Andersen and its offshoot, Andersen Consulting, was regarded as the place to be. It had the best people, the best opportunities and, above everything, the best reputation. Founded in 1912 by Arthur Andersen, an eminent accounting professor, it was seen as the creme de la creme.

Up until early December last year, this view remained intact. Andersen had the finest client list, its partners were among the best paid (in a very well paid business) and its reputation remained second to none. Today, Arthur Andersen is going bust. Its name is in tatters and, as a result, its clients are leaving in droves.

Yet Andersen’s good name was real; it did have the best people and standards. But this counted for nought when something that began with dodgy accounting practices at Enron and a serious conflict of interest between auditing and consulting arms, ended with disturbing images of Andersen’s senior staff ordering juniors to shred incriminating documents.

It took 46 years to build the great biblical temple in Jerusalem and only three days and three nights to destroy it; 90 years of hard work at Andersen has disappeared in nine weeks.

The speed at which Andersen is imploding tells us much about the fragility of any business built solely on reputation. Like all business that provides a service, the glue that bound the company together was the perception of excellence.

Andersen gave a Rolls Royce service that clients could stand over. This idea that Andersen could be trusted went to the heart of its business. For example, in the mid 1990s in emerging markets from Moscow to Jo’burg to Sao Paulo, one of the leading indicators as to the pace of reform was whether the lights in the offices of western accountants such as Andersen burned into the night. If they shone like beacons, it meant that Andersen was busy signing off on the accounts of former state-owned companies to ready them for privatisation. And the more privatisations, the more reforms.

Such was the pristine reputation of these outfits that investors were prepared to put money into companies on the basis that Andersen had done the accounts. This faith was based on the view that Andersen not only had the best standards, but the best people too. Its people were crucial to the Andersen image. In probably every Economist, Time or Newsweek publication over the past ten years there have been ads for Andersen, showing clean-cut, bright, young men and women beaming out through rows of sparkling white teeth.

The message was simple: join Andersen and you too can look like a yuppy’s ultimate dream — someone who works hard, drives flash cars, sails a lot and manages to play an inordinate amount of tennis.

To a prospective client the message was: if you employ Andersen you will get the finest, freshest, uncorrupted minds working for you 24/7. The company’s sense of itself was founded on an A-team working happily and fruitfully together.

This is now shattered and the company has descended into chaos, with regional offices hanging each other out to dry as senior management try to preserve their own reputations while the company’s reputation goes down the plug hole. This is a far cry from the almost evangelical happy-clappy spiel on the Andersen website ( about the culture of the organisation. It is important to remember that this is an accountancy firm, not a sect, that we are talking about!

“Catchy slogans and flashy ads will never equal the power of doing what they claim. This is a time when new ideas are shared, exchanged and brought to life. Today’s economy is about finding what creates value: the substance beneath the style. We believe in integrity, respect and always speaking as one firm. We believe in maintaining a passion for excellence in people, service and innovation. And we believe in demonstrating a commitment to personal growth through training and development. In fact, these values are minimum standards for anyone within our organisation. Each has roots in the thinking of Arthur Andersen himself. And each guides us toward a brighter future ahead.”

The lessons from the Andersen collapse are germane to any service business, whether it be a law firm, an investment bank, an advertising agency or an accounting firm. The intangible quality of the firm’s good name is everything.

The first lesson is that it is absolutely essential to have your internal police awake and full of beans on their watch. Like AIB, there appears to have been a dreadful lack of awareness at the highest level regarding what some of the managers at a lower level were doing. GE’s Jack Welch (who is himself in a bit of hot water these days) said “management is like gardening, to see the garden bloom, you have to cut out the weeds.” Obviously, Andersen’s management could not spot the weeds among their own staff.

The Financial Times makes the point this week that the collective values of the firm are only as strong as the lines that management draw for their own staff. If staff transgress this line they must be fired, otherwise the firm runs the risk of entirely losing its good name. Minimum professional standards are harder to stomach than all the woolly mission statement stuff about vision and ethics, but they are much more essential.

Secondly, if a firm makes a mistake, as Andersen did with Enron: don’t cover it up. The shredding of documents and deletion of e-mails is the real crime in clients’ eyes. No matter what business you are in, integrity and the perception of integrity is crucial. And yet more so for service providers.

A third lesson from Andersen’s misfortunes is that the business is a network and the status of the network is key. When I worked as an investment banker, the major selling point was the firm’s global network. In good times this can be very positive, but in bad times (as AIB learned to its detriment) if a far flung office is out of control, this can conspire against the whole brand. To preserve the sense that the hub of the network is the head office, clients have to see that head office is in control in good times and, equally importantly, responsible in bad times.

Finally, a fundamental flaw in the business models of large service partnerships like lawyers and accountants is the very mobility of human capital. The rather unedifing sight of Andersen’s partners jumping ship this week, shows just how fickle individuals are and just how hollow the firm is without them. Together with reputation, the only other asset a law firm has is the knowledge of its people. In industry, a machine operator can’t walk off site with the machine, in a law firm a partner can walk with his brain and his client list.

Many reputations have been ruined or battered in recent weeks. Andersen is among the biggest names, but AIB’s image might not recover from the Rusnak debacle either. Equally, some of those involved in the Campus Ireland affair have seen solid reputations built up over 20 or 30 years damaged in a matter of days. The moral of the story is not so much that the Emperor has no clothes, but that when the public’s mind changes, he has very little protection even if he is standing in his undies. 

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