Magazine

How Andersen Turned to the Dark Side


By Joseph Weber

FINAL ACCOUNTING

Ambition, Greed,

and the Fall of Arthur Andersen

By Barbara Ley Toffler with Jennifer Reingold

Broadway Books -- 273pp -- $24.95

When Barbara Ley Toffler attended the 1998 annual conference of the Ethics Officer Assn., a trade group for corporate ethics executives, she was mightily embarrassed. Here she was, head of the ethics consulting unit at Arthur Andersen LLP, and longtime colleagues were needling her because they knew that Andersen itself had no formal internal-ethics program. The firm, says Toffler, was the proverbial barefoot cobbler's child. She found herself asking: "How do you sell as `essential' programs and services that your own firm refuses to embrace?" Much as she says she pushed for such a program, the resistance she got from Andersen's leaders left her feeling like a whiner inside the firm, even as she felt like an "insincere spinmeister" outside.

It's a pity--perhaps even a tragedy--for 85,000 ex-staffers that Andersen's ruling partners never saw the need for a mechanism to police themselves. Had they, they might never have been dragged into ruin by the seemingly see-no-evil work they did at such tarnished giants as Waste Management (WMI), Sunbeam, WorldCom, Qwest Communications (Q), Global Crossing, and, most deadly, Enron. Instead, Toffler suggests in Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen, the once squeaky-clean Andersen had grown so obsessed with revenue that its leaders waffled on the firm's ethics and those of their notorious clients. The 89-year-old firm had strayed disastrously from its founder's cherished maxim of "Think straight. Talk straight."

Toffler, who had previously been an assistant professor of business administration at Harvard Business School and an independent ethics consultant, didn't exactly have a ringside seat for the fall of Andersen in 2002. By the time the firm was found guilty, that June, of obstructing justice by shredding thousands of documents at Enron Corp., Toffler had been out of its offices, and largely out of the loop, for nearly three years. She worked at Andersen from late 1995 through September, 1999, when she left, disgusted with an outfit that "represented the worst in American business"--and, not incidentally, when she was contributing little to firm revenues. So her account of the outfit's final machinations is regrettably second-hand, drawn from news accounts that she credits. Unfortunately, her otherwise intriguing book sheds little new light on those final months.

But Final Accounting, written with former BusinessWeek editor Jennifer Reingold, tells much about the peculiar culture that brought about the debacle. Toffler's Andersen is a place where the pursuit of revenues was Job 1. Thus the slide from the demanding and disciplined audits Andersen once did into far more lucrative--but ethically compromising--consulting. Partners told her to drive up her billings, even if they were unjustified. And so exalted were the partners in Andersen's hierarchy-is-almighty milieu that underlings feared speaking up. Worse, thanks to a bizarre revenue-crediting arrangement, staffers spent as much time trying to cut one another out of new business as they did trying to develop it. Andersen, she suggests, was a "brutally cutthroat" place where "I learned to try to screw someone else before they screwed me."

Andersen was dedicated to "Billing Our Brains Out," she says. Toffler, who admits she was seduced by the gobs of money she was making, tells of an insurer who wanted to set up an ethics office, a $50,000 to $75,000 assignment. Instead, the author says, "we took advantage of our neophyte [project director] and steadily built a dependency...devising a monthly step-by-step plan that basically said to her that she wouldn't be able to sustain her responsibilities without us...." The tab: $250,000 a month. The company's savvy CEO quashed this ripoff after a month and a half. Another client, a bank that had illegally kept funds from abandoned accounts, saw its $500,000 job double in cost as Toffler and her group "billed time on the subway, we billed time rewriting our notes."

One suspects that Toffler's experiences in milking clients were far from unique. 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. Toffler's book should be must reading among CFOs and directors who worry about getting fleeced while they pursue quality auditing or corporate ethics.

Don't look for redemptive figures within Toffler's Andersen. Ex-CEO Joseph Berardino, who fell on his sword when it was clear that Andersen's days were numbered, comes across as greedy and unable to accept responsibility for his firm's failures. Toffler doesn't even give him credit for bringing in former Federal Reserve Board chief Paul Volcker in an ultimately futile effort to remake the firm. Indeed, as Toffler tells it, she was among just a handful of folks who cared about doing the right thing. Self-serving? Sure seems so, especially since she stuck it out for four lucrative years. Her insistence that she "pulled no punches" in suggesting fixes to top officers, and her lament of great frustration, ring a bit hollow.

Final Accounting won't be the final word on Andersen. Another writer will likely seek to reveal what top partners were doing and thinking at the end. Still, it offers valuable retracing of the once lofty firm's false first steps. Had the outfit stood by the ethics espoused by founder Arthur E. Andersen, it would be thriving today and setting the profession's highest standards--instead of being reviled for the lowest. Weber is Chicago bureau chief.


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