The Fall of Arthur Anderson

In: Business and Management

Submitted By rome940
Words 3102
Pages 13
Andersen's descent from conscience of the accounting industry to accused felon didn't happen overnight. Rather, it stemmed from a series of management miscues and compromises over the decades. As the firm grew from a close-knit partnership to a globe-spanning behemoth, pressure to boost profits became intense. Andersen leaders responded by pushing partners to become salesmen -- upsetting the delicate balancing act any auditor must perform between pleasing a client and looking out for the public investor. Seeds for Demise Although nobody knew it at the time, the seeds for Arthur Andersen's eventual demise were sown in 1950, when the firm introduced the "Glickiac" to the world. Named after its inventor, an Andersen engineer named Joseph Glickauf, the clunky device created a sensation by demonstrating that computers weren't just for scientists: Companies could use them to automate their bookkeeping. This ushered in an entirely new business. Rather than just audit the books, Andersen would set up the computers clients needed to keep the books. It wasn't long before Andersen boasted by far the largest technology practice of any accounting firm, raking in huge profits. The flood of money introduced a new element of tension into the partnership. Under rules set by the auditors who ran the firm, all of the profits from all the practice areas had to go into one big pot to be divided among partners. But since the average consultant brought in more money than the average auditor, the consulting side complained the arrangement was unfair. The week after New Year's Day in 1989, at a world-wide meeting of the firm in Dallas, the consultants finally made their break. They won an agreement to separate into two units -- Arthur Andersen and Andersen Consulting -- under a Geneva-based parent company known as Andersen Worldwide SC. But most importantly, the accounting side…...

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