C. W. Boyd 2004. “The Last Straw’: A Review of Final Accounting: Ambition, Greed and the Fall of Arthur Andersen by Barbara Ley Toffler with Jennifer Reingold” Business Ethics Quarterly, 14, 3, 581–592. (A special edition of the journal devoted to Accounting Ethics)
For a PDF version of the article as published, click here.
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REVIEW ARTICLE
The Last Straw
Professor
of Management,
A review of
Final
Accounting: Ambition, Greed and the Fall of Arthur
Andersen
Barbara Ley Toffler with Jennifer Reingold
Barbara Ley Toffler, assisted by Jennifer Reingold (a former editor at Business Week), has written a riveting story of the decline of the mighty accounting firm of Arthur Andersen. From her inside perspective as a partner hired to start up Andersen’s ethics consulting business in 1995, she describes the way in which an organization once proudly dedicated to professional integrity became so corrupted by greed that it completely lost its moral compass. She claims that the Enron debacle was not the cause of the sudden death of Arthur Andersen, but rather that “The Firm,” as insiders called it, committed a slow form of suicide that had commenced many years earlier. Enron was the last straw.
The revelations in Toffler’s book are truly astonishing, so much so that my mouth was agape at times while reading it. I have been a long-time critic of the accounting profession, arguing that the big accounting firms’ diversification into consulting would produce temptations that would affect the integrity of their core audit business. I argued this position not just from an ethical standpoint, but also from a pure business perspective -- I was convinced that it was not in the accounting firms’ commercial self-interest to pursue a path of possible ethical compromise that, if enacted and then discovered, would threaten the life of the goose that laid their golden eggs.
Toffler’s story of Arthur Andersen provides a total vindication of my views, but even I am astounded at just how rotten the firm was inside compared to my wildest fantasy about how an ethically-compromised accounting firm might operate. Her portrayal of the grubby reality of amoral decision-making at Arthur Andersen stands in marked contrast to the prior proclamations by leaders of the accounting profession regarding the profession’s inherent incorruptibility. This book indeed provides an eerie echo of the recent similarly stark contrast between the espoused ideals of the Catholic Church and the actual behaviors of some members of that Church’s clergy. I shall return to these parallel claims of infallibility later in this review.
When I first started to read Toffler’s book I began to question her credibility – there were so many surprising claims in the book that I began to suspect hyperbole. The issue of her credibility is so important that I will first deal with the three flaws in the book that could undermine her believability.
The first problem concerns her lack of prior work experience within a large commercial bureaucracy such as Arthur Andersen. Toffler had previously been an academic at Harvard and had subsequently run her own ethics consulting service. But nothing had prepared her for life within a highly stratified organization where ambitious careerists fight to climb up the ladder.
A number of her complaints about Andersen stem from her apparent naiveté about life in this kind of highly political organizational culture. The most conspicuous example of this is her petulance at the absence of window coverings, potted plants, credenzas and a lake-view in her company-supplied apartment. She complains that these perks were for equity partners only, the next rank above her high station.
The second problem relates to the fact that her four-year relationship with Arthur Andersen eventually failed after having promised her so much at the start. She resigned in September 1999 when “it was time to get the hell out.” She is obviously bitter at the overall experience, and one wonders just how much this may have tainted her views.
The third problem is more profound. In her book, Toffler makes the remarkable admission that her own principles became subjugated to the commercial interests of Arthur Andersen because of the salary and perks she received as leader of the firm’s Ethics and Responsible Business Practices group. She readily admits to being influenced by the firm’s culture, thus catching the same disease that she claims was endemic in the rest of the firm.
If she had been willing to bend in the light of the financial rewards at Andersen, then would she not also have been sorely tempted to sensationalize her book about Andersen so as to increase sales, and thus increase her income from the book?
At first, therefore, I had suspicions about the objectivity and the truthfulness of this book. Accordingly I decided to explore the degree to which other reviewers had found the book to be credible. The Wall Street Journal describes only one problem (besides an accusation of “humourlessness”) in an otherwise positive review of the book. The Wall Street Journal reviewer questions whether Toffler’s mea culpa was pure, suspecting a desire for exculpation (Spiro 2003). Business Week’s review is also positive, but doubts the extent to which she really “pulled no punches” in trying to get Andersen to change its ways. Her “lament of great frustration” rang a bit hollow for that reviewer in the light of her staying on with the firm “for four lucrative years” (Weber 2003). Shorter reviews in the Harvard Business Review (Landry 2003) and the New York Times (Norris 2003) find no fault with the book
The set of customer reviews of Toffler’s book at the book’s web site within Amazon.com (24 in all at the time of writing) provide some interesting perspectives, albeit ones that must be treated with some skepticism. Within these 24 reviews, there are some shallow pieces that are clearly motivated by malice. But these negative reviews are outweighed by the number of thoughtful positive reviews, including some by people who claim to be Andersen insiders (or to be employed by other accounting firms) and who validate Toffler’s descriptions of Arthur Andersen.
On balance, in looking through all the reviews of Toffler’s book that I could find, I am persuaded that her account of Arthur Andersen is credible. Even if one were to employ some kind of “truth inflation” discount factor to her book, such that one were to believe only 50% or even just 10% of what she has written there, the remaining nuggets of truth would still represent a devastating indictment of Arthur Andersen’s modern culture.
Barbara Ley Toffler had previously produced one book entitled Managers Talk Ethics: Making Tough Choices in a Competitive Business World, which contained a number of interviews with businesspeople who were facing real life ethical dilemmas (Toffler 1986). It was extremely well received, for it was the first work to show the deep embeddedness of actual ethical dilemmas in business. The dilemmas she unveiled were difficult to abstract and to describe in isolation from their specific contexts. The book’s innovative problem-based approach contrasted with the issues-based and philosophy-based approaches that had previously characterized much business ethics thinking.
Toffler’s current book was originally planned to be entitled Our People: How Arthur Andersen Won Big Business - and Lost Its Way (Baker 2002). The actual title Final Accounting: Ambition, Greed and the Fall of Arthur Andersen is a much better synthesis of the book’s contents.
Toffler cleverly uses a chronological account of her
experiences at the firm as the platform from which to launch descriptions of
various aspects of the history of the firm and from which to analyze particular
aspects of the firm’s culture. She tells of the founding of the firm in
“Prick a finger of a long-time Arthur Andersen partner, and stories like this one flow out like drops of deep red blood. That simple maxim [of Arthur’s], “Think straight, talk straight,” was the touchstone of the firm. Arthur Andersen, partners would say with pride, was a place where integrity mattered more than fees, where standing up for what you believed in was a virtue, and where it was better to do the right thing than the easy thing. Andersen, and his successor Leonard Spacek, were … men who understood that for a professional services firm, reputation was the only thing that mattered. … even rivals commended the Firm for its intensely loyal culture and willingness to be the conscience of the industry.”
She quotes from a 1932 speech from Arthur Andersen himself so as to reveal his ideals:
“If the confidence of the public in the integrity of accountants’ reports is shaken, their value is gone. To preserve the integrity of his reports, the accountant must insist upon absolute independence of judgment and action. The necessity of preserving this position of independence indicates certain standards of conduct.”
Leonard Spacek, who succeeded Arthur as the leader of the Firm from 1947 until 1963, was similarly concerned about falling standards in the profession. Toffler notes that he took on his own industry “with the ferocity of pit-bull,” and quotes him giving an ominously prescient warning of his own firm’s downfall:
“I would like to tell you that our profession is standing steadfast to our principles and responsibilities. This I cannot do. …I find that the most serious problems in our profession are caused by our indulgence. …We just wait for the catastrophe, because we do not have a sufficiently strong or self-appraising accounting profession to right this public wrong before, and not after, serious injury results.”1
Andersen and Spacek ensured that the Firm would follow a path of integrity by creating a strong normative culture. Elements of the culture included the symbolic global icon of Andersen, a pair of “stern, strong, weighty wooden doors” which were installed at the entrance to each Andersen office. Spacek is quoted as saying that these doors “represented confidentiality, privacy, security and orderliness,” and that “these thoughts epitomized the common vision I want all our people to share.” Toffler ironically notes that “a meaningless red-orange blob” replaced Andersen’s door logo in 2000.
She describes the “One Firm” concept, originally introduced by Arthur Andersen to promote the idea of a universally high standard of client service provided by people who are all trained the same way. The firm’s operations became so standardized that any employee could take over the duties and files of another employee of the same rank at a day’s notice. Toffler notes that this uniform quality of service required Andersen to ensure that employees conformed to standard specifications. Recruits were picked primarily “for the ability to adapt and play by rules set long ago.”
The essence of this uniformity is captured in the use of the nickname “Android” to describe an Andersen employee. Androids had to have a standardized appearance enforced through a rigid dress code. New recruits would get help with purchasing their first business suits. In the old days, they were even provided with a standard business hat. When Andersen finally allowed “business casual” dress in 2000, there was a flurry of new rules for this attire. She notes that they sent people home for breaking the casual dress rules.
Toffler describes the array of rules to which she had to
conform on joining the firm. She had to bank and save
with one particular bank (an Andersen audit client), had to donate a portion of
her salary to a specific charity, and had to join a downtown business club. The
company ruled that no employee could eat lunch at work, and that their desks
and office must be tidy. Later in the book she tells of her shock at viewing
the shambles of papers, shoes, clothing and discarded lunches on the desks and
floors in Andersen’s audit offices in
One of the main vehicles for cultural indoctrination was the
In one of the many ironies in the book, Barbara Ley Toffler notes that Arthur Andersen initiated an ethics
program in 1988, which involved the development of new teaching materials in
business ethics. The company brought business professors to the
I was one of those professors, and I still have two abiding memories of my visit to that campus. First, there was the strict daytime dress code, which they tried to impose on the visiting business faculty. Most of us were naturally untamable, and so this attempt at control was thwarted.
Second, there was the campus bar, “a great way to learn
what was considered acceptable behavior and what wasn’t” according to Toffler.
The bar was indeed a major forum for the informal teaching of the firm’s
culture by partners to new recruits. It seemed to me, though, that the one
major lesson in that bar for the now unbuttoned recruits (liberated from the
dress code after 7.00 p.m.) was training in how to drink and hold copious
quantities of booze, purchased for them by the partners.
Toffler notes that Andersen’s ethics education program was subsequently dropped, not least because of embarrassments spawned by the main educational videotape that Andersen had produced. In that tape the narrator at one point stands in the pit of the Chicago Commodities Exchange and proudly proclaims that this exchange (located in Andersen’s home town) had not been hit by the insider trading scandals that had just previously plagued the NYSE. Some time later, 30 traders from the Chicago Exchange were prosecuted for fraudulent trading.
The program was dropped for a second reason. The leading business spokesperson on the video tape, one Stew Leonard of Stew Leonard’s Dairy Store, experienced a career arc that reflected the subsequent arc of Arthur Andersen itself. Leonard’s Dairy was one of the businesses featured in the 80’s bestseller “In Search of Excellence” (Peters and Waterman 1982). In the Andersen video, he is the most prominent champion of business ethics, inventing cringing mottoes such as: “Would the boy that you were respect the man that you are now?”
Toffler quotes another of Stew Leonard’s sayings from the ethics video: “The people that look for shortcuts -- the prisons are filled with them.” To Andersen’s utter embarrassment, Stew Leonard was jailed for tax fraud in 1993.2
A prominent part of the culture of Arthur Andersen that Toffler describes is the norm of obedience to superiors. At one point she recalls being asked by a retired partner to describe some current ethical problems that he might include in a speech that he was due to give. She tells him of “the problem of a young person who believes that he or she has seen something wrong and is trying to raise the problem with a superior.” She says that she then provided an example or two, but that the partner interrupted her with the question: “So what you’re saying is that a big ethical problem today is the problem of insubordination? That these young people think that they know better than their bosses?”
To this retired partner, and presumably to other old-timers in Arthur Andersen, this response would appear entirely logical, given the assumption that all partners were people of impeccable integrity, and given that the severe culture was designed to recruit and train future accountants to have an ethical viewpoint identical to the ideals espoused by the whole firm. A subordinate could not be imagined to ever want to disagree with the correct ethical judgment of a superior.
The culture that Arthur Andersen and Leonard Spacek had created was indeed magnificent, in that it did perpetuate the high ideals of the firm. Arthur Andersen was at one stage the most highly regarded of all the accounting firms, unreservedly respected for its standards of integrity and for the quality of its staff. But later on something went appallingly wrong.
According to Barbara Ley Toffler, the two things that derailed Arthur Andersen were a lack of strong leadership and greed: “…the Firm was rudderless, its core values of integrity, stewardship, and public responsibility replaced by greed. Money was seen as the great healer, and so the leaders who emerged were those whose clear focus was on raising the revenues.”
The healing, in this context, was needed because of the huge fight between the audit partners in Arthur Andersen and the consulting partners over the fact that the faster growing consulting business was more profitable than auditing. Toffler describes the fight over power and the distribution of profits at some length, providing a particularly detailed explanation of the behind-the-scenes maneuvers that led to Andersen Consulting splitting away from the rest of the firm in 1989.
To Toffler, though, many of the ethical pressures on auditors within Arthur Andersen appear related to the firm’s re-growth of consulting activities following the split with Andersen Consulting. I think that the earlier rapid growth of consulting in Andersen prior to the split must have initiated many of the ethical tensions that Toffler seems to think were the product of the 1990s. Andersen’s devotion to integrity may have been under attack much earlier than she imagines.
Whatever the actual timing of the start of the erosion, Toffler’s book makes it abundantly clear that during her time in the firm the independence of the audit was completely corrupted by the quest to get ever-more consulting income from audit clients. Audit partners are described as arranging for consultants to make pitches to audit clients: “… the auditors, guardians of the public trust, were becoming consulting shills. Their culture of upstanding respectability was disintegrating…”
She provides a number of examples of audit partners being involved in the selling of non-audit services to audit clients. She details other shady practices, such as: audit partners being compensated according to the level of consulting services sold to an audit client and according to the degree of satisfaction expressed by the audit client; audit partners being financially penalized if involved in a restatement of a client’s financial position; charging entertainment expenses (involving, in one case, entertaining the client’s children) to audit fees; golfing with audit clients; and even offering summer employment to the children of the senior officers of audit clients.
Toffler states that the new creed within Arthur Andersen was to keep the client happy above all other considerations. She notes that the strong culture within Andersen still existed, but that it now had lost its focus on integrity. For example, the cultural norm of obedience still worked, but now it served to protect corrupted audit partners from questioning by subordinates. Toffler describes her frustration at discovering that Andersen had no alternative communication channel to meet the needs of whistle-blowers.
She argues that Andersen did nothing to address the new reality of the threat to auditor independence posed by consulting. In particular, she details her participation in planning Andersen’s response to a newly enlivened Securities and Exchange Commission in the wake of Andersen’s involvement in the Waste Management and Sunbeam accounting scandals. She feels that Andersen’s eventual internal reaction was feeble: “They released a few warning memos and essentially crossed their fingers and hoped everything would work out.”
She concludes that this reflected weak leadership at Andersen. The split with Andersen Consulting, she contends, had created a huge rift in the firm that made it unable to produce an individual with the vision and support that previous leaders had had. In the subsequent leadership vacuum the culture of the firm remained strong, but the guiding vision was lost. The void was so bad that she compares Arthur Andersen to the leaderless group of stranded schoolboys in William Golding’s novel The Lord of the Flies. She raises the interesting point that the democratic principles involved in Andersen’s partnership form of business organization are in natural opposition to the concept of strong leadership.3
Towards the end of the book she tells the inside story of how Andersen handled the Enron crisis. This material is clearly second-hand, as she had left the firm some two years before the scandal erupted. She does reveal that one audit partner who earlier had objected to Enron’s accounting policies had been removed from the audit team when Enron’s management complained to Andersen about his stance. She also recounts how, in previous years, Andersen had internally promoted Enron as being the leading example of the type of client that it wanted to serve in the New Economy age.
Toffler tells several stories to illustrate the extent of greed and arrogance in the firm; one chapter in the book is actually entitled “Billing Our Brains Out.” For example, she recounts how she and a junior manager from another unit had come up with price estimates that totaled $125,000 for the combined work to be done for a particular client. The consulting partner to whom they explained these prices went ballistic when he heard their estimates, and later unilaterally upped the price to $600,000. Defending that unwarranted price hike he said, “This is Arthur Andersen, that’s the way we do things around here.” When asked if he thought the client would accept that price, he replied, “Relax. We’re Arthur Andersen. They need us. They’ll pay.”
There are two central components of Barbara Ley Toffler’s personal story that have a particular irony, given that she was the head of Andersen’s ethics consulting unit. One is of her own induction into the culture of Andersen, and the loss of her prior values. “Soon I found myself giving pitches for stuff that I did not believe in… offering things that I did not think essential. The goal was… simply to make money.”
Equally perplexing to her was the fact that her ethics consulting unit provided advice on ethical behavior to outside clients that directly contradicted how her own organization behaved. In a chapter entitled “The Cobbler’s Children,” she likens Andersen to the shoeless children of a cobbler. She tells of being embarrassed “by the fact that my former clients and associates in the business ethics community saw Arthur Andersen as a joke.” The firm did not practice what she preached.
In one telling example, she relates the story of conducting a 2-hour session with 120 Arthur Andersen managers in which the topic was the discussion of ethical concerns. She puts up the stakeholder “wheel” on the blackboard so as to initiate debate about Andersen’s stakeholders, and then asks the question, “Which stakeholder is the most important?” She is astounded when the unanimous answer comes back: “The partner.”
One irony that she does not touch on at all in the book is the fact that her Ethics and Responsible Business Practices unit at Arthur Andersen had funded a huge academic study of employees’ perceptions of their firms’ ethics and compliance programs. One finding of that study was that “an ethical culture that focuses on unquestioning obedience to authority” (just like Arthur Andersen’s) damages the effectiveness of an ethics management program. The results of the study are published in Treviño, Weaver, Gibson, and Toffler (1999)
She concludes the book with some reflections on the tale of Arthur Andersen and with some suggestions for how the business world could be improved in the light of that tale. She adroitly notes that the Arthur Andersen case blows the “bad apples” excuse for ethical villainy out of the water. Toffler’s book provides us with the prime example of a systemic ethical failure within one of the Big Five accounting firms. However, she does not discuss the degree to which the other Big Four accounting firms may have suffered from similar systemic flaws, although she does contend that the intense competitiveness and the greed within Arthur Andersen were the direct result of the heat of competition between the big firms. Given that all the big firms experienced the same business conditions, then it seems logical to assume that they each reacted and evolved in much the same way as Arthur Andersen, especially with regard to using the audit as the vehicle to obtain more consulting business.
One reviewer of Toffler’s book goes so far as to suggest that the other Big Four firms might even be worse than Andersen: “Indeed, among accounting firms, Andersen was esteemed for its integrity -- which suggests that this build-the-billings mantra may have been even more widely recited at other firms” (Weber 2003).
Her only comment on the integrity of the other big firms in the industry comes when she observes that just a few weeks before Enron imploded the accounting firm of Deloitte & Touche had concluded an investigative review of Arthur Andersen as part of the annual “peer review” system of mutual inspection that the accounting profession employed to reassure the public that it had an effective system of self-regulation. She notes that Deloitte & Touche reported a “clean” peer review of Arthur Andersen immediately before the collapse of Enron, a preposterous evaluation under the circumstances that were later revealed.
The “bad apples in the barrel” excuse may yet re-emerge as the accounting profession defends itself against Toffler’s mountainous landslide of evidence of unprofessional conduct at Arthur Andersen. The firm’s list of recent audit failures is indeed long: Arizona Baptist Foundation; Boston Chicken; Enron; Global Crossing; McKesson-HBOC; Qwest; Sunbeam; Waste Management; and WorldCom. No doubt we will soon hear claims that this list shows that Andersen alone was the rotten one within the industry, and that we need not worry about the integrity of the other firms.
Reading Barbara Toffler’s book has reinforced my view that the accounting profession has suffered under a self-deluding belief for many years, namely, a belief that the profession is the ultimate bastion of integrity in the business world. Here is an example of such a belief, expressed by the incoming chair of the AICPA in 1999:
“For more than a century, the AICPA has done a fabulous job of building a strong profession. This can be seen in the respect and prestige that the public accords to individual CPAs and to the profession. The high public standing was largely created through our self-regulatory structure.” (Craig 1999: 41)
This statement was made after a 25 year period in which
successive waves of audit scandals had produced much criticism of conduct in
the profession, and indeed not long after the stinging rebuke of the profession
delivered by Arthur Levitt, the Chair of the U.S. Securities
and Exchange Commission. In his widely publicized speech entitled “The “Numbers
Game””, given at
“Too many corporate managers, auditors, and analysts are participants in a game of nods and winks. …Managing may be giving way to manipulation; integrity may be losing out to illusion. … [For accountants,] the highest standards of objectivity, integrity and judgment can't be the exception. They must be the rule. …I don't think it should surprise anyone here that recent headlines of accounting failures have led some people to question the thoroughness of audits. … We rely on auditors to put something like the good housekeeping seal of approval on the information investors receive. The integrity of that information must take priority over a desire for cost efficiencies or competitive advantage in the audit process” (Levitt 1998).
In response to a specific question about Levitt’s speech, the AICPA chair defended the profession’s competence: “The standards of practice are as high as they have ever been or higher” (Craig 1999: 44).
Some critics of the profession might take the AICPA chair’s self-congratulatory statements to be another example of “a smokescreen, or fig-leaf, for the pursuit and protection of sectional interests”; statements providing continued justification for the monopoly position that accountants have successfully acquired within society (Mitchell, Puxty, Sikka & Willmott 1994: 46). 4
While there may be various self-serving elements to the claims by the leaders of the accounting profession as to the infallibility of the overall system, I would venture to suggest that there might be something more profound in their expressions of belief in the system. Could it be that the AICPA Chair might have actually believed in what he said? Barbara Toffler’s book provides a strong hint as to the processes that may have gone on in the profession to produce such a belief. In the chapter entitled “The Cult in Culture” she discusses Andersen’s strong corporate culture, noting that the word “cult” comes from the same root as the word “culture.” But she fails to advance this line of reasoning to make the next two obvious linkages -- to the words “religion” and “faith.” To me, the essence of her book can be summed up in one simple sentence: the faith in the original ideals of Arthur Andersen mutated to become a faith in the firm itself.
Might this description not also apply to the accounting profession as a whole? Could it be that many members of the accounting profession have similarly developed a belief in their own virtue, much like the members of some churches? Faith is not necessarily based upon facts, after all, and it can be contradictory to what you see with your own eyes.
Earlier in this review I hinted that the self-evident rectitude in the priesthood might have found an analogue in the rectitude of professional accountants, being another group that has claimed to have an unrivalled integrity.
It seems to me that, if a professional cohort (such as accountants or priests) is assumed by its members a priori to be synonymous with the ethical, then any attempt to make ethics an explicit presence in the training of the profession is either redundant, telling them what they all know and do already, or else it is covertly critical, implying that the profession’s current presumptions and practices are somehow at variance with what they profess and how they perceive themselves. Professional accountants may thus have a grand conviction of their individual and collective ethical integrity that requires neither articulation nor defense. It is a fact to them, an article of faith.
I encountered just such a view in 1998 when I attended an academic conference where I met the head of a major North American accounting school. I ended up trying to persuade him to include a class in business ethics in his school’s undergraduate curriculum. “Why would we want to do that?” was his exasperated reply. “All our students have a vocation to become accountants: they are already the type of people who know what correct behavior within the profession should be, that is part of their attraction to the profession of accounting.”
I challenged him by asking how the system would deal with the odd student who was ignorant of the ethical norms he was referring to. He said that the cultures of the accounting firms that the students would soon be working in would soon ensure that their behavior would be ethical. There was thus no need to expose his accounting students to any training in ethics. In my conversation with him, he had unwittingly used the word “vocation” to describe the motivation of his students.
On reflection, though, I consider this whole religious analogy to be excessively lofty -- comparing accountants to a religion just glorifies them too much. A more down-to-earth metaphor is needed. My wife has suggested that one’s trust in the integrity of the accounting profession is like the trust that one has in the food freezer in the basement while one is away on holiday. Opening Toffler’s book is like opening the lid of that freezer, only to find that it stopped working long, long ago.
Toffler’s excellent book leaves me with a number of dispiriting thoughts. First, I am tempted to ask what is the point in providing ethical training in professional schools when the students from one’s classes can end up straight away in organizations like Arthur Andersen? It seems such a waste of effort and ambition. The path of that organization through time must have left a trail of disillusioned, embittered professionals, with Barbara Ley Toffler perhaps being one of the most conspicuous of them. (Of course, Andersen’s demise has now released into other accounting firms those thousands of accountants who did decide to stay with Andersen, and who thrived within its unethical culture. See my comment below on the current professional status of these individuals.)
Second, her book leaves the reputation of business ethics
consultants in tatters. The decisions of Arthur Andersen, KPMG Peat Marwick,
and Deloitte and Touche to enter the field of
business ethics consulting around 1995 promised the possibility of a wonderful
reformation in the world of business (
Finally, there is the conspicuous failure of the accounting profession to collectively undertake any kind of serious examination of the conduct of those members of the profession who remain in public practice, and particularly of the firms that employ them.
The public practitioners within Arthur Andersen in the
Why has the accounting profession not ordered an investigation by independent assessors into the cultures and systems of the other big accounting firms? They too have engaged in the selling of consulting services to audit clients, a practice that so clearly corrupted Andersen. Do they too, for example, have compensation schemes that actively discourage audit independence? Do they have whistle-blowing communication systems? Are these effective? Are they used? Given the information in Toffler’s book, the accounting profession has many, many questions to ponder. I personally doubt that we shall ever hear an answer to any one of them.5
FOOTNOTES
1 Leonard Spacek would have been further disappointed to discover that in recent decades the profession was not self-appraising enough to right the public wrong after incidences of “serious injury," let alone before.
2 A recent article contains an interview with a repentant Stew Leonard following his release from jail. It states that: “He was sent [to prison] after pleading guilty in 1993 to conspiracy to impede the Internal Revenue Service. Court papers describe an elaborate scheme to divert more than $17 million in cash register receipts over a ten-year period, resulting in $6.8 million in unpaid taxes. For his role as mastermind, Leonard was sentenced to 52 months, plus three years of supervised probation, and ordered to pay $15 million in back taxes, penalties, and interest, a $650,000 fine, and $97,000 to cover the cost of his incarceration. Two brothers-in-law and a longtime employee received lesser sentences. At the time the IRS called it "the largest such case in the country in which a computer was used".” (Whitford 2002: 34) The author notes that the auditor of Leonard’s Dairy at the time was Arthur Andersen. For more details of Stew Leonard and the Andersen videotape, see also Neimark (1995).
3 This sentiment is echoed in a recent commentary in the Canadian Chartered Accountants Magazine: “Professional service firms are ill-equipped to deal with a major crisis. Their decentralized structure -- a strength for quality professional services -- becomes a weakness in a crisis situation. They are not structured to face the same business risks as traditional shareholder-based enterprises.” (Côté 2002: 60)
4
To Mitchell and his co-authors, the lay public’s positive opinion of the
accounting profession’s integrity is viewed to be nothing more or less than the
product of astute marketing by an occupational group that has succeeded in
making itself appear invaluable to society. In their paper they argue that the
5 As a postscript to this review, I invite readers to reflect for a few minutes while viewing the following web site -- http://www.arthurandersen.com/
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