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The Downfall of an Accounting Titan: Vision and Ethics at Arthur Andersen by Christopher Sanford

The Downfall of an Accounting Titan: Vision and Ethics at Arthur Andersen by
Article Posted: 09/08/2016
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The Downfall of an Accounting Titan: Vision and Ethics at Arthur Andersen

Finance & Investment,Business,Law
Executive Summary

Vision. Ethics. Leadership. These are words about which every person should spend a significant amount of time considering. What do they mean? How do they shape each life? Daft (2011) talks about how a vision should be the driving force behind the actions taken within an organization or by an individual. The Chicago Tribune (2002) includes an article about how these items played a huge role in the downfall of a major accounting firm – Arthur Andersen. The events at Arthur Andersen and Enron are known by most informed people in the business world. They are often viewed as the results of greedy individuals (Brown, 2002), but, instead, the focus should be on the importance of setting a solid vision as a foundation to be coupled with ethical leadership. One must also consider how the actions of few can change an entire industry.

The Role of Vision

The role that vision played in the Arthur Andersen – Enron situation cannot be emphasized enough. The firm was one with a longstanding tradition of performing the best audits possible. An article in the Chicago Tribune on August 1, 2002 talks about their reputation for discovering fraudulent activity that would lead to companies saving money and bettering their business environments (Chicago Tribune, 2002). However, the article continues by discussing Arthur Andersen’s transition into more of a consulting role. This new role would allow for a much larger revenue base. One that provided yearlong interaction with the client instead of just the annual audit. The greed ultimately led them away from their original vision – to provide the best audit possible.

The same can be said about Enron’s vision. Weiss (2011) talks about how Enron went from having over $2 billion in cash with no current debt to bankruptcy in virtually no time. Weiss (2011) furthers the discussion by explaining the alterations to Enron’s special purpose entities. Had they treated creditors with the proper respect they deserved, they could have survived events far more traumatic. Instead, they lost site and began to focus on the shareholders. Halmowitz (2002) talks about influence of a charismatic CEO. Essentially, a CEO with enough clout can take a company down virtually any road he or she chooses. Halmowitz argues that a charismatic CEO has little influence on the stock price or outcome at an organization, but it should be challenged that a charismatic CEO can alter major decisions made by the board. Halmowitz (2002) furthers this himself by talking about the charismatic CEO’s ability to talk the board into providing them with a larger compensation package. Enron was one of the major cases considered. With all of this in mind, one must consider the importance of vision. It will drive all decisions made within an organization. It should be argued that if Arthur Andersen and Enron had stronger visions, the entire ordeal could have been avoided. This leads us to consider the ethics of each individual involved.

Ethics in Business Leadership

While a strong vision allows for leaders and followers to mutually aspire towards a common goal, it alone cannot ensure the ethical behavior of an individual. It is clear that the leaders in this situation were out of line. By pursuing money instead of organizational goals, the leaders of their companies led to the downfall of thousands of individuals. Duleep Aluwihare (2007) was a consultant with Arthur Andersen at the time and describes it as a “traumatic experience not only for me but also for 800 workers of Andersen in Poland.” This goes to show how the actions of a few individuals can cause harm to several – millions even. One must consider the extremity of this case this case; it changed the entire audit industry through the introduction of Sarbanes-Oxley.

Daft (2011) emphasizes the importance of servant leadership. This puts aside the personal goals and aspirations of one’s self for the betterment of the group – or in this case the company – as a whole. In this case, the leaders did just the opposite; they put aside the goals of the organization as a whole in order to ensure their success as individuals. A different perspective could have prevented the collapse of two industry leaders.

Going Forward

This case can teach leaders – personal and corporate alike – many things. It teaches leaders the importance to keep their focus on the ultimate goal – the vision. For Arthur Andersen, this was to provide world class audits. Sarbanes-Oxley was a step in the right direction for the industry as it provided better and more detailed guidelines about the role assumed by an audit firm. The focus on independence from the organization being audited prevents an auditor from being able to cover up their mistakes. In essence, it tries to ensure that one’s work is reviewed by multiple people. Halmowitz (2006) talks about how these steps alone are not enough. He argues that Sarbanes-Oxley encourages a level of questionable activity in the power it gives management over the auditors. By providing the auditee’s management with the power to fire the auditor, it places stress on the auditor to provide a pleasing report (Halmowitz, 2006). He also writes about the law allowing the auditors to perform too many procedures outside of the audits. The overall shift in audit requirements cannot be ignored though; instead, it needs to be commended as a step in the right direction. Even after 14 years of modifications, the industry will continue to grow as the role of auditors is better understood. Olivia Kyriakidou (2016) suggests increased diversity of thought as a needed step to improve the industry. This included the audit industry’s need to hire the next generation of auditors from every walk of life. Corporations have begun to hire auditors of not only all ages and ethnicities, but also different educational backgrounds. This can be seen through organizations as they hire scientists to perform audits simply because they can understand the importance of processes. In the end, the case of Arthur Andersen teaches each person many things. Here, the goal is to understand how one can learn about the role vision played alongside ethics. Now begin to ask the question: What is my vision?

Christopher Sanford is a general ledger accountant at Finley & Cook, PLLC, pursuing a Master of Business Administration in Leadership through Oklahoma Baptist University as well as a Certified Public Accounting designati on. References

Brown, Ken. June 7, 2002. Arthur Andersen’s Fall from Grace is a Sad Tale of Greed and Miscues. Retrieved from

Chicago Tribune. September 1, 2002. The fall of Andersen. Retrieved from

Daft, R. (2011). The Leadership Experience. United States: South-Western.

Halmowitz, Benjamin. August 1, 2002. What are charismatic CEOs good for?. Retrieved from

Halmowitz, Benjamin. February 1, 2006. However the trial of Enron’s two top executives turns out, current system all but insures scandals will recur, profs say. Retrieved from,-current-system-all-but-insures-scandals-will-recur,-profs-say.aspx?terms=enron

Kallasvuo, Olli-Pekka; Jackson, Gary; Humer, Franz; Gensler, Arthur; Petrov, Sergey; Klapmeier, Alan; Cummings, Alexander B; Aluwihare, Duleep. January 2007. Moments of Truth: Global Executives Talk About the Challenges That Shaped Them as Leaders. Retrieved from

Kyriakidou, Olivia. January 11, 2016. Editorial: Equality, diversity and inclusion in accounting Retrieved from

Weiss, Lawrence. July 11, 2013. How Share-price Fixation Killed Enron. Retrieved from

[WC- 1206]

Related Articles - accounting, audit, arthur andersen, enron, vision, ethics, ethical leadership, leadership,

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