Arthur Andersen was founded in 1913 in Chicago, Illinois and was seen as one of thee top accounting firms in the country with over 20,000 employees in the United States alone. Over the years times change and so does revenue, Arthur Andersen (the man himself) had high standards as to the practice of accounting, but his practice after his death in 1947 did not, resulting in many ethic and legal violations. WorldCom, Waste Management, and Enron are some of Arthur Andersen’s clients that have caused this once great accounting firm to almost non-existence. We will investigate Arthur Anderson’s legal, ethic, and social responsibility towards strategic, tactical, operational, and contingency planning to show how it has affected the company today.
Arthur Andersen LLP once was recognized as one of the top accounting and auditing firms in the nation.
Andersen had a broad range of clients from different industries and countries across the world, until legal and ethic violations ended the organizations reign in 2002 with the collapse of the Enron Corporation. Even before Enron there was speculation of wrongdoing with WorldCom as too the auditing practices of Arthur Andersen. Management planning at Arthur Andersen was known for making sound decisions with partners and alliances, until the late 1990’s where greed and illegal auditing practices took over. Due to ethic, legal, and social responsibility companies like WorldCom and Arthur Andersen collapsed and changes were made to protect the public from further illegal operations.
Functions of management
According to Niece, Trompeter (2004) all Andersen employees were trained in the same methods and each office followed firm policies established by the central management in the office of the chairman. Partnerships were the firms top management, Andersen had 50% share and was president, then his partner Leonard Spacek was vice president, over the years the firm would have more partners and employees. From there the firm introduced a committee to oversee rules and regulations called committee on accounting principles and auditing procedures (CAPAP). Like any big service industry company, management wanted to branch out in different areas such as consulting and management, with these new functions brought on divisions, not only in the States but in other countries as well. This would make Arthur Andersen the biggest accounting firm in the World. As Arthur Andersen grew so did greed from within the company, and alliances and divisions were split. This caused more competition and increased greed among management of the firms resulting in legal and ethic violations at Arthur Andersen.
Legal issues were never an issue in the early days of Arthur Andersen, when the organization was smaller and more structured. In 1996 Waste Management came to light in both legal and ethic violations as the SEC found Andersen reckless in their auditing practices. This led to charging large fees and making Waste Management look better on paper than originally thought without even receiving the correct financials. In the years 2000-2002 Arthur Andersen was caught in the middle of another scandal that rocked the economy: WorldCom was in the midst of the same illegal mischief as Waste Management but to a deeper extent and right in the center of this mess was Arthur Andersen. The Auditing firm for both Waste Management and WorldCom was in back to back battles with forging documents and fraud, but seemingly only received fines and a closer eye from the SEC and the federal government. David Duncan President of Enron was accused of shredding documents along with Arthur Andersen was the final and last straw for the firm, and in 2002 was brought up on federal charges of fraud, but in the end all the Andersen firm got was obstructing justice and lost their license to conduct audits even though they were never convicted or charged with bad audits.
Arthur Andersen was an organization that was committed to honesty, integerty, independence, high legal and ethical standards, and dedication to the public; and now in 2008 the company is nothing more than a shadow of it’s former self. Ethics was important to Arthur Andersen who donated more than $5 million dollars to universities for awareness of ethical issues pertaining to business. Ethics was the backbone of the form that Arthur Andersen started in 1913, and due to the greed of cooperate officers and its partners has seen the last of this once proud and respected firm. Accounting and auditing practices have long held high standards of ethics, and due to the disasters of these organizations certain laws have been passed to bring confidence back to the public of financial institutions, the Sarbanes-Oxley act of 2002 is one that requires the rotation of lead auditors within in a firm to conduct audits. According to Orin (2008) the Sarbanes-Oxley act should be expanded to require audit-firm rotation. This would bring independence back and restore public trust.
In order to take social and corporate responsibility, a organization must admit guilt. Arthur Andersen never really admitted any wrong doing in none of their cases in court, but did pay fines and reimburse shareholders for their loss. Is this all Arthur Andersen can do is pay fines and costs and not serve any other sanctions? Arthur Andersen’s social responsibility was to admit guilt and surrender its licenses to practice accounting, which it never did and to this day still, has operations in Chicago. With little or no customers the damage was done to this century old firm, and Arthur Andersen now holds the burden of social responsibility with no business.
Factors of Planning
Illegal and ethic violations: One factor that effects strategic, tactical, operational, and contingency planning is illegal and ethic violations, once these allegations are made the company needs to revisit strategies and come up with a plan to fight these allegations. The second phase would be tactical, what tactics are going to be used and how to implement them, this changes in how you operate not 100%, but as you could see if found guilty of any wrongdoing, your operations have been altered and need to be restructured. No company can plan for a disaster has the one that faced Arthur Andersen, but contingency plans were in place as to a legal council to brief and research certain violations pertaining to accounting.
Cultural factors: Cultural factors can play a part in all phases of planning especially with international companies like Arthur Andersen. In the early 1940’s the firm wanted to improve relations with consumers and businesses overseas, this needed to be done by changing all plans in order to gain the confidence and respect of different cultures. Arthur Andersen did what all organizations do that succeed internationally, that is changes the plans of the organization.
Economic factors: Economic factors can be the most important factor to changing all of an organizations planning. Whether the world is in a good market or bad, plans need to be changed when this happens. Another factor the economy plays is greed and Arthur Andersen’s demise was greed, this brought down the organization where no planning could save the firm, not even the contingency plan the firm had in place. Other organizations such as Chrysler has felt this economic crunch and has had too restructure the company from top to bottom in order to survive, at least for now.
Arthur Andersen was a top 5 accounting firm and due to poor management and greed the organization failed. Arthur Andersen basically created the standards of ethics for accounting and now it turned it back on the accounting practice, the public, and trust of companies to gain a profit and rise above the competition. When dealing with illegal activity and ethic violations the law and the public will always come out on top and the members of Arthur Andersen have forgotten all of the issues, ethics and responsibilities that made the firm a top 5 accounting institution. Since 1913 all of the planning and resources that the man Arthur Andersen had laid out is gone as quick as a Chicago wind. Many accounting firms have suffered in the wake of poor public perception and some have gained from the loss of Arthur Andersen. I wonder which company will be next in the news due to poor management planning and scandal.
Niece, J., & Trompeter, G. (2004, Summer 2004). The Demise of Arthur Andersen’s One-Firm Concept: A Case Study in Corporate Governance. Business & Society review,109 (2), 183-207. Retrieved December 15, 2008 from EBSCOhost.
Orin, R. (2008, Winter2008). Ethical Guidance and Constraint Under the Sarbanes-Oxley Act of 2002. Journal of Accounting, Auditing & Finance, 23(1), 141-171. Retrieved December 15, 2008, from EBSCOhost.