Ken Lay’s Authority

While reading Smartest Guys in the Room, I find myself completely enthralled with how the CEO and creator of Enron, Ken Lay, used his authority, and how his influence shaped how Enron was managed. Authority allocation and style within a organization is fundamental to the success and efficiency of the organization. In order to fully comprehend the managerial styles and theory, I went back to our Organization and Organizing text to find answers.

In an attempt to break down Ken Lay’s authoritative style, I will compare his management practices with Weber’s Theory of Bureaucracy. For those of you who forget, Max Weber was an influential German sociologist/political economist whom drafted his Theory of Bureaucracy based on works by Taylor and Fayol. In his work, Webere distinguishes three types of authority:

Traditional authority: “Established belief in the sanctity of immemorial traditions and the legitimacy of those exercising authority under them” (pg 47. O&O)

Rational-legal authority: ” Belief in the “legality” of patterns of normative rules and the right of those elevated to authority under such rules to issues commands.” (pg. 47 O&O)

Charismatic authority: “Resting on devotion to the specific and exceptional sanctity, heroism or exemplary character of an individual person, and of the normative patterns or order revealed or ordained by him or her” (pg. 47 O&O)

From the get-go, I threw out Rational-legal authority as an option to describe Lay. In the mid to late 90’s, Lay did little to control or stop his top executives from running Enron into the ground. Power struggles between fierce rivals like executives Mark and Skillings were not unnoticed by Lay, but he just failed to act upon fixing the problem. There were no “normative patterns” within how Enron was managed, but instead, Lay allowed Skilling to invest in riskier and more dangerous endeavors, eventually leading to the downfall of the entire company. Although Lay does not fit within the Rational-legal Authority paradigm, he doesn’t exactly fit in either Charismatic or Traditional authority categories.

Under Weber’s Theory of Bureaucracy, Ken Lay originally fell somewhere in between a Charismatic and Traditional Leader. When Law started Enron, he was a fully functional charismatic leader. People looked up to him for guidances, and Enron was making tons of money during the early 90’s. Lay also fit under the traditional authority position because people under him respected the legitimacy of his authority. But as Lay made more and more cash, his attention and devotion to Enron started to wain. After Lay appointed Skilling to Kinder’s old position, I believe he started to move away from the charismatic leader position that helped make the company so successful. Top executives within the company liked Lay as a person, but as a leader, he was a pushover. When Lay gave his executives a inch, they took a mile. Without the charismatic leader position within the company, Enron lost its course and plunged into the quicksand of risky business practices. Without the support of his executives, Lay fell from the rank of traditional/charismatic leader.

Many still believe Ken Lay was a exceptional visionary. His arguments for deregulation of the economy still resonate today. The question I present to the reader is although Lay was a exceptional business man, was he a good leader?

5 Responses

  1. Lay lost sight of the goal of the Enron. After a while the goal was not to make real profits but to make investors believe in real profits. Enron created many highly complex techniques that essentially let them pull profits out mid air. Lay led people well in accomplishing this vision of deceitfulness. My point: Lay could lead people to any vision he wanted to lead them to– I just think in this case he accepted his subordinates choice to go in a crinimal direction. If he’d chosen a more ethical vision we could have seen a better leader.Therefore, maybe Lay was a bad business man.

  2. A good leader would be one who thinks of those who he leads, not about himself. While Lay ‘cared’ about a subset of those that he led (the executives), he did so out of necessity and not because he was trying to help everyone else, he was trying to avoid hurting his own money-making prospects and his controlling ability.

    We can all agree that Ken Lay was a visionary and a smart man, but a good leader? I wouldn’t say so.

  3. Very insightful analysis.

  4. In my opinion, one of the most important roles that a leader has is to accept the responsibility of representing more than just yourself. You no longer have the luxury of being the only one who is affected by your own actions. Some people may choose to avoid a leadership role for this exact reason. No one is perfect, and I can understand how daunting it must seem to know that as a leader, you are expected to set an example that you yourself have to follow. However, if you actively choose to take on this responsibility, you better be willing to live up to it. Ken Lay clearly did not. Bad leader.

  5. great domain name for blog like this)))

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