Nevertheless, it is important that Andersen survive as an independent firm. The Justice Dept. decision to indict the entire firm, rather than just the managers responsible for the Enron Corp. auditing disaster, never made a lot of sense, and makes less sense now. Indeed, new revelations by BusinessWeek show in detail just how the combination of lax oversight by managers in the national office in Chicago, combined with excessively aggressive behavior by the Enron audit team in Houston, could allow the Enron mess at Andersen to develop. It's simply wrong to punish the rest of the people in the firm for the sins of a few top managers in the Houston and Chicago offices.
More important, allowing the criminal indictment to put Andersen out of business would serve no useful social purpose. Under the plan proposed by Paul Volcker, the former Federal Reserve chairman brought in to help rescue the firm, Andersen would have the opportunity to develop as a "best-practices" accounting firm. Volcker has proposed separating the auditing business from consulting and tax services, and requiring auditors to be regularly rotated to different clients. If carried out, the Volcker plan could turn a rejuvenated Andersen into a role model for the rest of the accounting industry.
That doesn't mean the firm should get off lightly. Unlike Volcker, we believe Andersen should plead guilty to one felony count of obstructing justice, since documents were destroyed. Then the firm should purge itself of the culpable top managers and remake itself along the lines of the Volcker proposal. The Mar. 26 resignation of Andersen Chief Executive Joseph F. Berardino is only the first step in this direction. A much more thorough shakeup of Andersen's leadership is needed in order to demonstrate the firm's commitment to genuine change.
On the government side, the Justice Dept. should focus on indicting the individuals at Andersen who allowed this disaster to happen. They are the ones responsible for the deceit of investors, not the firm as a whole. At the same time, the Securities & Exchange Commission and state regulatory agencies should make it clear that Andersen's admission of guilt on one felony count would not bar the firm from continuing to function as an auditor.
Nobody wants the Big Five accounting firms, already a small number, to become the Big Four. That would mean less competition, less pressure to change troublesome practices, and ultimately a poorer quality of information for investors. Andersen should be encouraged to reform itself--not be put out of business.