To what purpose did Arthur Andersen die? Part 1

In a March 14, 2012 editorial, the Chicago Tribune ponders what greater cause may have existed behind the 2002 collapse of Big 5 accounting firm Arthur Andersen.

Their conclusion? Andersen died in vain.

David Albrecht, in his post 10 Years Later – Did Andersen Die in Vain?, reaches a very different conclusion. More on that in part 3 of this series. If this post has already caught your interest, you’ll enjoy reading his post now.

The firm collapsed in the wake of a felony indictment for obstruction of justice regarding their audit of Enron.  About 85,000 people worldwide lost their job, which includes around 28,000 in the US.  The firm was convicted and surrendered its license to practice. The conviction was overturned on appeal because of faulty jury instructions from the judge.  Since the firm had already disbanded, there was no point for a retrial.

Andersen died in vain

The editorial’s conclusion is there was no point to the collapse of the firm, no greater good served by it. The conclusion of the editorial:

Did Andersen’s demise serve the public interest? No.

There were thousands of innocent victims, the out-of-work employees. The fall of Andersen could have put auditors, lawyers, regulators and other financial watchdogs on notice, but the backlash it engendered spoiled any deterrent effect.

Andersen’s actions shaped the Sarbanes-Oxley legislation that tightened rules for corporate internal controls and public disclosures, while clarifying the obligation to preserve important business documents. But SOX, as it’s called, has proven to create problems, substantially raising compliance costs for law-abiding public companies, which pay more now in audit fees to Andersen’s onetime competitors.

The greatest tragedy of Andersen’s fall? It fell for nothing. What a loss for Chicago, and what a disservice to all those like Arthur Andersen himself who never would sell their integrity, at any price.

It is as if the death of Arthur Andersen should have had some intrinsic value, perhaps on the order of the brave American soldiers storming the cliffs at Pointe du Hoc during the landing at Omaha Beach.  Only for such a noble purpose should soldiers or CPA firms die.

And yet…

Next post will look at Andersen’s pattern of behavior.