The Rise and Fall of Arthur Andersen

The Rise and Fall of Arthur Andersen

 
1- Introduction

In this case the attention will be concentrated on analyzing the factors that contribute on

Arthur Andersen’s company growth in contrast with the factors that played a role on

devastation of Arthur Andersen’s company.

2-The history of Arthur Andersen’s organization

Andersen, Delany and company was founded in 1913 by Arthur Andersen and Clarence

Delany. The organization started as auditing firm and later expanded its services adding

tax services and consulting services. In 1918 Andersen becomes the sole owner of the

organization since Delany volunteer to leave.. (Dyck 2010 164)

After Andersen died in 1947 the organization was divided in 3 divisions. 1)

accounting/auditing division. 2) Tax division, 3) Consulting division. (Dyck, 2010, 164)

The 1989 is known as the year of separation since the Andersen & Co divides in two

financial entities: 1) Arthur Andersen & Co (Accounting/Auditing/Tax division services

2) Andersen consulting (consulting services) (1)

In 2000 as the result of an ugly competition the association between the two Andersen’s

divisions comes to an end. Year 2002 was the end of Andersen’ organization found guilty

for obstruction of justice in connection with Enron scandal. (1)

3 -The rise of Andersen & Co

The success of the organization was related to two important facts:

a) The strict ethical values which served as foundation of Anderson & Co.

b) The way that these strict values influenced the four management functions in
Andersen & Co. (Dyck, 2010, 164)

The 1988 was the year of success for Andersen & Co which became the largest consulting

firm in the world. (1)

3-1 Anderson & Co’s ethics and planning (before /after Arthur Andersen’s death)

Anderson & Co and its founder Arthur Andersen set the standards for ethics in

accounting.

Known for its vigilance and integrity Anderson and Co had no difficulties built its network

and to add new clients to its list.

While alive, Arthur Andersen planed his goals and worked consistently and responsibly to

accomplish them. (Dyck, 2010, 150)

Even though Andersen kept the size of his organization small he ensured that not only the

members of the organization but also the other stakeholders were benefiting from the

organizations responsible activities.

After Andersen’s death the organization goals were changed.

Andersen was offering addition services such as production control, cost accounting,

operation research. Overall the organization and its management ignored Andersen’s

ethical guidelines. (3)

Andersen & Co and its leaders were pursuing their self-interest and excessive profits.

The first reason for Andersen’s fall was the deviation from Andersen’s ethics on planning

3-2 Andersen & Co’s ethics and organizing (before /after Arthur Andersen’s death)
While alive Arthur Andersen was the sole owner of the organization. He originated a small

firm and intended to keep it that way in order to secure and maintain the strong culture, its

unique values and its harmony. (Dyck, 2010, 164)

After Arthur Anderson’s death the organization was completely rearranged. The

organization’s partnership was reformulated, in a way where Leonard Spacek was the lead

partner and each partner had one vote in all matters and all partners shared in the profits

and losses of the firm. As the result organization was forced towards decentralized

structure of decision making. The new management team goes even further and divides the

organization at first in three divisions and finely in two: 1) Administrative service division.

2) Consulting service division.

The reconstruction of the organization created a conflict between inside organizational

obligations and outside social requirements and restrictions. (3)

The second reason for Anderson’s & co. fall was the deviation from Anderson’s ethics on

organizing.

3-3 Andersen & Co’s ethics and leading (before /after Arthur Andersen’s death)

While alive Arthur Anderson constantly insisted in promoting fair and unbiased

accounting methods. Furthermore Andersen hired graduates students and encouraged

them to be trained in Anderson’s way utilizing both systems formal and informal. Arthur

Anderson asks his partners to be strictly trained and stick to ethics promoted by him. .

(Dyck, 2010, 164)

After Arthur Anderson’s death the organization created a dangerous culture of promoting

and rewarding risk taking. A dysfunctional relationship was created inside the

organization. Anderson’s co managers disregarded ethical values such as transparency,

accountability instead they replaced such values with greed arrogance immorality which

finally resulted on their self - destruction. Anderson los t its ethical leadership which

affected the ethics of the work place and both affected the life of the Anderson’s

organization. (3)

The third reason for Anderson’s fall was the deviation from Anderson’s ethics on leading.

3-4 Andersen & Co’s ethics and controlling (before /after Arthur Andersen’s death)

While alive, Arthur Andersen’s motto “Think straight talk straight” was the core of the set

of values he established. Arthur Andersons attempted to utilize both formal and informal

system in order to achieve organizational control. (Dyck, 2010, 153)

Under Arthur Andersen’s leadership the organization emphasized on of obeying the law

and creating a corporate culture.

Other keys of Arthur Andersen’s success were reducing the organizations expenses and

encouraging personal responsibility to members of organization. (4)

After Arthur Anderson’s death organization and its managers lost control of the oversized

decentralized of Anderson & co.”Think straight and work straight” was no liger the motto

of the company .The organization core culture was damaged and the focus of the

organization had shifted towards maximizing management ,organization sales

opportunities and profit ,by doing whatever it took and at any cost.(a combination that

strongly contributed on the disaster and eruption of Anderson & co..(Dyck, 2010, 164)
On 1980 several creditors and shareholders filed bankruptcy and blamed their failure on

the Andersen &co audits.

Arthur Andersen & co failed to inform the creditors, shareholders and public of its

findings. (1)

The fourth reason for Arthur Andersen & co fall was the deviation from Arthur

Andersen’s ethics on controlling.

4-Ways to attract high quality graduates without offering high salaries

a) First, offer to graduates internship and then promise continues employment

conditioned by the scale of comprehending and practicing the organization’s ethics and

performance.

Hire graduates (after they finish internship faze) and put a restriction on time (graduates

must establish at least 2 years experience with the company before their first consideration

for salary/wage increase), but simultaneously provide good health - care plans and

excellent work environment.

b) Second, offer graduates to work on commission and scale those commissions based on

the compliances with ethical code and graduate’s performance/contributions to

organization’s profit.

For instance:

a) Graduates receives 10 % commission for their below average performance and an extra

5% if their compliances with ethical cods are below average,

b) Graduates receive 40% commission for their excellent performance and an extra 20% if

their compliances with ethical cods are above average.

 Simultaneously reward the good performance (no too much emphasis on bad

performance), provide good health - care plans and excellent work environment.

5- Conclusion

The rise of Arthur Anderson goes hand to hand with the influence of his ethics on four

Management functions (planning, organization, leading, controlling).

The fall of the organization established by Arthur Anderson was result of deviations from Arthur

Anderson’s ethics on four management functions (planning, organization, leading, controlling).

References

1- Andersen- Company history . Fundinguniverse. Retreived November 29, 2009 from

www.fundinguniverse.com/company-histories/A

2- Dyck, B. & Neubert, M. (2010). Management current practices and new directions.

Boston:Houhghton Mifflin Harcourt Publishing Co.

3- Gini, A. Business, ethics, and leadership in a post Enron era.

Journal of Leadership & Organization Studies. 11, 9-16.

4- Kobrak, C. (2009). Innovation corrupted: The origins and legacy of Enron’s collapse.