Book Review: Final Accounting
by Barbara Ley Toffler with Jennifer Reingold
Ethics and the Hard Fall of Arthur Andersen
Arthur Andersen is a name that has become synonymous with document shredding, accounting misdeeds and corporate scandal. According to Barbara Ley Toffler, the former partner-in-charge of ethics and responsible business practices consulting services for Arthur Andersen, it was an accounting firm that fell because of a lack of accountability. In Final Accounting, she writes that Arthur Andersen's downfall was not a murder, but was instead a suicide by a respected company whose culture began to decay in the years leading to the Enron debacle.
Toffler explains that Final Accounting is a book about "what happens when the values of an organization begin to distort your own." Enron was simply a final straw for a company that was on a search for more fees, power and political clout, and failed to fulfill its true purpose: to protect the investing public.
Arthur Andersen began when its founder set up shop in Chicago in 1913. At the time, Arthur Andersen, the man, was a first-generation American and a 28-year-old accountant who prided himself on his ethics and his integrity. His company was a place where standing up for what you believed in was a virtue, and doing the right thing was better than doing the easy thing. Toffler writes that he and his successor, Leonard Spacek, stood up for the investing public, held reputation in the highest regard, and spoke out against accounting abuses and bad policies.
Growing From Success
Even after Andersen's death in 1947, the firm grew into the most respected accounting firm in the world, with revenues tripling between 1947 and 1956 to $18 million. By 1963, Arthur Andersen had revenues of $51 million and 55 offices in 27 countries. For decades, Andersen would resign big accounts rather than stand behind accounting it felt to be wrong. Worldwide revenues continued to grow, reaching $2.8 billion in 1988. But by the end of August 2002, Andersen had been convicted on obstruction of justice charges stemming from the Enron debacle and was no longer auditing clients.
To explain the culture of "Androids" -- those who went through the rigorous Arthur Andersen training and development program -- Toffler describes the history of the complete cultural indoctrination that took place before a new hire could join the ranks of this elite, "cultlike" work force. This indoctrination, she notes, even included tips about the proper way to hold hors d'oeuvres at cocktail parties. It was this type of lock-step culture of conformity that Toffler writes led to disaster when the game and the leaders changed direction.
Toffler entered into the corporate culture of Arthur Andersen in 1995, when she joined the company's Central Region Consulting Organization in Chicago. After a shaky start at Andersen and during her four years of struggling with a bureaucratic, ethical and physical mess, Toffler saw the internal struggles of a company that had lost its way. She found herself in a job where making money was the goal, and over-billing was commonplace. She explains that a robotic approach to business and the acceptance of practices simply "because that's the way we do it" were part of a culture where white males made up the entirety of the company's upper echelons of management, and few minorities, women or non-Americans made it into the inner circle.
Enron's Shady Dealings
Toffler delves into the intricacies of the Enron debacle and how it seeped into the offices of Arthur Andersen in October 2001, heralding its demise. The players and personalities who found themselves embroiled in scandal in the company's final days are brought to life as she details Enron's shady dealings and Andersen's choice to keep Enron as a client despite its questionable financial practices.
Toffler describes how, in its greed for millions in fees, Andersen continued to approve Enron's books while shifting anyone who disapproved of its business practices away from the Enron account. She also details Enron's and WorldCom's (another Andersen client) bankruptcies, finger pointing and document shredding follow, offering insider observations from an expert on management ethics who watched the company crumble.
Toffler recognizes the difficulty of speaking out when individuals see problems in an organization's culture, and offers this advice: "[I]t falls upon the leaders and senior executives, who do have the power to effect change, to be keenly aware of the culture they create -- and to take action when that culture is causing harm."
Why We Like This Book
In Final Accounting, Toffler describes the ethical and managerial dilemmas that Andersen experienced when it lost sight of a mission that had formed the foundation of a respected organization, and the tragic results of bad decisions when those decisions are coupled with greed and arrogance. Her call for principles in business and personal ethics is made all the more powerful when placed against the backdrop of one of the greatest business shake-ups in U.S. history.
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