A Sad Tale: The Demise of Arthur Anderson

A Sad Tale: The Demise of Arthur Anderson

Corporate or business ethics is the study of practical ethics or professional morals concerning possibly contentious issues. For example, corporate governance, insider trading, governed corporations or taking a bride. Investopedia states that, “Ethics in organizations are frequently led by law, while other times provide a basic framework that businesses may choose to follow in order to gain public acceptance (Investopedia, 2016).” This paper recaps the story “A Sad Tale: The Demise of Arthur Anderson,” a consulting firm once known for its strong ethics, that was eventually destroyed by unethical practices. In the story “A Sad Tale”, Arthur Anderson did auditing and consultation for major firms like Enron and was found guilty of accounting scandals. Conflicts of interests led to the fall of this public accounting firm. The paper will also provide a brief discussion of the organization’s mistakes, and possible measures that management could have considered to prevent failure of the organization.

Mistakes Made

The Anderson firm definitely made some mistakes that led to their eventual demise. Perhaps the first mistake they made was after the firm split when the consultants left Anderson to form the Accenture firm. Anderson’s leadership then started rebuilding the consulting practice as an addition to their accounting mission, which pushed their audit partners to sell consulting services to clients (Parrino, Kidwell, & Bates, 2012). The problem with this was that it increased the potential of conflicts of interest because the auditors’ could easily lose some objectivity if they feared losing business that consulting services brought in. This was exacerbated when Steve Samek, top partner in 1998, implemented his “2X” strategy where partners had to bring in double their revenue in work outside their area of practice (Brown & Dugan, 2002).

Another mistake that Andersen made was getting too intertwined with clients of both their consulting, and auditing services. An example of this was the Andersen partner responsible for the Enron account and his 100 person team actually working out of Enron’s Houston office (Parrino et al., 2012). The result was the lack of independence of Anderson’s auditors from the firm they were auditing. Essentially, they answered to Enron’s management instead of their fiduciary responsibility to the investors and creditors.

On top of these mistakes, was their senior management’s seeming arrogance and unwillingness to cooperate with the Justice Department in their investigation. Had they been willing to cooperate, there would have been a chance to work out a settlement. However, they were not and were charged with