Arthur Andersen

1
Arthur Andersen

• The Tale of an Untimely Demise

2
A Brief History

• Founded December 1913 by Arthur Andersen
  Clarence DeLany
• By 2000
• 85,000 employees
• 350 offices in 84 countries
• Largest of the Big Five accounting firms
• 100,000 clients including governments and
  multinationals
• Provided auditing and accounting, tax advice,
  business and IT consulting

3
A Brief History

• 1989 Andersen Consulting becomes separate
  business unit
• -- Arthur Andersen continues consulting
• 2000 split with Andersen Consulting (Accenture)
• March 2002 charged with obstruction of justice
  related to Enron investigation
• Convicted June 16, 2002
• Doors closed August 31, 2002

4
Transformational Leader

• Commitment to integrity
• Client focus the public good
• The Andersen Way
• Creating a race of Androids
• Recruiting
• Training
• Networking
• Mentoring

5
Commitment and Conformity

• ..the Americans were so passionate about
  Andersen that if they had a dog, theyd call it
  Arthur.
• -- John (Former Arthur Andersen U.K. employee
  quoted in Squires et al., p.141)

6
Changing Business Environment

• 1990s The Gimme Decade
• Mergers and acquisitions
• E-commerce and the New Economy
• Stock options gt short-term focus
• Increased competition
• Fewer, larger, riskier clients
• Larger competitors
• SEC concerns about conflict of interest

7
Internal Change Unrest

• Consulting growth
• -- Culture conflict
• -- Internal competition resentment
• -- Relative deprivation
• Multiple reorganizations
• Consulting revival
• -- Recreates past problems
• Leadership crisis bitter, costly divorce

8
Warning Signs

• Three of the five largest US bankruptcies were
  audit consulting clients
• Paid over 500 million to settle claims
• (1997 2002)
• Arthur Andersens Greatest Hits
• -- Waste Management
• -- Baptist Foundation of Arizona
• -- Sunbeam Corp.
• -- Boston Chicken
• -- Global Crossing
• -- WorldCom
• -- Qwest Communications
• -- Enron

9
Andersens Response

• Deny accountability, wrongdoing
• Blame regulators and bad clients
• Retain partners implicated in cases
• Minimize importance of litigation costs
• Lukewarm internal follow-up
• Continue pressure to increase revenue

10
What Went Wrong?

• Leadership failure, poor decision-making, hubris
• Inappropriate partnership structure
• Values/behavior disconnect
• Value mutation
• Structural secrecy
• Conflicts of interest
• Sales v. oversight
• Culture conflicts
• Consulting v. audit
• Oversight failure

11
Lessons Learned
Think straight talk straight Arthur
Andersen

• Be self-aware
• Remember your purpose
• Analyze change, both internal and external
• Pay attention to warning signs!
• Make hard choices and hard changes
• Size counts, and so does management structure
• Self-regulation doesnt work

12
Unanswered Questions

• Did the punishment fit the crime?
• Negative consequences
• Individual upheaval innocent employees hurt
• Increased consolidation in accounting industry
• Could Arthur Andersen have survived?
• Will anything really change?
• Inadequate legislative response
• Return to business as usual

13
References

• Inside Arthur Andersen Shifting Values,
  Unexpected Consequences
• Susan E. Squires, Cynthia J. Smith, Lorna
  McDougall and William R. Yeack
• Final Accounting Ambition, Greed and the Fall
  of Arthur Andersen
• Barbara Ley Toffler with Jennifer Reingold