The Hindu Business Line : Arthur Andersen: A case of suicide, not murder

ACCOUNTANTS are returning to their homes too late these nights, and working over weekends too. Because this is the time to draw final accounts and financial statements, pass lengthy journal vouchers and generally square up a yearlong joyride of numbers. It is, however, doubtful if they would have time for Final Accounting, a book by Barbara Ley Toffler, published by Currency Books (www.currencybooks.com).

It is about "ambition, greed, and the fall of Arthur Andersen", out as an easy-to-read paperback. The author, with the benefit of having been an insider, exposes "the unethical practices that triggered the indictment and collapse" of what was one an accounting major and speaks of how "symptoms of the fatal disease were evident long before Enron."

The opening scene is about the ravenous appetite in `The Firm' to over-quote for services and give everybody a `sticker shock'; and the logic was simple: "Relax. We're Arthur Andersen. They need us. They'll pay." But getting to work at AA had been like taking a job at IBM, recounts Toffler. Behind its famous doors was a group of highly trained professionals known everywhere for their reputation for hard work, competence, and a steady hand."

The only problem, as one sees in retrospect, was that "consultants forgot what it meant to be accountable." After the collapse, there were cries that AA was murdered. No, Toffler would say, "It was a suicide, set in motion long before there was ever an indictment." Verdict was "merely a formality, the last nail in a coffin whose grave had been primed for burial."

In the accounting garden of Eden, the bad apple was consulting. Without realising that there were fundamental differences between auditing and consulting, many professionals plunged headlong into the latter. Unlike audit, which exists for annuity clients, recurring year after year, consulting is about one-off projects.

"Success, theoretically, should happen when the client doesn't need the consultant anymore. So you had to make as much money as quickly as possible, knowing that the source might well disappear later."

An interesting insight about auditing is that the profession was entirely about leverage. Meaning? "Using low-paid, inexperienced people to do the lion's share of the work, using the somewhat higher-paid managers to supervise them, and bringing in the top-earning partners only when major judgment calls or decisions were needed."

That there is still place for human goodness is what the book too reflects: "Most people do not want to do unethical things. Usually, unethical or illegal behaviour happens when decent people are put under unbearable pressure to do their jobs and meet ambitious goals without the resources to get the job done right." Something that continues to remain true, but it was the matrix concept that was responsible for high stress. It was a management system that supported collaborative efforts by making most individuals report to two or more bosses.

An example is that of an engineer designing a computer, reporting to head of engineering and also to computer project manager. On the flip side, "pleasing two or more bosses with different, and often competing, goals ripped the hearts out of some of the most conscientious employees." While many businesses discarded matrix, AA clung onto it.

In her epilogue of November 2003, the author faults the usual approach of getting rid of bad apples. "Change will come only when people with power and authority address the rotten barrel that is poisoning the business environment — the culture." Too wishful, it may seem. Yet the book is worth reading, at least after your final accounts are all drawn up.

BooksOfAccount@TheHindu.co.in

More Stories on : Books | Books of Account | Books

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
End the NRI largesse

Disinvestment and FDI — Lessons from China for India's Left

Critical two months ahead

The impair preparation in short

Irrelevance of CA for 7 out of 10 Indians

New norms for new names

There are secretaries in the waiting room

Cracks in the roof over shelters

Arthur Andersen: A case of suicide, not murder

Risk management

No word on EPF interest rate