by John M. Curtis
(310) 204-8700

Copyright February 2, 2002
All Rights Reserved.

nron's corporate piracy turns stomachs, but Andersen's "cooking the books" causes reverse peristalsis. When Andersen partner and chief Enron auditor David B. Duncan took the 5th on Jan. 24 before the investigative and oversight subcommittee of the House Energy and Commerce Committee, investors got an ugly glimpse beneath a polished corporate facade. Auditing practices are supposed to be beyond reproach, especially the nation's 5th ranked accounting firm. But no sooner than Duncan clamed up did Andersen executives engage in conspicuous damage control. Duncan "gave every appearance of destroying these materials in anticipation of a government request for documents," said Andersen executives C.E. Andrews and Dorsey L. Baskin, blaming their rogue partner, but denying that senior management gave the orders. When the bull market ended in March 2000, survival became helplessly tied to corporate earnings. Without lavish market capitalization, cash flows dry up, ratcheting up the pressure on accountants to engage in creative number crunching.

      According to House documents, Duncan was warned by Mark B. Zajac, a risk management executive, via e-mail on Oct. 9 that Enron faced "a heightened risk of financial statement fraud." That same e-mail was also received by Enron executive Michael C. Odom, who promptly, under oath, denounced Ducan as a rogue employee. When Andersen attorney Nancy A.Temple e-mailed partners—including Odom—Oct. 12 regarding the company's "shredding policy," she insisted it had nothing to do with Enron. "I did not instruct Mr. Duncan to shred documents," said Temple, repeatedly denying that she gave Duncan the green light. "We do not condone that. It is not what the firm's policy would require," remarked Andrews, whose official position insisted that Duncan acted alone. But Andersen executives couldn't explain why Temple didn't order employees to preserve documents until Nov. 9, nearly a month after the SEC announced its formal investigation. "Why didn't that come down from the top immediately?" asked Rep. James C. Greenwood (R-Pa.), prompting him to call Andersen's explanations "hard to swallow."

      With business evaporating and clients heading for the exits, Andersen CEO James F. Berardino frantically rehabilitates the company's fallen image. "People who know us well continue to hire us and stand by us," said Berardino admitting, "those who don't know us well are less anxious, frankly, to hire us, and yes, we've lost some business." While Berardino acknowledged that Andersen committed "serious errors in judgment in destroying documents," he ignores the irreversible damage. Embroiled now in endless litigation, Andersen's a walking liability to new and old clients. As CEO, Berardino must assume full responsibility for allowing this scandal to occur on his watch. Whether he claims ignorance or denies his involvement, it reflects abysmal leadership. Though 85,000 employees weren't involved with Enron, all are affected by recent revelations. Berardino rejected the idea that Andersen should begin looking to merge with another Big Five accounting firm. "We have absolutely no interest in going there," said Berardino, "we feel very confident that we can get through this, difficult as it is."

      Wishful thinking won't pull Andersen out of its current mess. Without Berardino's immediate resignation and sweeping corporate restructuring, Andersen won't reassure investors or new and old clients. Internal investigations, at this point, also don't hold much weight. Suggesting that the company will "make the changes needed to maintain confidence in out firm," sounds like good PR but comes far too late. Berardino's admission of "errors of judgment" doesn't address the corporate culture that permitted egregious abuses of professional standards. Berardino still can't tell whether Andersen had an inappropriate relationship with Enron. He's not even sure whether Andersen breached any professional standards. With that kind of judgment, it's no wonder that Andersen's in hot water. Advertising internal investigations does little to reassure anybody that Andersen really turned a new leaf. Berardino prays that saving Andersen hinges on "damage control by management, and it's not clear that Andersen has done a good job on that so far," said Rice University accounting professor Bala G. Dharan.

      Andersen's credibility shattered when they admitted to shredding key documents before Enron's devastating bankruptcy filed Dec. 12. It didn't help matters when Andersen's senior partner in charge of Enron David B. Duncan took the 5th. But especially damaging were the incredulous public remarks of Andersen's CEO. "I don't know they really understand the amount reputational damage they've had," said professor Dharan, clearly mirroring the public's view that Andersen no longer enjoys that delicate commodity called credibility. Clever publicity stunts and fast talk can't put shattered reputations back together. While Andersen hasn't called it quits, corporate clients can't be too happy of with their stamp of approval. Most businesses won't risk their credibility with Andersen's current radioactivity. As congressional hearings wear on, Andersen can expect more notoriety as testimony sheds light on how Enron managed to subvert professional standards. Neither company can expect to get off the hook any time soon.

      Andersen's CEO James F. Berardino is whistling Dixie thinking that Andersen will survive its current hard times. Madison Avenue can't undo Andersen's role in promoting the largest financial scandal in U.S. history. "Every accounting firm who's listening to this had better listen very carefully: If all of your policies are to let accountants decide when it's legal to destroy documents in a pending investigation, an awful lot of people are going to be in trouble down the road, not just in this case," said Rep. W.J. "Billy" Tauzin (R-La.), chairman of the full House Energy and Commerce Committee, signaling that the Enron scandal promises to rewrite rules on acceptable corporate accounting. While Berardino rearranges the deck chairs, the 88-year old Fortune 500 accounting Titan heads to the bottom. When hearings resume, it's time for Berardino to face the music and step down together with upper management and the board of directors. Only then will Andersen have a chance at redemption.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He's director of a Los Angeles think tank specializing in political consulting and strategic communication. He's the author of Dodging The Bullet and Operation Charisma.

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