The company encouraged sameness with a focus on its core values, but this developed into arrogance and superiority resulting in an above the law attitude and a belief that the company could not fail. We observe deviant behavior and great internal conflict with a lack of leadership and organizational structure to guide it all. Hindsight is 20-20, but it seems almost impossible that no-one noticed the lack of organizational citizenship behavior. It sure seems that all of these are giant red flags that should have redirected the company.
A promising beginning Arthur Andersen (AAA) was established in Chicago in 1908. The namesake of the company was a math prodigy who at 23 became the chair of the accounting department at Northwestern University. In 1913 congress established the Federal Reserve and passed a federal tax. Accounting firms became popular and AAA grew rapidly. In 1930 AAA gained national notoriety when they reorganized the virtually bankrupt, Insult Empire. They did this while maintaining liquidity of the organization; not a small feat during the depression.
National growth, with high profile clients, followed. Organizational structure Up to the end of the sass’s, AAA clearly demonstrated the traditional organizational structure described by Robbins and Judge (2011). There was a clear hierarchy with the CEO as a visionary leader, directing the managers of the different divisions and the operational core. The company had the core values of integrity, stewardship and responsibility at its foundation and the Coo’s viewed the auditors as the watchdogs of the financial industry.
Leonard Spaces, the CEO who succeeded Andersen, proposed groundbreaking standardization and when others did not support his vision showed courageous leadership by establishing the first on the job training program in corporate America. Every AAA accountant, called an Android, did the work the exact same way. The company expanded globally during this time but the AAA culture and methods were deeply embedded in every office. The sass’s also brought a new lucrative branch, that of consulting services (techno structure).
AAA assisted organizations with the installation of the first computer systems and provided strategic projections, cost accounting, operations research and production control. Traditional accounting services were leveling off and by the late sass’s consulting represented 20% of the company’s business and the first whispers of splitting the consulting and auditing business was heard (Funding Universe, 2011). Robbins and Judge (2011) states that the more complex an organizations’ markets the more likely that they will form separate market based groups.
They also note that the larger the organization, the more centralized it should be to keep the strategic plan and culture as pure as possible. External pressures, like the need to expand the business, different cultures in foreign countries, and differentiation of the business, move AAA to a more decentralized environment though. The core organization started to erode. Organizational culture First to go was the core values and culture. The words “l am not responsible” were heard often. The giant accounting firm, whose founder refused clients when they asked him to be dishonest, had lost its way.
The former loyal, honest professionals have forgotten what it meant to be accountable. The standardization norms established by Spaces morphed more into power and control than anything else. The Androids became just that; drones without professional thought or principle. It was all about money and power. Deviant behavior was everywhere. Through the ‘ass’s and ‘says the consulting business ere much faster than the accounting side and the consultants demanded more money. The auditors in an attempt to keep up started their own consulting services.
The company allowed the associate who recruited the client to keep the bulk of the fee. This practice spurred rapid growth and created little fiefdoms of greed with minimal oversight from the corporate office (more decentralization). There was constant pressure to recruit more clients and “keeping the client happy’ was the main concern. Auditors looked the other way as long as they were paid (conflict of interest). A retired partner said: “In the old days the client id not tell us what to do; we told the clients what was right. And if they did not listen to us, we dropped them.
In those days being dropped by the auditor was scary business. It usually meant that your stock price would drop as well. Not anymore. Now, if the auditors tell the clients something it does not like, the client drags the auditor and that means a few million dollars a year right down the drain” (Vs., 2011). Leadership anyone? Andersen and Spaces exhibited strong leadership qualities. They had a clear vision of the company and set long term strategy. They modeled organizational thespians and always tried to do the right thing. They certainly had executive presence and employees knew who the leader of the company was.
After them we see a rapid turnover of the leaders who were unable to keep the warring factions satisfied. They became whatever the client wanted instead of focusing on their core reason for existence; ensuring that companies were financially accountable to their shareholders. The partners could not agree on anything, much less where to lead the company to. In the absence of leadership the middle managers took the lead. They maintained the operational aspects of the many, but there was no clear direction and in the end everyone did whatever they wanted to. No company can exist in these circumstances.
Through the ass the squabbling between consultants and auditors became unbearable. In 2000 the company was formally split by an arbitrator. The auditors kept the valuable Andersen name the consultants reorganized as Accentuate Ltd. In 2001 two of Ass largest clients Enron and World failed and Ass shady accounting practices came to light. Joseph Bernardino, CEO, had to explain to Congress why the company shredded documents related to the Enron investigation. In 2004, the company was found guilty of obstruction of justice, and banned from ever auditing another public company.
One of the oldest, most trusted names in the world were forever defiled and 85,000 employees lost their jobs. Today, the company only exists to finalize the roughly 100 lawsuits that are still pending against it. Conclusion Arthur Andersen said in a lecture in 1932: “If the confidence of the public in the integrity of accountants’ reports is shaken, their value is gone. To preserve the integrity of his reports, the accountant must insist upon absolute independence ND indicates certain standards of conduct” (Vs., 2011).