Background Information



  • founded 1930 as Northern Natural Gas Company in Omaha
  • known as New York Stock Exchange
  • Public Company

  • Employees: 21,000
  • Sales: $101 billion (2000)
  • NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 22121 Natural Gas Distibution; 48621 Pipeline Transportation of Natural Gas; 221122 Electric Power Distribution; 221119 Other Electric Power Generation
  • Kenneth Lay, Richard Kinder, Jeffrey King- Ceo and Chairman of Enron




Enron Company

  • Employed approximately 20,000 staff


  • Was one of world's major electricity, natural gas, communications and pulp and paper companies


  • claimed revenue of nearly $111 billion during 2000


  • Fortune named Enron "America's Most innovative Company"

    (6 Years in a row- 1996-2001)

Brief time line of Enron scandal

  • October 2001 first major public sign of trouble


  • Enron announces huge quarter loss of $618 Mill.


  • SEC begins inquiry into Enrons accounting practices


  • December 2001, Enron files bankruptcy

Investigative findings 1993-2001

Enron used complex & dubious accounting schemes
  • to reduce Enron’s tax payments;
  • to inflate Enron’s income and profits;
  • to inflate Enron’s stock price and credit rating;
  • to hide losses in off-balance-sheet subsidiaries;
  • to engineer off-balance-sheet schemes to funnel money to themselves, friends, and family;
  • to fraudulently misrepresent Enron’s financial condition in public reports

Who is to blame for Enron






  • Lax accounting by Arthur Anderson (AA) Co


  • “Rogue” AA auditor David Duncan (fired 1/15/02)


  • Enron’s senior management for hiding losses indubious off-balance-sheet partnerships


  • CFO Andrew Fastow for setting up these partnerships(6 year prison sentence 9/26/2004)







Who is to blame for Enron


  • CEO Jeff Skilling (24 year prison sentence 10/23/06)


  • Timothy Belden (trading schemes, 2yrs probation 2007)


  • CEO Kenneth Lay (died 7/23/06 with charges pending)


  • J. Clifford Baxter Corperation Executive (Suicide)


  • Media exaggeration and frenzy



The organizational Fraud Triangle

  • reasons: personal financial problem or unrealistic performance goals


  • Weakness in internal controls


  • attitude that enables individual to rationalize 




Management control

  • management control has been labled as informal
  • features all of trapping of propper managment control including 
  • formal code of ethics
  • elaborate performance review 
  • bonus regime
  • risk assesment control group
  • big 5 auditor
  • conventional power of boards and related comitees

 Jeff Skilling

  • Codes got ignored


  • reputation that he was involved in dangerous activities


  • after replacement, different management control style ensued


  • elements of enrons culture underwent radical transformation


  • morphed into full scale wallstreet trading coorperation

Tools to consult the company

  • Likert Management System


  • McKinsey 7s Model


  • McKinseys Growth Model

Likert Management System Analysis

System 1 - Exploitative Authoritative


System 2-Benevolent Authoritative


System 3 - Consultative

System 4 - Participative

McKinsey 7s Model 

McKenseys Growth Model

Recommendation and Discussion

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Public - 4/18/16, 3:25 PM