To what purpose did Arthur Andersen die? Part 2
Previous post discussed a March 14, 2012 editorial in the Chicago Tribune which ponders what greater cause may have existed behind the 2002 collapse of Big 5 accounting firm Arthur Andersen. The editorial concluded that Andersen died in vain.
Methinks the editorial’s content argues against the editorial’s conclusion.
Let’s look at the pattern of behavior
Go back to the middle of the editorial. Look at the horrible behavior Andersen was engaged in at Enron:
Over time, greed corrupted Andersen. Its leaders became more devoted to collecting hefty fees than keeping books straight. Clients paid a fortune for Andersen’s consulting services, making its basic function of auditing into little more than an afterthought. The firm’s most experienced accounting technicians, the sticklers who maintained its principles, saw their status plunge in the partnership’s hierarchy. As Enron ran wild, Andersen’s Professional Standards Group proved too weak to intervene. Money had trumped honest services.
Enron’s executives were able to lie about their business performance and prospects because Andersen went along. When the lies caught up with its client, instead of admitting its failure to safeguard the public trust, Andersen engaged in a cover-up. Its employees shredded not just a few Enron-related documents, but box after box, day after day, for a period of weeks.
That is a severe charge against an accounting firm. Going along with the client’s lies. Shredding several tons (tons!) of paper documents and deleting perhaps 30,000 emails and electronic documents.
The bigger problem is that Enron wasn’t the only problem
The editorial observes:
The Enron debacle followed a series of debacles at Andersen, which had bungled audits at Waste Management Inc. and Colonial Realty Co., to name but two prior scandals that cost investors dearly.
I’ve discussed the pattern before:
What firm failed to find these fraudulent fiascos? Considering where this post is going, need you guess at the answer to the rhetorical question? Andersen was the auditor of Boston Chicken, Arizona Baptist Foundation, Sunbeam, Waste Management, Global Crossing, and WorldCom, in addition to Enron. One tidbit I mentioned in that particular post was that the Andersen partners helped Waste Management unwind the fraud by developing a plan to amortize it into earnings over 10 years. They negotiated the amortization term. I don’t think that is something Arthur would have approved of.
Comments from others on the broken culture
Merely one of a long list of possible sources to discuss the corporate culture at Andersen is the article I linked above for the tons of paper and 30,000 document comment. The article is Arthur Andersen and the Temple of Doom by Professor Jeffrey S. Kinsler.
He starts his article with the following joke, which is quoted from the Washington Post, January 28, 2002:
“We just received a message from Saddam Hussein. The good news is that he’s willing to have his nuclear, biological and chemical weapons counted. The bad news, is he wants Arthur Andersen to do it.” –George W. Bush, 2002
In his 2008 article, he discusses several corrosive aspects of the firm’s atmosphere. Particular attitudes he mentions are the intolerance of dissent and making it exquisitely clear to everyone that keeping the client happy was of far higher priority than accounting & auditing principles.
He has personal insight to the intolerance of dissent of the in-house legal staff because he declined the position that Nancy Temple took. During the interview process, he caught on to the corporate culture.
The Temple of Doom in the article title is not a play on words for the role of Ms. Temple. Instead the firm’s temple of doom is the broken culture that would not allow in-house legal staff to give the quality advice that attorney’s are obligated to give. If she had shouted SPOLIATION in every sentence she spoke or wrote at the critical time, maybe, just maybe, Andersen might have survived. On the other hand, Prof. Kinsler says that could not have happened because the corporate culture did not allow giving advice contrary to what everyone wanted to hear.
Browsing through his footnotes shows that he relies heavily on Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen, by Barbara L. Toffler. Looking at the footnotes makes me want to read her book again – I’ve forgotten lots of the little details.
Check out Prof. Kinsler’s article if you want an article length discussion of the horrible culture of AA. If you really want to dive in deep, check out Ms. Toffler’s book. It is superbly sad.
Both the article and the book point out the pervasiveness of the broken corporate culture. This is pertinent to Professor Albrecht’s conclusion that the Andersen firm did not die in vain, which I will discuss in my next post.