A Communication Perspective on the Enron Scandal

A Communication Perspective on the Enron Scandal

Enron was an American energy, commodities, and services trader located in Houston, Texas (Citation). Before its downfall Enron employed about 22,000 workers and was considered one of the world’s leading companies. Furthermore, it was named “America’s Most Innovative Company” for six consecutive years by Fortune magazine (Citation). In 2001, it was found that Enron had practiced accounting fraud of extreme measure (Citation). The fraud at Enron lead to one of the largest corporate scandals in history. I believe that by examining this case from a communication perspective one will see that groupthink occurred among top officials.
Background on Enron

Enron was founded in 1985 (http://www.cbc.ca/news/background/enron/). It began as an interstate pipeline company which was the merger of Houston Natural Gas and InterNorth. As time progressed Kenneth Lay became CEO. In 1999, the company began using their website for trading commodities. Approximately 90% of Enron’s revenue came from trades through their website. In 2000, Enron had an annual revenue of $100 billion. Enron’s stock peaked at $90 as an all-time high for the company. Unfortunately in 2001, problems began to arise. Jeffrey Skilling, who had replaced Lay as CEO for six months announced his departure. Lay resumed position as CEO. In October 2001, the company reported its first quarterly loss in four years. The loss was a substantial $618 million.

The U.S. Securities and Exchange Commission launched an investigation of Enron. Their findings uncovered a web of deceitful partnerships that hid Enron’s luminous debt. In November of 2001, Enron’s stock plummeted to less than one dollar which caused investors to lose billions. In December of 2001, Enron filed for bankruptcy. Enron’s bankruptcy has been one of the largest in the history of the United States. Approximately 5,600 employees lost their jobs. After an investigation lead by the United States Justice Department hundreds of charges were made and 19 former executives were convicted for fraud.

Groupthink

Groupthink was created by Irving Janis in 1972 in order to explain why highly cohesive groups often make fault decisions under pressure (citation). Groups that are influenced by groupthink often ignore alternatives and tend to make irrational choices. Groups are more prone to groupthink when its members are similar in background, when the group is not able to get feedback or opinions from outside of the group, and when there a vague rules set for decision making. Janis lists eight symptoms of groupthink: illusion of invulnerability, collective rationalization, brief in inherent morality, stereotyped views of out-groups, direct pressure on dissenters, self-censorship, illusion of unanimity, and self-appointed ‘mindguards.’

Groupthink has been used to examine many other disasters such as the Bay of Pigs incident, the Watergate scandal, and the Challenger space shuttle explosion (find citation). Groupthink may be useful in examining the case of Enron Although Kenneth Lay, was a major conspirator in the Enron scandal he did not act alone. He had much support from attorneys, accountants, investment bankers, consultants, and employees (http://www.hayesbrunswick.com/articles.html). According to Brunswick and Hayes (2002) Enron was an ideal space for groupthink to occur,

The company's macho ethos was to feed Wall Street's insatiable appetite for spectacular earnings at all costs. This led to the creation of "killer apps," "new paradigms" and a plethora of esoteric financial instruments that few people even understood. But given Wall Street's unmitigated support for (and vested interest in) the arcane products, it hardly mattered. The regulators nodded. Investors cheered. And the media trumpeted the innovations (Brunswick and Hayes, 2002).

Furthermore, Cohan (2002) believes that it became increasingly difficult for employees to express their dissatisfaction or concerns. An Enron executive, Sherron Watkins, told the House Energy and Commerce Committee she submitted an anonymous memorandum to Lay and upon a later date discussed it with him (Cohan, 2002). She said after much discussion with Lay she was unable to change his point of view or convince him the practices were awry. Watkins described an office culture of intimidation and unease. On November 8, 2001, the same day Enron acknowledged it had overestimated its profits by almost $600 million Wall Street analysts were still rating Enron as a buy or a strong buy.

Board members (look up smartest guys in the room)

Illusion of Invulnerability

Collective Rationalization

Brief in Inherent Morality

Stereotyped Views of Out-Groups

Direct Pressure on Dissenters

Self-Censorship

Illusion of Invulnerability

Illusion of Unanimity

Self-Appointed Mind Guards