The story of Arthur Andersen, the now defunct auditing company, provides a sad example. It demonstrates how a solidly ethical culture can be transformed into an unethical culture and lead to the demise of an 88-year-old firm.
Founder Arthur Andersen created
the company when he was in his twenties. As chief executive, the messages he
conveyed about ethical conduct were strong, consistent, and clear. Andersen’s
mantra, ‘‘Think straight—talk straight,’’ guided employee behavior in an
organization where ‘‘integrity mattered more than fees.’’ Stories about the
founder’s ethics quickly became part of the firm’s mythology and lore. For
example, at the age of 28, Andersen confronted a railway executive who insisted
that the accounting firm approve his company’s books. Andersen said, ‘‘There’s
not enough money in the city of Chicago
to induce me to change that report.’’ Andersen lost the railway company’s
business, but when that company later went bankrupt, Arthur Andersen became
known as an organization people could trust to be honest and to stand up for
what was right. In the 1930s, Arthur Andersen emphasized accountants’ special
responsibility to the public. The founder died in 1974; but he was followed by
leaders with similar beliefs, and the strong ethical culture continued for
decades. The management style Andersen initiated was a centralized, top-down
approach that produced employees who were systematically trained in the ‘‘Andersen Way .’’
Customers around the world knew they could expect quality work and integrity
from Andersen employees, who were all carefully socialized to speak the same
language and to share ‘‘Android’’ values. Through the 1980s, people were proud
to say they worked for Arthur Andersen, which would provide a good career
within a respected company. In the mid-1990s, Arthur Andersen still provided
formal ethical standards and ethics training. In 1995 it even established a
consulting group, led by Barbara Toffler, to help other businesses manage their
ethics. But Toffler quickly became concerned about the ethics of her own
employer, which she chronicled in her book Final Accounting: Ambition, Greed,
and the Fall of Arthur Andersen. Toffler attributes much of the change from
ethical culture to unethical culture to the fact that the firm’s profits
increasingly came from management consulting rather than auditing. Auditing and
consulting are very different undertakings, and the cultural standards that
worked so well in auditing were inconsistent with the needs of the consulting
business. Under the new business realities, rather than standing for principles
of honesty and integrity, consultants were encouraged to keep clients happy and
to concentrate on getting return business because only revenues mattered. They
were even expected to pad prices or create work to increase profits.
Even the training that had always
been so important to Andersen’s culture wasn’t immune from change. Traditionally,
new employees had been required to attend a three-day enculturation session,
but now new consultants were told not to forgo lucrative client
work to attend the training. So
Toffler and lots of other consultants never got the
cultural training. By the time
Toffler arrived at Andersen, no one referred to the ethical standards, although
they still existed in a big maroon binder. Toffler says, ‘‘When I brought up the
subject of internal ethics, I was looked at as if I had teleported in from
another world.’’ So Andersen still had ethics policies, and they still talked
about ethics in formal documents, but the business had changed dramatically and
the approach to ethics management had not kept pace.
Andersen was convicted of
obstruction of justice for shredding documents associated with its role as
Enron’s auditing firm and quickly went out of business. The Supreme Court
reversed the decision in 2005, ruling that the jury had not been advised that
conviction in a white-collar crime case requires evidence of criminal intent.
However, the Supreme Court reversal did not clear Andersen of wrongdoing. In
fact, prosecutors provided evidence of criminal intent. In the end, even if someone
had wanted to, there was no firm left to resurrect.
Was Andersen’s transformation
from ethical culture to unethical culture a conscious process? Did anyone ever
say, ‘‘Now we’re going to create an unethical culture at Arthur Andersen’’? We
doubt that. But leaders’ lack of attention to the ethical culture as the
organization was undergoing a significant business transformation practically
guaranteed that the messages sent by the informal culture would begin to
contradict those sent by the formal culture and lead to a culture that was
seriously out of alignment as well as one that increasingly sent messages suggesting
only the bottom line mattered.
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