What was enrons organizational structure

In the wake of the Enron scandal, the term " Enronomics " came to describe creative and often fraudulent accounting techniques that involve a parent company making artificial, paper-only transactions with its subsidiaries to hide losses the parent company has suffered through other business activities.

Parent company Enron had hidden its debt by transferring it on paper to wholly-owned subsidiaries —many of which were named after Star Wars characters—but it still recognized revenue from the subsidiaries, giving the impression that Enron was performing much better than it was. Another term inspired by Enron's demise was "Enroned," slang for having been negatively affected by senior management's inappropriate actions or decisions.

Being "Enroned" can happen to any stakeholder, such as employees, shareholders, or suppliers. For example, if someone has lost their job because their employer was shut down due to illegal activities that they had nothing to do with, they have been "Enroned. As a result of Enron, lawmakers put several new protective measures in place.

One was the Sarbanes-Oxley Act of , which serves to enhance corporate transparency and criminalize financial manipulation. The rules of the Financial Accounting Standards Board FASB were also strengthened to curtail the use of questionable accounting practices, and corporate boards were required to take on more responsibility as management watchdogs. At the time, Enron's collapse was the biggest corporate bankruptcy to ever hit the financial world since then, the failures of WorldCom, Lehman Brothers, and Washington Mutual have surpassed it.

The Enron scandal drew attention to accounting and corporate fraud as its shareholders lost tens of billions of dollars in the years leading up to its bankruptcy, and its employees lost billions more in pension benefits. Increased regulation and oversight have been enacted to help prevent corporate scandals of Enron's magnitude.

However, some companies are still reeling from the damage caused by Enron. Joint Committee on Taxation. Accessed Aug. George Benston. The New York Times.

Business Essentials. Fiscal Policy. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Business Company Profiles. What Was Enron? Key Takeaways Enron was an energy company that began to trade extensively in energy derivatives markets.

The company hid massive trading losses, ultimately leading to one of the largest accounting scandals and bankruptcy in recent history. Enron executives used fraudulent accounting practices to inflate the company's revenues and hide debt in its subsidiaries.

The SEC, credit rating agencies, and investment banks were also accused of negligence—and, in some cases, outright deception—that enabled the fraud. As a result of Enron, Congress passed the Sarbanes-Oxley Act to hold corporate executives more accountable for their company's financial statements. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Enronomics Enronomics was a fraudulent accounting technique used by criminal executives at long-dead Enron Inc. Global Crossing Global Crossing is a multinational telecommunications provider that was acquired by Level 3 Communications in October Financial Shenanigans Financial shenanigans are actions designed to misrepresent the true financial performance or financial position of a company or entity.

What Is the Andersen Effect? The Andersen Effect is a reference to auditors performing more careful due diligence when auditing companies in order to prevent accounting errors. A special purpose vehicle SPV , also called a special purpose entity SPE , is a subsidiary created by a parent company to isolate its financial risks. Partner Links. Related Articles. Fiscal Policy Sarbanes-Oxley Act vs. The Chief Financial officer, Andrew Fastow, had the overall responsibility of ensuring that the books of accounts reflected a true and fair view of the company.

He did not disclose losses arising from the company in the financial statements of Enron. The ethical crimes committed by the management of the Enron Company included conspiracy, securities fraud, false statements, and insider trading. Based on the code of ethics, it is clear that the managers breached all the ethical principles.

The managers involved in the scandal were competent but did not exercise professional due care and apt professional behavior. Also, the managers did not exercise integrity when preparing the financial statements Ferrell, Fraedrich, and Ferrell This means that they lacked integrity and objectivity in running the organization.

In the Enron Company case, several recommendations can be made to mitigate the possible recurrence of the crime. First, the composition of directors of a company should include independent directors as the majority. The important committees, such as the audit committee and the human resource committee, should have independent directors. Ethics denote sets of laws or moral systems that provide a basis for discerning whether an action is correct or erroneous.

Therefore, the HRM team in an organization can develop ethical principles that guide other employees when carrying out their duties. The ethical code consists of laid down structures to keep staff in a healthy and stable mind in their duty of serving the interests of an organization through regulatory and ethical communication models Free, Macintosh, and Stein, These models define expected behavior, procedural patterns, and response to every deviation.

These models are the motivation to acquire, bond, comprehend, and defend. Therefore, a proactive behavior control system should function within a structured reward system Madsen and Vance, When the system functions within accepted parameters, employees will eventually develop a self-consciousness to deliver quality services and defend the organization as part of a family unit.

The main positive influences of good organizational behavior include motivation, empowerment, and training. Reflectively, these factors should be internalized in an organization to foster a proactive attitude among the staff. Among the motivation enhancing practices include incentives, promotions, rewards, and recognition. The effectiveness of these components depends on vertical, horizontal, and word alignments.

Therefore, the feedback management system monitored by the HRM department may influence positive perception among employees. This will eventually determine the effectiveness of such an organization Flamholtz and Randle, The aspect of planning is important to demystify poor performance as part of employee redundancy. Reflectively, proper use of a competency review system of the HRM department is directly proportional to employee performance since the magnitude of success depends on social interaction skills.

Therefore, organizational effectiveness should be the cornerstone for modeling acceptable behavior between the management and staff Ferrell, Fraedrich and Ferrell, However, the policies adopted should be aligned to the basic building blocks of the performance and scope of the organization. These policies should incorporate the employee-employer relationship model, performance review, and organizational social culture. Human process-based intervention strategies are presented as directed at improving the general state of relationships between individuals and within and among groups in an organization.

The main driving point in these particular approaches is that the good state of relation, information transfer, and collaboration are essential in fostering good environments for the flourishing of an organization. Ferrell, O. Business ethics: ethical decision making and cases 9th ed.

Flamholtz, E. Corporate culture: the ultimate strategic asset. Stanford, UK: Stanford business Books. Free, C. Management Controls: The organizational fraud triangle of leadership, culture, and control in Enron. Ivey Business Journal. Retrieved from ProQuest.