Arthur Andersen LLP - Case Study Example

?Arthur Anderson LLP Environmental, strategic, and organizational changes that occurred One of the environmental changes that occurred over the organization’s life was the legislation in the 1930s that required listed companies to submit their statements of financial position. This shifted attention to the Anderson whose decision into ethical practice led to the legislation. Development of computerized bookkeeping by the organization is another environmental change that shaped its operation because it was the pioneer. Another significant environmental factor in the organization’s life is the internal wrangles that led to its disintegration into two separate firms (Learning Ace n.p.). Strategic changes that occurred in the organization’s life include development of a reputable character that established it in the accounting and auditing market. Later changes that suggest unethical practices such as collaboration with Enron’s accountants however transformed Andersen to its downturn and collapse. Application of soft strategies is another change that occurred in the organization’s life. Conflict between departments into integration also identifies strategic change in the company’s environment. Organizational changes that Andersen realized are change from a centralized management to a disintegrated organization with independent managerial authority at branch level. Administrative policies for higher profits and lower costs are another organizational change in the organization and identified punitive reward and punitive measures depending on an employee’s level of success. Expansion to new areas of specialization and a shift form ethical values are other organizational changes that are evident from the organization’s life. 2. Evaluation of Andersen’s claim that their problems on the Enron audit were due to a few bad partners Anderson’s claim that its problems were caused by a few bad partners is not valid. This is because the problem was a culmination of bad decisions that failed to resolve the organization’s problems such as need to maximize profits. The decision to set high targets for employees and punish in case of failure to meet the target is an example of causes of the problem because it forced the employees to explore all possible alternatives to avoiding the punishments. Integrating Enron’s accounting personnel into the organization is another indicator the management was aware of the practices at Enron because it never reacted. Duncan’s decision to move Enron’s $ 30 million ao a $ 50 million account is another indicator that Anderson was aware of a malicious practice because it took no action against the bad decision. If the problem had been a few individual then the organization could have been moved to correct malpractices before the final fall. 3. Possible actions as the Andersen’s managing partner in the early 1990s If I were a managing partner at the time, I would have preferred a different strategy. I would have explored a branding strategy towards retaining the organization’s existing clients and for attracting more clients. Developing on the already popular brand of quality services that are based on integrity would be my basis. Increased number of clients towards higher cumulative profit margins, even at lower margins, would then help the organization into a more competitive competition. This would at the same time care for employee’s interest in their income and job security and maintain an ethical culture. 4. Relationship between what happened at Andersen and the multitask principal agent theory What happened at Andersen is a real case manifestation of the multitask principle agent theory. According to the theory, a principal’s focus on measurable or observable aspects of operation, while the scope of operation involves measurable and immeasurable aspects and failure to reward both types of aspects influences the agent to focus on the rewarded aspects of operations. This is what happened at Andersen after the management focused on employee’s returns and used this to reward successful employees but it did not regard employee’s morality. Ethical values were then compromised and unethical practices used to generate revenues (Bhatta 369). 5. Relationship between hard and soft elements of a firm’s corporate culture in the context of the case Soft and hard elements of corporate culture alternated in Andersen. The organization initially focused on soft elements and this includes values in integrity and symbols in its wooden doors. Its later culture however shows undermined soft elements and focus on hard elements such as structure, policies, and “recognition and reward” (Murray and Richardson 216). Decentralization for easier decision-making, and reward and punishment policies are examples and occurred at a time when the previously observed soft elements were never observed. Soft elements therefore diminished as the organization assumed hard elements of organizational culture (Murray and Richardson 216). 6. The problems at Andersen and other partners I think that the problem at Andersen were unique to them. This is because other firms in the industry adopted suitable strategies, such as merger and acquisitions, to managing the then competitive industry. Andersen however retained its structure and potential. Internal wrangles and inability of the organization to resolve its internal problems also identifies managerial weakness that could have led to the problem and even failed to control the problem had it been noticed. Weak management explains numerous problems at Andersen and this suggest that the problem was internal and not experienced by other organizations. I would conduct an ethics audit of employees in my organization if were a top partner in one of the other major firms. My rationale for this action would be to detect possible existence of the problem in my firm and to control it before it possible lead to a crisis. 7. Congress’ action when they failed to pass the proposal for limiting consulting work The Congress was not acting in public interest when they failed to pass the proposal for the regulations. This is because the accounting profession had identified weaknesses in self-regulation and external regulations were necessary to ensuring that such conducts do not happen again. Failure to regulate accounting firms’ consulting work allowed room for collaboration between unethical consultants and organization to risk other stakeholders’ interest. The decision by the Congress also focused on interest of consulting firms by protecting the firms’ trade while this risked investors’ interest in their investments in firms that could be unethical. Rejecting the proposal was also consistent with the status quo of a capitalistic market system in which discourages regulation. The market system however protects plight of the capitalist and I believe that the capitalists supported this instead of the interest of members of the public with interest in organizations that collude into unethical practices. 8. Unethical conduct at Andersen and the role of AICPA I believe that the unethical conduct at Andersen was not the fault of AICPA. This is because acculturation of moral values such as integrity among accounting firms and their employees, and not setting and enforcing higher ethical standards, is efficient in ensuring ethics. Setting standards and enforcing them could not help the situation because it applies after breach of standards and not as a preventive measure. Punitive measures are also not efficient solution to unethical practice because the practice is based on rationale between benefits and risks and this means that the unethical conduct would still prevail if benefit were more than the set standards and penalties, however harsh the penalties could be. The misconduct was also not the fault of AICPA because of the identified effort by Anderson to conceal the malpractices. Operations within the normal scope of AICPA would therefore not be able to reveal the malpractice. Further, it is the role of the auditor to blow the whistle on bad accounting practices and not the AICPA and this relieve the national body of fault. 9. Opinion of establishment of a new board over self regulation Establishment of a new board was a good idea for ensuring ethical and legal conducts in accounting and auditing. Failure by companies to ensure proper accounting standard was an indicator of unethical culture that breached self-regulatory obligations and an independent regulation was necessary to prevent further misconducts. Integration between Enron and Anderson accountants indicated potential collusion between companied and auditors towards need for an independent oversight board. In addition, Anderson was a prominent accounting firm with many branches and clients and failure by its top management to regulate the unethical and illegal practice that occurred at Enron was a warning that more could be happening at the organization’s other branches and in other accounting firms. An independent oversight body was therefore necessary to prevent further collusion between accounting firms and clients and to prevent effects of self-interest into unethical and illegal accounting practices. Establishment of an independent body was also a good idea because existence of the malpractices indicated that self-regulation was not an effective way to ensuring good accounting standards and practices. Absence of such an independent body would therefore facilitate the bad practices and continue to harm stakeholders. This means that establishment of the body improved on protection of stakeholders’ interests. Works cited Bhatta, Gambhir. International dictionary of public management and governance. Ann Arbor, MI: M.E. Sharpe, 2006. Learning Ace. “Capstone case study on organizational architecture: Arthur Andersen LLP.” Learning Ace. N.d. Web. November 26, 2013. Murray, Elspeth, and Richardson, Peter. Fast forward: Organizational change in 100 days. New York, NY: Oxford University Press, 2002. Print Read More