22. The Wear of the Value Proposals – The Legacy of Arthur Andersen: A Model for Excellence

22. The Wear of the Value Proposals

The value proposals can deteriorate as time goes by. Sometimes from internal causes but above all from changes in the business environment. In the Andersen case, the value proposals deteriorated progressively along the 80s and 90s.

One of the value proposals that wore out, was the very important one that the model offered to the partners.

The expectations that company executives, in this case the partners, may have on the value that the company is going to bring to their professional careers and their general personal wellbeing, are a very important element that must be taken into account when defining an organizational model.

At Arthur Andersen, during the pioneering Leonard Spacek era, the partners’ maximum aspiration was to become well paid and respected professionals and to develop a professional career for life in a reputable company. We underline professionals and firm.

In the 80s, and above all in the 90s, both in Andersen Consulting (AC) and in Arthur Andersen (AA), these aspirations changed after the split into two Business Units. Many partners started thinking as shareholders. In the Andersen Consulting case, this evolution took them to float the new Accenture in the financial market, and capitalize this way their holdings, obtaining astronomical profits and becoming millionaires in one day. In Arthur Andersen case, it brought the growth and profitability fever that combined with other factors drove it to the ending we all know.

In part this was due to the crisis that was affecting the auditing profession, in the worst possible moment for Andersen. Perhaps this was the reason it had to pay the highest and worst price.

It was not exclusively an Andersen phenomenon. These were years of runaway enrichment on corporate operations. The markets were devouring everything they were offered with, converting the fortunate shareholders into sudden millionaires.

In the professional services sector, other firms followed the Andersen path. The money fever, combined with the consulting surge, the ERP boom, the year 2000 phenomenon, process re-engineering, Internet, e-Business, etc. caused the sale of PWC consulting division to IBM, the public floating of part of KPMG consulting division (later BearingPoint) or the integration of E&Y consultancy into Cap Gemini, also publicly quoted. In all these operations, the partners in the corresponding firms earned very important sums.

The bursting of the technology bubble in 2000 put an end to the party.

On the way, in 1999, Arthur Andersen had lost its famous doors, had abandoned the “Arthur”, leaving behind the image (supposedly demodée) of a professional’s office to take on that of diversified services firm as “Andersen”. A modern symbol, the small orange blob, had replaced the ancient door symbol. A somewhat moribund cultured had been buried with the “door” and the “Arthur” burial.

A new more modern culture was trying to emerge, more in accordance with the “new economy”. The new economy represented by the likes of Terra from Spain, WebVan ( a now extinct start-up by George Shaheen, ex managing partner at Andersen Consulting, that left the Firm in those years to be counted in the internet business), the ephemeral but famous Patagon portal, bought by Banco Santander Central Hispano for a multimillionaire figure, and so many others. It’s odd that most were projects that ultimately failed.

Those were the “happy 90s”. AA was a latecomer to them and not in a good way; when a sad end could already be guessed. But in those years, however, AC was one of the queens of the ball.

Compensation and value

Never should executive (partners) compensation be permitted to be too far away from the value of the company they are managing. In the 90s, and especially in the AC case, the value of the company became obviously so big that the partners could not resist the temptation to convert it into money.

In doing it they broke the model protecting the stewardship and sank the whole Firm’s building. A building that had stood proudly for decades.

Andersen Consulting was able to erect a new building, partly based on the old values and bringing new ones, fit to the new circumstances.

Arthur Andersen did not know how to adapt its model to the new situation. Unfortunately, history bears witness to this.

From “we” to “I”

Using the inclusive term “we” instead of the exclusive “I” is an identity sign of most successful organizations. The “we” is instantly associated with the unity and cooperation values.

When Unity is broken in a social organism, as in Andersen at the time of the Andersen Consulting separation, there is a negative impact on other values, like Cooperation, that happens immediately even if its practical consequences remain unnoticed until a certain time has gone by. It is like the death of a frog, that occurs when she is put in water and heated slowly till it boils, but does not occur if the frog is suddenly sank in boiling water, because she reacts jumping to safety. The effects of an evil that comes slowly, without giving notice, are bigger than those of a sudden blow. We react to the latter, but only too late to the first, when nothing can be done anymore.

The wearing process of the Andersen model until Enron takes at least 15 years and resembles the case of the frog.

As a consequence of the break-up of unity and the progressive wearing of the Cooperation value, the use of “we” in Andersen was bit by bit abandoned. Many and different “we” sprouted up. And “we” did not mean the same thing anymore.

Furthermore, the operating independence and then total separation of Andersen Consulting had an influence on the break-up of the virtuous circle that existed before between Firm and individual, group and individual. The individual started getting over the group, the Firm. The “I” started overtaking the “we”. An internal race started to stand out, to get bigger. A race that was extended from the Firm to the partners, and then to all other professionals.

The race was inspired by the split in two business units (both wanted to be bigger, better and more profitable than the other), but that unhealthy rivalry spirit spread to the individuals.

In the end, that frantic race led to the appearance of strange behavior by some partners, like the case of David Duncan, the partner in charge at Enron.

We could say that Duncan was elevated to the altars of success by the fee amounts he generated with that client, without much attention being paid to how he did it. Duncan was the result of a perverse culture that had nothing to do with the original Arthur Andersen culture, and was about invoicing, growing and making a lot of money. Duncan set the example to follow.

In great measure, Duncan, and other partners with similar attitudes, caused the destruction of the columns that supported the Andersen building. The Firm had lost its moral compass and was fatally wounded by the venom of the fratricidal conflict. It had taken decades to build but surprisingly collapsed with a loud crash in a few months.