4. The Three Stages in the Development of the Culture and the Model
To understand the Andersen Model we need to recognize its evolution over time.
We can establish three stages, clearly defined:
- The initial American stage, almost 40 years, from the 1913 foundation to the early 50s, when the international stage begins.
- The internationalization stage, covering again almost 40 years, the more successful Andersen times, from 1950 to 1988-89, when Andersen Consulting appears.
- The split and inner confrontation stage, between Arthur Andersen and Andersen Consulting, covering the last 13-14 years until Andersen disappears; from 1988-89 to 2002.
In our opinion, the Andersen Model, as we understand and present in this book, is deeply rooted in stage 1 and develops to its climax all along stage 2. During stage 3, the internal contradictions were shown, the profile grew distorted and became in fact unrecognizable in some fields, carrying in the end Andersen to the failure represented by Enron and its consequences: its demise as a professional services Firm.
The initial American stage
From its foundation, Andersen was born with a particular business model, the one given by the philosophy of the founding person: Arthur Andersen himself. Further on, distinguished men who joined the Firm, such as Leonard Spacek, filled up and perfected the model.
From those beginnings, Anders adopted the partnership structure, as a kind of cooperative society that joined together all the members.
That was the stage of the pioneers; pioneers in many professional disciplines. For instance, in their reach further than accounting, the Andersen professionals were the ones that introduced, in far away 1953, the first commercial computer used in a business environment.
It was the stage of the Firm’s Model and Culture, the stage in which the Firm´s Fundamental Principles materialized.
The internationalization stage
From 1950 onwards, Andersen started really to go global and began its best years.
Andersen’s international growth policy was different from that of its rival competitors, most of them Americans (such as Deloitte Haskins & Sell, Touch Ross, Peat Marwick, Coopers & Lybrand, Arthur Youg or Ernst & Whinney) and some English (such as PriceWaterhouse). Andersen set up its branches in each new country with local management. The Firm tried to recruit local partners and to get local companies as customers in each country. Competitors generally stood limited to attend British or North American companies that required their services in that country, and to do that with expatriate partners, not interested at all in the local companies.
Andersen was the last to come and the smallest in size, but it soon stood out in the field. Its philosophy of combining the best of the global, usually coming from the USA, with the best of the local, anticipated the concept that was to become the standard much later in time. During this stage it reinforced the philosophy of not remaining just accounting auditors but trying to be true business advisors. The consulting area grew strongly as a result. A new information systems consulting division (MICD) was created.
Andersen & Co, Societé Coopérative, was born in Geneva, Switzerland, being, if we are not mistaken, the only truly global cooperative ever in the world.
It was during this stage that the Model expanded and strengthened until it reached its zenith.
Arthur Andersen arrived in Spain with the opening of its Madrid office in 1964. The Firm reached the maximum reputation level at the end of the eighties, with an aura of excellence and perfection from almost any point of view. As already mentioned, an extensive report by El País daily in 1988 materialized this state of opinion, spreading it to public opinion and the business world.
The split and inner confrontation stage
The organizational model and cultural philosophy of a company are tested when the persons come under pressure for whatever reason. In the Andersen case, the pressure came the moment the Firm started splitting in two: Auditing and Consulting. During the 90s, as we will see, the pressure went up, especially in the Auditing side, when Andersen Consulting was created and started to act independently until calling for, and getting, the divorce in 2000.
Andersen was the first accounting firm that started offering consulting services. A consulting division existed already in the 50s in the Firm that grew progressively becoming a world reference as early as the seventies.
In the late seventies Arthur Andersen had become the largest of the then Big 8 and by far the one that was selling more consulting services.
In those days, the SEC (Securities and Exchange Commission) begun to be concerned at the sale of consulting services by accounting firms, because of the “ possible impact on the independence, objectivity and professionalism of the auditor” (SEC note 264). At that time, the Firm’s CEO was Harvey Kapnick. Representing the largest firm, and the one that was more involved in selling consulting services, he was called to testify before a US Senate Commission on whether auditing and consulting should be separated in different firms.
Kapnick believed at the time that separating the auditing and consulting practices in two independent firms was the best course, preventing a forced separation by the US Government. In September 1979 he tabled the proposal at a meeting with all the Firm’s partners present, but was rejected. This led to his premature retirement on October 14th 1979.
Perhaps Kapnick was a visionary and later facts would show that he had the right idea, but he really was not or could not be able to carry it forward. Who knows what the story would be had he been successful. It would have been quite different, without any doubt.
With Ronald Reagan’s election as President of the United States the public discussion on separation of auditing and consulting ebbed away, but the seeds of the two divisions’ separation were already sowed in Arthur Andersen.
In the 1980s the consulting division, first led by Victor Millar and since 1987 by Brebach, grew exponentially. Even if its power grew, it remained subsidiary to that of the auditing division. On the other side, the consulting division, called MICD (Management Information Consulting Division) till 1989 when it was named Andersen Consulting, did not anymore compare with the other accounting firms but looked as rivals to firms in the field of information processing equipment and services (such as IBM, Digital, etc.). Tension between the two division partners increased gradually over the years.
In December 1986, Victor Millar left the consulting division to join Saatchi&Saatchi, an English advertising firm who asked him, clear and simple, to form an Andersen Consulting, buying Andersen Consulting itself if at all possible. They made an offer of 1,000 million dollar, that Andersen’s CEO at the time, Duane Kullberg, did not even deign to reply.
In 1987, Brebach, partner in charge of the Consulting Division (MICD) decided to propose the change of the division’s name to “Andersen Consulting”(AC). The new name was stronger and agreed better with a new firm identity.
In 1988 he asked investment bank Morgan Stanley for an appraisal of AC value and organized a secret meeting to face the main consulting partners with a possible agenda for separation from the rest of the Firm. The Unity principle (One Firm) was fatally wounded. Kullberg heard of the meeting and forced Brebach to leave the Firm. He immediately joined Millar at ICG, the consulting firm about to be launched by Saatchi&Saatchi that was, in the end, a resounding failure.
At that point 1989, the more or less hidden confrontation between the partners at consulting and the rest of the partners reached very high levels. Consulting activity was booming and partners in the new Andersen Consulting wanted independence and called for it at once. That autumn, the world wide partners meeting held in Dallas, Texas, approved granting the Consulting Division a high degree of autonomy, enabling them to adopt the name they had proposed (Andersen Consulting) and, from that moment on, to act with an extremely high independence level.
The Firm’s organization had then two all but independent business units (identified as SBU’s or Strategic Business Units): Andersen Consulting (AC) and Arthur Andersen (AA), supposedly coordinated by AW (Andersen Worldwide).
In 1990 the mess was completed with what became known as the Florida Accords, setting up market sharing rules between the two units, with AC selling systems consulting to the big customers and AA to the small ones (under 175 million dollar revenue). Something that proved useless with time.
From that moment on, the Andersen star began its decline.
Separation in two SBU opened a breach that grew every day because both units started acting in fact as independent firms. It was a breach that in the end led to separation, following an arbitration process, painful to say the least for the whole Firm.
After that, Andersen Consulting strengthened as the success model in the service sector to become the biggest consulting firm in the world. In 2001 the name changed to Accenture and went public on the New York Stock Exchange, carrying a good part of the indelible Andersen Culture footprint, a culture that drove AC/Accenture to the summit and let AA/Andersen with a sad parentless feeling, a blend of pain and anger.
Andersen Consulting had the ability to embrace the new situation, adjusting the Andersen culture to the new context.
On the contrary, the feeling many of us, Arthur Andersen partners, had on this new stage was that of the loss of the basic values, along with decay of the Model and the Culture. The course was lost. Like an aristocratic family squandering its economic and moral wealth, unable to find a place in a changed, poorer context.
Many were unhappy with the change of name in the division, named Arthur Andersen until then, and giving service in auditing, business consulting, tax and legal advise.
The partners that did not leave with Andersen Consulting decided to change the name and image of their part of the Firm in order to “modernize” it. The initiative came though from the managing partners at world level (the management). This meant going from the Arthur Andersen brand, symbolically represented by the door (already mentioned), to just Andersen, represented by an orange sphere. This was supposed to suit the times better.
However, many Arthurs and former Arthurs were surprised, upset and saddened by the loss of “Arthur Andersen” mythical brand. As if the absence of “Arthur” and the “door” made them loss part of their identity and made the Firm loss part of its soul.