Vintage clips were shown of the 1961 experiment in the Enron movie. The vulnerability of

Enron employees and leadership is in direct correlation with the test participants applying shock

punishment. The question Milgram posed was how far would participants go in shocking another

person. In comparison to how far would an Enron employee go in;

* hiding the truth.

* fudging the books.

* creating false situations to raise the values.

* fraudulent acts.

* lying.

* cheating.

* stealing.

The list goes on, and each individual in one way or another falls victim to the Stanley Milgram

question; Where do people draw the line between: conflict –vs- obedience to authority and

personal conscience. Whether they are the giver of the electrical shock or the receiver. Hundreds

of employees at Enron were participants in an elaborate financial shock treatment delivered to

thousands of unsuspecting receivers. It’s best summed up as the narrator in the movie said “this

is not a movie about the fall of a large corporation, or the fall of this country’s oldest accounting

firm, this is a story about human behavior.”