On Wednesday, March 14, 2012 (10th year anniversary of audit firm Arthur Andersen’s felony charges), the Chicago Tribune published an editorial titled, “Andersen Died in Vain.” As is the way with all editorials, what followed is the editor’s opinion.
Take heed, the Chicago Tribune and its editor are wrong on this. The Arthur Andersen audit firm didn’t die to accomplish a great purpose, or to make the world a better place. It died because it couldn’t survive its punishment. And if anyone or anything has ever deserved punishment, it was Andersen.
Arthur Andersen’s death was not intended to prevent defrauded investors from being victimized in the future. The death was intended to prevent Andersen from doing it again. And in that Andersen’s punishment has been successful. Its death was not in vain.
In the editorial, the Chicago Tribune does a fairly decent job of summarizing the history surrounding Andersen’s demise:
In the beginning, Andersen was a watchdog. Founder Arthur Andersen made the firm’s name stand for something nearly a century ago, when he refused a client’s demand to approve a ledger that falsely inflated profits. For decades thereafter, an auditing opinion from Andersen was the gold standard for corporate books and records. If Andersen said the numbers were solid, then investors, bankers, regulators and the public at large could count on it.
Over time, greed corrupted Andersen. Its leaders became more devoted to collecting hefty fees than keeping books straight. Clients paid a fortune for Andersen’s consulting services, making its basic function of auditing into little more than an afterthought. The firm’s most experienced accounting technicians, the sticklers who maintained its principles, saw their status plunge in the partnership’s hierarchy. As Enron ran wild, Andersen’s Professional Standards Group proved too weak to intervene. Money had trumped honest services.
Enron’s executives were able to lie about their business performance and prospects because Andersen went along. When the lies caught up with its client, instead of admitting its failure to safeguard the public trust, Andersen engaged in a cover-up. Its employees shredded not just a few Enron-related documents, but box after box, day after day, for a period of weeks.
The Enron debacle followed a series of debacles at Andersen, which had bungled audits atWaste Management Inc.and Colonial Realty Co., to name but two prior scandals that cost investors dearly. Prosecutors who previously had stopped short of bringing charges against Andersen came to believe that its leaders considered civil penalties and promises of reform to be mere speed bumps on the road to ever-greater profits.
A decade ago this month, Andersen’s brass arrived in Washington for Enron-related settlement talks — myopic, arrogant and devoid of remorse. Justice Department officials concluded that the repeat offenders across the table would offend again if they weren’t stopped.
If anything, the Tribune is underplaying the wrongdoing. Andersen was dirty, very dirty. Charged with protecting the public interest, Andersen instead unzipped its pants and metaphorically peed all over it. There ought to be a law. Shouldn’t justice prevail in the end? In this case it did.
The Tribune goes on to say,
Did Andersen’s demise serve the public interest? No.
There were thousands of innocent victims, the out-of-work employees. … [The resulting] Sarbanes-Oxley legislation … has proven to create problems, substantially raising compliance costs for law-abiding public companies, which pay more now in audit fees to Andersen’s onetime competitors.
The greatest tragedy of Andersen’s fall? It fell for nothing. What a loss for Chicago, and what a disservice to all those like Arthur Andersen himself who never would sell their integrity, at any price.
The world is worse off because Arthur Andersen and the other largest audit firms forsook their duty to investors and the American public. If Arthur Andersen had been doing the right thing in the decades preceding its death, perhaps I wouldn’t have lost much of my life’s savings in 2001-2002.
Andersen deserved its punishment. I shed no tears for it. Its death was not a tragedy. Its forsaking the public trust was the tragedy. There ought to be a special place for those who violate the public trust.
Andersen’s death means only that it was not allowed to continue making the world a worse place. A positive from its death is that there have been no Andersen audit failures since 2002.
The Chicago Tribune errs in labeling Andersen employees as victims. The employees were part of a seedy culture, and it was the culture that supported the actions which merited the punishment. The employees could have left. If anything, Andersen principals should have been banned from ever serving American capital markets as corporate officers or auditors.
The death of the Arthur Andersen audit firm marks the end of a sad chapter in American history.
Debit and credit – – David Albrecht