Tuesday, December 11, 2012


The horror! A rediscovered notepad.

The man who founded Arthur Andersen & Co. nearly a hundred years ago in Chicago, a young professor conveniently named Arthur Andersen, once refused a client’s plea to ‘cook the books’ during the client’s annual audit, even as Andersen was struggling to pay his employees. He famously proclaimed that “all the money in the city of Chicago” would not lead him to compromise his ideals, and the client, the owner of a railroad utility, fired him. The railroad company, as the story continues, failed, and in the wake of this double bankruptcy—both commercial and moral—the little accounting firm stood, vindicated, in the sturdy terrain of ethical principles. (Two heavy wooden doors, replicas of the firm’s original entrance-way, would become the company’s enduring trademark.) A partner rehearsed this ditty for me when I joined ‘Arthur’ in 1990 as an entry level research economist charged to support the firm’s growing practice in cross-border transactions. In short, my group would assist foreign multinational corporations—mostly Japanese and German—in dodging their fair share of U.S. tax. These corporations, from the lands of the former Axis Powers, did staggering American business in vehicles, machinery, electronics, and other goods, yet in many cases, paid little or no tax on their U.S. operations. Given the deep pockets of these clients, Arthur could out-muscle the understaffed Internal Revenue Service, which otherwise sought to collect. A two million dollar investment in hiring the heft of Arthur, for instance, would likely avoid a two billion dollar judgment, and in the end, fewer than all the Yen in the city of Tokyo and fewer than all the Deutschmarks in the city of Berlin could, indeed, purchase creative reporting from Arthur. Work-products were often tailored to please the client, and amid the firm’s break-neck sprint to amass billable hours, professional objectivity was discarded in the name of profits. Around the same time, the United States entered a fairly steep recession, one that underscored the decay of American manufacturing, and where U.S. manufacturers had shuttered their doors, Japanese and German companies in many industries prospered. To my knowledge, Arthur did not engage personnel in Tokyo or Berlin to assist American multinationals in avoiding their fare share of Japanese and German tax, or if it did, the firm derived little revenue from this activity. The idea of growth isn’t, by itself, corrupt, but growth uncoupled from the ‘local’ principles upon which Arthur Andersen & Co. was founded, did lead to systemic corruption. I sat at a cubicle for two years, researching and writing bits and pieces, occasionally directing small client engagements, leaving in 1992. Numerous scandals could have erupted in various corners of Arthur, and eventually, some court actions did materialize. One in particular, involving the audit of Waste Management, served to weaken the firm’s clean-cut aura, before another case, Enron, drew considerable attention and toppled both companies in 2002. Before the Enron debacle, the firm’s consulting wing severed itself from Arthur and became Accenture, a company that continues to thrive today. At its peak, Arthur had been the ‘Titanic’ of global auditing firms, with billions of dollars in annual revenue and a couple hundred thousand audit and consulting employees worldwide. In its greed, however, the firm misapplied its role as independent auditor and consultant, enabling other enterprises in their greed to shelter profits (among other scams). Ten years after Enron, many wealthy corporations—notably led by the financial services sector—continue to abuse their relationships with money . . . and the law. It’s easy to argue for oversight, and there should be oversight, of course, but on the other hand, the larger and wealthier and more arrogant the corporation, the more it comes to resemble a disease. After Arthur’s indictment in federal court, its worldwide practice buckled and perished in a matter of weeks, one client after another dumping its former auditors. I resigned from the firm for three reasons: a supervisor refused my petition for a reduction in overtime so I could care for a dying relative; the unethical commerce at play; and I accepted a small fellowship to write poetry. Ultimately, I, the little poet, endured. 


mark wallace said...

A useful and informative cautionary tale.


Thanks, man. At the end of the day, there is very little to recommend in Arthur, and as it turns out, they are kaput. ----------------------------------------------------BA