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The failure of Enron: Leadership Cult and Charisma

I need help in descibing how specific organizational behavior theories could have predicted or can explain the failure Enron or Worldcom. I also need help with compare and contrast the contributions of leadership, management, and organizational structures to the organizational failure.

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Organizational behavior theories could have predicted or can explain the failure Enron or Worldcom.

The value of behavioral decision theory in the Enron Scandal showed contrast. A foundational principle of law and economics analysis is that people behave rationally. This assumption leads law and economics scholars, including some who currently sit on the federal bench, to various policy conclusions. For example, it leads them to conclude that companies will fully and honestly disclose all relevant financial information because companies that do so can raise capital more cheaply. It leads them to conclude that we should assume that auditors always act honestly because (they make the further assumption) the only rational way for auditors to act is honestly for the reason that their reputation for honesty is their most valuable asset. In its unvarnished form, this rationality assumption leads to the conclusion that the Enron scandal could not have happened, because it was completely irrational for the companies' officers to mislead, commit fraud, help their employer commit corporate suicide, and court lengthy prison sentences. Had they thought rationally about where their actions would ...

Solution Summary

This solution dissects the behavioral theories, leadership, management, and organizational regimes that contributed to the failure of Enron.

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