Henry Fayol and Taylor's approaches of internal control help describing how executives at Enron created an organizational bureaucratic culture that put the bottom line ahead of ethical behavior. (Prentice, pp 3-4) After a brief background on Enron and its rise and fall, like the analysis of the Salomon Brothers fall, the five most important mechanisms available to leaders to create and reinforce aspects are used to analyze systematically the bureaucratic culture and internal control system that led to the company's fall after shocking disclosures about the company's finances.
Firms differed not only in the general character of their control systems that changes as the length of the hierarchy, the labor breakdown, and the cost structure. The command hierarchy could be anything from two to twelve distinct levels of control system between the board and the operators. The varying lengths of the command hierarchy made it impossible to make direct comparisons between firms of the size of the span of control at the intermediate levels of management. No single misstep brought Enron to the brink. A series of missteps and just plain bureaucratic control system brought Enron's more nefarious dealings to light, precipitating its ultimate collapse. (Julian, pp 1-2)
The dirtiest of Enron's deals involved SPEs of its own construction that sported names straight from Star Wars such as Chewco. While Enron's traders may still have inhabited the fantasy worlds of their youth, their trades had a harsh reality to them that touched the heart and soul of American life. Who got electricity during California's energy crisis, which farms would have water to irrigate their crops, and other decisions that were critical to the smooth operation of the largest economy in the world were being made in Enron's trading rooms. Aided by their accountants at Arthur Andersen, some of whom then moved on to cushy jobs at Enron, the "Star Wars" SPEs were not the innocent financing vehicles used by Hollywood and the rest of the corporate world, but helped cook Enron's books and funnel vast sums of money to its key financial officers. Darth Vader would certainly have been proud of Enron. Enron's bankruptcy was devastating to those who worked there. Due to bureaucratic internal control system, those at the top of the company were responsible for its collapse; they had sold enough of their stocks to bank away tens and in some cases hundreds of millions of dollars. The boundaries of Enron's bureaucratic internal control system spread well through the company itself. The salaries of Enron's workers had helped make the city of Houston prosperous and vibrant-restaurants, stores, and other merchants would suffer from the loss of their business.
Henry Fayol's description of bureaucratic control system is related to the tremendous power of relationships in the bureaucratic control system of Enron. Taylor long ago documented the existence of the "informal organizational control" of relationships that arises as a natural phenomenon in all organizational settings. The formalization of such a structure at Enron is another nod to the same