When Kingdoms Crumble.

In ethics, honesty on October 22, 2007 at 5:37 am

Ethics. Recognized by many used by so few.

Arthur Andersen LLP, based in Chicago, was once one of the “Big Five” accounting firms (the other four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG), performing auditing, tax, and consulting services for large corporations.

The firm was founded in 1913 by Arthur Andersen and Clarence DeLany as Andersen, DeLany & Co [1]. The firm changed its name to Arthur Andersen & Co. in 1918.

Arthur Andersen , a son of Norwegian immigrants headed the firm until his death in 1947. He was a zealous supporter of high standards in the accounting industry. A stickler for honesty, he argued that accountants’ responsibility was to investors, not their clients. During the early years, it is reputed that Andersen was approached by an executive from a local rail utility to sign off on accounts which contained flawed accounting, or face the loss of a major client. Andersen refused in no uncertain terms, replying that he would not sign the accounts “for all the money in America”.

Leonard Spacek, who succeeded Andersen at the founder’s death, continued this emphasis on honesty. For many years, Andersen’s motto was “Think straight, talk straight.”

As an Arthur Andersen partner, Leonard Spacek united the firm’s numerous factions after its founder’s death in 1947; he emerged as managing partner at only 39. Spacek revealed his “ethical” trademark when, in the absence of any partnership agreement, he arranged to pay the founder’s widow an annuity worth about $600,000.

Sad to say, Andersen and Spacek were succeeded by those who settled for far less than all the dollars in America. Today, Arthur Andersen has tumbled from a bastion of honesty into a hallmark case model for corrupt accounting practices.

Two years after Spacek’s death in 2000, Arthur Andersen LLP voluntarily surrendered its licenses to practice as Certified Public Accountants in the U.S. pending the result of prosecution by the Department of Justice over the firm’s handling of the auditing of Enron, the energy corporation, resulting in the loss of 85,000 jobs.

Andersen fell not because it lost to its competitors. It fell because they ignored the very foundation that that it was built upon. Honesty.

We always underestimate the value of ethics as a variable to success supplanting it with those that we could easily manipulate, control and determine. Oftentimes, this kind of an alternative leads to unprofessionalism and gross acts of misconduct.

The story above proves that it pays to do the right thing and those who employ unethical practices are either forever condemned from reaching their full potential or doomed to fail miserably.

Until next time, let’s educate our minds.

(Italized text were lifted from the Internet)

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