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Andersen's
PR Follies
By Michael Alan Hamlin
March 18, 2002
Arthur Andersen was, as expected,
indicted by the U.S. Justice Department for obstruction of justice
in the Enron investigation late last week. The indictment followed
a week of frantic negotiations between Andersen and Justice officials
in an unsuccessful effort to reach a settlement. Concurrent to the
talks with Justice, Andersen sought - also unsuccessfully - a merger
or sale to rivals Deloitte Touche Tohmatsu and Ernst & Young
in an effort to stem the tide of defecting clients and partners.
The same day the indictment was announced, The Asian
Wall Street Journal (AWSJ) ran a small back-page piece on the once-proud
firm entitled "Andersen's Follies: PR Moves Post-Enron Inflict
More Harm." The article faulted Andersen on two fronts. First,
for making the former Houston auditor in charge of the Enron account,
David Duncan, the fall guy for the destruction of documents vital
to the Justice Department investigation. Andersen said that Duncan
ordered the documents destroyed in an emergency meeting the head
office knew nothing about.
It turns out, however, that a lawyer in Andersen's
Chicago headquarters had in fact written the Houston office about
the firm's "document-retention and destruction policy"
almost two weeks before the meeting in which Mr. Duncan allegedly
ordered the documents to be destroyed. And, two current employees
and a partner testified two weeks ago that Mr. Duncan did not order
the documents destroyed at all. In fact, that order was made by
other partners in the Houston office.
The second mistake was a copout by the Andersen CEO,
Joseph Berardino, in ads published in major newspapers. Mr. Berardino
claimed that the Enron mess was substantially due to accounting
rules. An expert cited in the AWSJ piece, Mark Braverman of CMG
Associates, said Mr. Berardino "should have told Congress that
the Enron mess 'happened on my watch. I take responsibility. The
buck stops here.'" Mr. Berardino, in effect, should have been
a standup guy.
The article makes clear that Andersen broke the first
rule of effective public relations, especially in crisis situations,
and that is to tell the truth. And if the truth isn't known in its
entirety, then a vow to get to the truth is the next best thing.
Because Andersen lied, the firm created the impression, accurately,
that it was exercising the same sort of sleazy tactics to extricate
itself from its predicament that got it there in the first place.
Doing the right thing doesn't seem to be part of Andersen's culture.
Merger talks failed largely as a result of the threat
of legal liability being transferred to an acquiring firm, but public
perception is also a huge liability. Any firm that acquires Andersen
will acquire not just its assets - mostly people and clients - but
its culture and reputation as well, at least for a time. Whether
Andersen survives now depends on two factors. First, can it reach
an agreement with the Justice department to stave off a long trial;
and second, can it somehow talk its clients and partners into sticking
with the firm?
Many partners may have little choice. The stain of
impropriety associated with Andersen is a stubborn one. Even highly
regarded partners must understand that their net worth to potential
employers has taken a hit, and so has their bargaining position.
Why did Enron make so obvious an Exxon Valdez kind of mistake even
given its tainted culture? Top management may have been of the opinion
that the collapse of the fifth largest accounting firm in the United
States would have such severe repercussions on the securities industry
that officials would work with Andersen to avoid that outcome.
But as Fortune's Andy Serwer put it, "Government
said to Andersen, plead or we'll indict. Andersen said, I dare you,
and DOJ pulled the trigger." He went on to say, "Can you
say 'death knell'? Feds must have real reason to believe that Chicago
higher-ups knew about, sanctioned, or approved the shredding. ('Shred
it dude!')." Andersen now faces the likely prospect of a massive
defection by clients, and collapse of the firm.
Top management made three serious misjudgments. First,
it tried to cover up its role in the scandal. Next, it blamed regulations
and regulators. Finally, it assumed that it was too big to fall.
What of the various Andersen partnerships in Asia?
These partnerships are organized country-by-country, and have considerable
flexibility in determining their own fates. Many appear to already
be negotiating independently of the Chicago office with other Big
Eight-affiliated partnerships in the region. If Andersen collapses,
as seems almost certain, these partnerships will be looking for
a home anyway.
That naturally invites speculation about the Philippines'
SGV/Arthur Andersen. On its own, SGV would likely retain its blue-chip
client base (although the firm has had its own share of accounting
scandals to deal with). But it would be cut off from the lucrative
global client opportunities that international affiliations provide.
So partners there face pretty bleak prospects themselves.
However they choose to address those prospects, doing
the right thing should be central to their strategy.
(Michael Alan Hamlin is the managing director of consultancy
TeamAsia and the author of three books on Asian economies and companies.
His latest book is Marketing Asian Places, of which he is co-author.
His e-mail address is mahamlin@teamasia.com.ph.)
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