The Arthur Andersen Verdict

One of the big news stories this week is that accounting firm Arthur Andersen was found guilty in federal court of obstructing justice. The spin in the news is that this is probably the death knell for the firm, presumably from a combination of lawsuits by investors ruined by the Enron debacle, and companies refusing to use the services of a firm so found guilty.

One of the running side stories since the government brought charges against Andersen has been the reaction of employees to the trial. Many employees have expressed outrage that the government is tarring the company as a whole for the actions of a few of its employees, ruining the firm's reputation and therefore damaging their careers and lives. The implication is that the government is being irresponsible in its actions and that the firm is not truly to blame.

While my heart goes out to the employees who have been caught up in this disaster not of their own making, though, I strongly disagree with the sentiments they express about the trial.

The United States has effectively legislated that corporations are treated like individuals in many ways. It is the corporations, not the individuals running them, who have responsibility for the actions of the companies. I'm not wild about this system (I think there should be specific individuals at the executive level who are personally responsible for the actions of a company), but that's the way it is.

I feel that a company needs to take responsibility for its employees. Sure, if an employee does something against the will of the company, then the company is not really at fault. But in this case it appears that Andersen management decided to violate the law, and in that case the company certainly is at fault, in my opinion. And even though most of the employees were not party to the illegal act, I do feel it is right and proper for the company as a whole to be penalized for the actions a few of its employees took.

It's unfortunate that this will be so personally harmful to Andersen's many other employees, but that's the way companies work in the US: If you've hitched yourself to a wagon which has a wheel fall off, then you're going to stop moving. Maybe it's not your fault and there's nothing you could have done to foresee or prevent it, but that wheel has still fallen off.

I certainly don't feel that the events are the government's fault. They aren't responsible for Andersen breaking the law. Could the government have found a better way to handle Andersen? Well, better for whom? I think the government already handles corporations with kid gloves, and it's important to send corporations the message that flagrantly illegal behavior, and behavior which damages the economy - as Andersen's handling of the Enron documents apparently did - will not be tolerated. Corporations are only motivated to behave in a certain way if behaving in the other way is clearly going to be less profitable - or more harmful. Andersen paid a stiff penalty for the Enron debacle, but from what I've read the company committed a serious crime. And since Andersen seemed never to be willing to admit wrongdoing (which itself is downright laughable), they were never able to reach a compromise with the government.

No other outcome here would have been reasonable.

The sad part is that Arthur Andersen is only a piece of a much larger puzzle, as now the government has to untangle what happened with Enron, and determine who bears what responsibility for that debacle. I hope that the verdict levelled against Andersen is only the tip of the iceberg, and that the executives at Enron end up with similar results.

This is yet another example of why I feel that a capitalist economy needs significant governmental oversight and regulation. Left to themselves, most corporations will do their best to bilk their customers and their investors, to the extent that they can get away with it.

I may not fully trust the government, but I trust corporate America a hell of a lot less.