Read and answer
1.Suppose you were retained as an outside advisor to Arthur Andersen during the Waste Management crisis. What would be your advice to Andersen's leadership? What concrete next steps should the company take? In your view, what are the reasons for Andersen's problems and what should management do for them?
2. What internal factors contributed to changes in Andersen's culture?
3.Were there external factors that contributed to changes in Andersen's culture?
at of the company's audit practices His Endings whened Wall Street U.S. corporate history of that time . At then sems the stock price maple accounting firm, Arthur Andersen, Extach had signed off" on all of the revenue state shareholders to explain the company's declining stock price and then set things right. While years, the 1990s its momentum slowed. Apparently a had begun to employ "aggressive Arthur Andersen had served as the firm's external audit company." From 1991 to 1597. Andersen malson from consulting That made Waste Management a "crown jewel client "foe members double role as auditors and consultams. Now the SEC was contemplating a complaint against Andersen for conflict of interest. fraud, and perhaps more. Background stood for public service and independent integrity, it was Andersen employees offen spe time careers at the farm, where she corporate culture man the firm's values. In the early years the partners knew each other governing "face to face"- experienced explosive growth weld its mode of governance evolved the cufface and hard began to weaken ine Founding Father accounting funny Joke cous hirota young graduates round who possessed : Ride for All He preferred training program that all new employees were required to amend. The "Andersen way" was uniformly appbed and obeyed Anderen employees were supposed to While they should not expect to get rich. they knew that they represented a venerable professices pacek's Rule twenty-five setair (the de facto lead acek resembled Arthur E. Andersen both in his Midwestern lip is the majority shareholders Spacek quickly proved himself a domineering and known (and highly unpopular ) as a severe critic of accounting standards and practices 19 which consumed 15 to 20 percent of the net revenue of the firm. His pool was to create an Standards Andersen employees the soudied a series of methodologies that tough exchangeable and equally reliable as professionals of the biggest campleeds the othernational moose bers and offering new services. Rather than seek growth via jesuis ing of plemeshed the first business applications for a computer at General thewa in the beginning they received the same training as accountants. Later, the power of the cover the of the a bers In addition. Spacek had also presided over a prolife War Spacek retired in 197 Is from clients of is a reself, cooperpen and cut con and cultural cohesion began to weaken, as did the ability of the comon's Growth and Reorganization i pod worth said. zenos speakerske the final into service denisices of consulting split the fire into competes betdocs, with consulting experiencing the most rapid growth gether. Comruhares fought for. and won the right in bypass the Gaining regimen of the nem for public companies, their profitability had hit a plateau The U.S. bysureend pursuing efforts to inject more competition into the auditing indy petitive bidding between accounting firms; four years liner, sin important source of profit within the by a result, consulting revenues the advice of its lawyers. In addition, the firm joined the other big accounting companies to pool obtrying campaigns in order to oppose regulatory oversight from the SEC and other agencies, as audit standards were slipping. For them, Andersen's responses to the challenges it faced appeared The situation was, in their eyes, tive for conflicts of ithereit to develop in their search for big thes jobs as external auditors. Other argued that Anderses, was still the best and the local acused in large part by partner Dick Meanselle. John Del ocean, a flamboyant character, promised personal harvey expenses to his company -his Mercedes Beez, some hour rowval of the company's books . Rather than challenger DeLe The Rise of the Consultants eclipsing Andersen's spirit of public service. Because the news leadership viewed consultants and investment bankers as examples they wished to emulate, tremendous pressive was created within firm as well including internal leninices and geeseares from government seems to ittip The Consultant/Auditor Balance Shifts take up for the slow growth in audit reverses while audios corned to control the usedting division operated compost and been to develop its own (If any) experience in accounting and sought breainess differently the Andersen bad in the past. computer services, always with an eye to initiate a new consulting cycle for additional services. pressure. Consulting hires also expected faster promotions, pay and boslives that were directly holders and the public interest in proper reporting standards , 20co Andersen (see Exhibit 1). However, of 2.134 partners in 1939, only $56 were consular achieved only $1 4 million Not surprisingly, the consumers began to agitine for greater the unity of the Andersen culture. The consultants eventually became an independe profits. Each unit began to operate on its own floce of the same office building as an enfin the accounting side was still permitted to pursue consulting with clients for $1 93 While the persegement a organization. Resentment and professional jealousies continued to fester, with nocusations of Eloyalty as well as a sense that the "stodgy" accounting side was holding the consultants back. companies the tension between the two cultures became increasingly bitter and divisive accountsers (within Arthur Andersen & Co.) slowly shifted to those who could being in new consists of younger partners was sharply curtailed, fine de Real dependence of Andersen offices gen Bouger par . identical to other forms of compensation. Ho allowing firms to avoid categorizing stock options as an expense. Marry of Andersen's announceangels. local offices had pained a few independence to arming . Is 1934 Arthur Andersen created a formal practice entitled Andoux Addersee crative consuming arrangements, Andersen audiners were trying to please their cli er attended a lavish party to celebrate the twenty five-year anniversary of practices, Toffler loner Wose at time to suspect anything about Waste Managerter period that Andersen's accous the was supposed to be the other's gatekeeper." It was di books while at the same time providing accounting oversight funct po po Enter the SEC SEC Commer On For Art wilt " Early in his besure, under pressure from the U.S. Congress. rice of the Financial Accounting Standards Bosed (FASB) is live pay " spiral out of control in the mid- 19906, "be regressed his counting for from come to any best proposed tough new rules that would bar proposed the big accounting firms agreed to two principles. First, they had to disclose what they While Levitt was impre las view, were all facing the same challenges regarding their independence and gotennis council The Divorce emues grew from $3 billion in 1963 to $16 voted unaremosly in 1997 to secede greement , George shaheen the head of Andersen Consulting , insisted relations between the two business units had degenerated imo open hostility" sin what the final structure of the covers of up pants for Andersen leaders to mede Jafferotin in the view of some According to Toffler . the firms fon rudderesat the year Waste Management very chief financial of had been hired fross Arthur Andersen, acluding virtually er who had been pr fer the Del ocean insider. "Allever had a reputation is ment was Robert Kiforaids, who as audit practice director from the Chicago office, thes stilury in the wake of another major embarrammern for Andersen. the Supereven gee erven employees During the investigation, it appea FEuTe Was Closer to $12.909- Th went calle cel local maties at acce akibers had brought many of diese into
