Arthur Andersen is vindicated, but does it matter? For the storied accounting firm, almost certainly not. The company that once boasted 28,000 employees is now home to fewer than 200. It long ago relinquished its accounting license and no longer conducts public audits.
The court's terse, 11-page opinion, written by Chief Justice William Rehnquist and issued in record time, all point to a bench that holds little patience for Justice Dept. overreaching. Good news for Corporate America, whose image has been battered by a series of very public cases against high-flying execs accused of manipulating earnings or looting the corporate till.
"PUBLIC-RELATIONS REASONS." But in real terms, the opinion likely won't change much in the way business does business in the post-Enron era. "If you're a corporate defendant, you still have to make a deal with [New York Attorney General] Eliot Spitzer or the Justice Dept.," says Stephen Ryan, a partner at Manatt, Phelps & Phillips and a former assistant U.S. attorney. "You still have to suspend your document-destruction program whenever you get a subpoena. Life goes on, frankly, with very little change."
Reasonable minds may differ on the ruling's impact and implications, but one thing about it is certain: The opinion echoes boardroom anger that aggressive prosecutors such as Spitzer are trying to set public policy with litigation. The Andersen case was Corporate America's Exhibit #1: a prosecutorial push for a quick verdict driven by enormous public and political pressure. "Arthur Andersen was charged, as far as I can tell, for public-relations reasons," says Richard Stamp, general counsel of the nonprofit Washington Legal Foundation, a probusiness group that filed a brief on the accounting firm's behalf.
Here's how Stamp views it: "Prosecutors thought, 'Gee, there's a lot of public demand that we be taking quick action. It's going to take us a long time to make a case against [Enron CEO] Kenneth Lay, so let's do something right away.' The easiest thing was to go after a company not for financial improprieties, but for obstruction."
AGGRESSIVE INSTRUCTIONS. He makes a good point. Prosecuting white-collar crime is a tough and time-consuming business, one that doesn't lend itself to feeding 24-hour news cycles. In the heady post-Enron days, Justice was under enormous pressure to act, and with no Enron indictments imminent, Andersen was a tempting target.
At least two Andersen execs -- a partner and an in-house attorney -- reminded employees of the company's document-destruction policy at a crucial time, which led to large-scale shredding of paperwork related to Enron, an Andersen client. A jury found Andersen guilty, and the Justice probe led to a guilty plea from the firm's former top Enron auditor, David Duncan.
The high court's opinion in Andersen zeroed in on aggressive jury instructions drafted by federal prosecutors, which said, in essence, that the jury didn't need to conclude that Andersen "knowingly" or "corruptly" persuaded its employees to impede a government investigation when it told them to adhere to the letter of the company's document retention policy.
MOTHER KNOWS BEST. The implication for business? Any document-retention policy might be construed as impeding a government investigation that might crop up any time in the future. "It made everybody quake in their boots," says Robin Conrad, a senior vice-president at the U.S. Chamber of Commerce.
But simply withholding information from the government, Rehnquist noted, is not in itself corrupt or illegal. "Consider, for instance, a mother who suggests to her son that he invoke his right against compelled self-incrimination," the Chief Justice wrote.
Although Andersen's demise is cited as one reason auditors have turned tougher on corporate financial reporting, the high court's ruling won't give surviving firms much comfort. Audit firms are as worried as ever about being scrutinized by the new Public Company Accounting Oversight Board, a regulator established under the Sarbanes-Oxley Act of 2002 to audit the auditors.
THE OTHER SHOE. Such new oversight is a key reason accounting restatements surged 20% in 2004, to 619 cases, from 514 in 2003, according to a May 31 report from research firm Glass Lewis & Co. The biggest surge in those restatements came in late 2004, as companies and auditors combed through their internal financial controls to meet a new requirement also imposed by Sarbanes-Oxley.
Even as business celebrates, the final shoe has yet to drop. Justice is still seriously considering asking for a retrial. And the law Andersen was accused of breaking has since been amended and broadened, making it illegal to "influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States." That could cover a lot of territory.
How much? Unless or until prosecutors bring a case, no one knows for sure. With David Henry in New YorkWoellert is a correpondent in BusinessWeek's Washington bureau