Power and Politics in Organisation - Essay Example

POWER AND POLITICS IN ORGANISATION The post war era has seen a rapid expansion in trade and accordingly the economic and political structure hasexperienced steady and substantial growth. Gaining profits from trade depends on individual economic behaviour. Instead of building own automobiles, manufacturing own goods, producing own food, it is better to manufacture goods in which they have specialisation and trade them for other goods that are required. This thought made the UK a leading exporting country in international trade. The most surprising thing is that the total UK imports amount to only about 12 percent of the country's GDP. Power and politics were always a part and parcel of every organisation. People who are holding high positions in organisations always tried to induce power play in company decisions. If they fail to utilise their positional power they try to amend things with industrial politics. Power play and politics in industrial organisations has resulted in gaining profits and in some cases losses. WorldCom and Enron are the cases where power and politics were misused and both companies had to face the consequences. When Enron, which was one of the top Fortune 500 companies, filed for bankruptcy in December 2nd 2001, the news came as a jolt to many of the investors. When the dubious account activities and scandal in Enron were revealed it came as a shock to the investors. US president George W. Bush had assured them by terming Enron's case as a rotten apple in the healthy corporate system. Despite of president's assurances many high profiled companies collapsed. Enron Corp. was the result of merger between Houston Natural Gas and Internorth. There was a shift to unregulated energy trading markets from regulated transportation of natural gas. Enron was a Fortune 500 company and was in #7 in 2001 was deleted from New York Stock Exchange. According to the mangers of Enron who reviewed the accounts of the company, during California energy crisis Enron has kept undisclosed reserves of up to $1.5 billion in trading profits. Enron came under fire from politicians of price gouging. The hidden reserves would have doubled the Enron's reported profits. It is also reported that Enron manipulated reports on reserves to have steady profit growth to Wall Street and credit rating agencies. The executives also claimed that the reserves were held back and used to fulfil the political and financial ends. In 1990 Enron reported its total revenue as $10 billion and in the next subsequent ten years it grew by $101 billion. It emerged as one of the fast growing companies in the United States. The main reasons for its collapse is not due to the core energy operations but the company's new ventures in dot com sector and investments Internet and communication business. According to investigators of the security of exchange commission gone into investigate the case, have interviewed witnesses to come to a conclusion that the methods or practices violated the laws for doctoring quarterly earning refers to start cookie jar reserves. The existence of Enron reserves puts strange twist to it. The executives of Enron inflated profits and concealed losses with official balance sheet. Partnership in this scenario of reports that Enron has shown wrong accounts in December 2000, the company filed for bankruptcy protection but interviews with more than a dozen ex-Managers and Executives revealed that the Enron many a time paid the profits on trading to meet the needs of politicians and financiers. The major portion of the gains were Shown on paper only on long term contracts only had it been the cash that could have put off liquidity crisis that led to its collapse. As per one of the former Executives, before a few months of Enron bankruptcy, the reserves were depleted. It is common to use reserves to manage profits through it is unlawful. The former long time chairman and company's president chief executive were aware of the reserves and felt them proper. Judy Leon, Skilling's spokes woman said that Skilling did have any knowledge of unlawful and illegally activity with the reserve account. Further she said that many kept in credit reserves to save the Enron form the risk as California facilities could be bankrupted by the crisis, which may lead to situations where they cannot pay their debts. Slowly the Enron's activities came into light when the then CEO Jeffrey Skilling resigned in August 2001 from his position without giving any proper reason. This was the starting phase of its collapse. In October Enron incurred first quarterly in four years that was up to $1 billion because of poor business performance. In November 28 2001 Enron's debt was downgraded to below investment grade by the bond rating agencies. The Justice Department was handed over the Enron's case and it conducted a criminal investigation and the case was brought to the Senate and the House, which held hearings that were concerned with Enron's fall. The banking companies that were involved in investment banking and commercial banking with Enron suffered heavy losses due to Enron's collapse. It was a major blow to the banking sector. Due to Enron's involvement in unregulated markets there was a little knowledge on Enron's profits on derivative activities. The company's financial statements were also not known. Due to above mentioned reasons Enron filed for Chapter 11 bankruptcy on December 2nd, 2001. WorldCom's main business was electronic commerce and Internet and it was ranked as the second largest telecom company in the whole US. During its 15 years of existence WorldCom acquired many companies and reached to a commanding position where only a few companies had reached can stand up to the situation. The fast growth in WorldCom was due to the efforts of former WorldCom chief executive officer (CEO) Mr. Bernard Ebbers. Because of his innovative ideas and contributions WorldCom reached to a commanding position. The companies it acquired were UUNET, MCI and CompuServe. WorldCom expanded its business to more than 65 countries very rapidly; due to boom in Internet in 1990's little thought was given to the fundamentals of the company. When Securities and Exchange Commission (SEC) sought an explanation from WorldCom in March 2002, slowly the scandal came to light. When credit rating agencies like Standard & Poor's, Moody's and Fitch downgrade WorldCom rating to a new low the company announced immediate job cuttings around the world. The CEO of the company Ebbers resigned after when SEC revealed that WorldCom had lent about $340 million to him as loans that he used to buy his own shares. The credit rating agency Standard & Poor's downgraded WorldCom credit rating to below investment grade that brought down company's status to a junk status. The result was its removal from S&P index and Nasdaq halted the company's trading of stocks of WorldCom Group and MCI Group. SEC filed a suit against WorldCom on charges of securities fraud in the district court of New York. It also charged that the company's profits were used for personal use by the high ranked officers and the company misled the agencies regarding its reported earnings. Further investigation revealed that the reported earning and financial statements of the company had deviated from actual earnings. It was major blow to the investors as the share prices of the company fell. Most of the investing banking companies had to suffer due to the WorldCom's collapse. In July WorldCom filed for Chapter 11 bankruptcy. One of the important decisions taken by the industrial honchos is a merger. These decisions were made at the highest level and involve all the nitty-gritty's of power and politics. Mergers generally take place to improve profits, expand customer base or to sell off the company in order not to incur future loss. Most of the mergers or acquisitions happen to expand the company and to cross the geographical boundaries. A company interested to acquire another company has to look into every aspect of the functioning of the company. A company will have many departments and audit should be done on every departments accounts and then valuate the viability of merger of acquisition. After audit if it is found that functioning of all the departments are healthy and profitable then a memorandum is made between the companies. Mergers can take place only when there are healthy relations between both the companies. Mergers also depend on the percentage of shares acquired of the firm. If the company to be acquired has good standing in the market, high share value and high points in the share market then we can say that a company is worth to be acquired or suitable for acquisition. Merger or acquisition sure has its impact on the employees and shareholders who are the unforeseen assets of the company. It is well known that any merger will have its pro's and con's. Some mergers happen for profit and some not to incur losses. Employees may or may not be benefited by the merger. The new mangemen6t may not provide all the facilities unlike the earlier owner. The new company will definitely try to curb miscellaneous expenses and cut management costs. In order to cut costs they may reduce number of employees working per department. After merger employees may be asked to change their shift timings, move from one department to another etc. employees need to co-operate with the new management. Ford Motor company one of the oldest car manufacturing companies, if intending to acquire an ancillary unit or a vendor's factory, any company will be more than glad because of the whooping amounts on the deal. Ford has the best facilities to offer to its employees. Its infrastructure, its faculties, quality of management, vendor's relations financial and cordial relations will be at par compared to other companies. Employee's satisfaction is the primary aspect of the management. For example, if Ford has acquired a company and is not providing proper facilities to the employees ands is keen on attrition then the employees must form an association and should fight for the rightful emoluments from the company. Mergers may also have its negative effects on the employees and marketing strategies then the relation between the management should be positive enough so that there is no misunderstanding between the employer and the employee. After acquisition the new company will have their own planning strategies that might be entirely different and the employees need to co-operate and understand with new working policies and targets of the new company. Reference 1.Drummond, Helga. (2000) Introduction to Organizational Behavior. New York: Oxford University Press. 2.Buchanan, David and Huczynski, Andrezej (2001): Organizational Behavior: an introductory. Boston: Pearson Higher Education.. 3. Morgan, Gareth. (1997) Images of Organisation. New York: Sage Publications. 4. Sheppard, Deborah L. (1989) Organizations, power and sexuality, The image and self image of womaen Managers. New York: Sage Publications. 5.Francesco, Anne Marie and Gold, Barry Allen. (2005) International Organizational Behavior. New Jersey: Prentice Hall. 6. Wikipedia. (2007) Economics. [online]. Available from:: http://en.wikipedia.org/wiki/Economics. [Accessed 8 March 2007]. 7. David Barboza. (2002) THE ENRON COLLAPSE. [online]. New York Times. 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