Jupiter, FL.  January 19, 2004 - Arthur Andersen & Co. (AA & Co.) alumni are around the globe, but the company is no longer with us.   Sarbanes-Oxley, the legislative result of corporate scandals and the stock market bubble bursting, passed its first anniversary.  Although these milestones are often credited for the worst economy in our recent history, Sarbanes-Oxley focused on raising public confidence and trust by increasing executives’ responsibilities for internal controls within, and disclosures by, public companies.   But our economy is not comprised of just public companies.  As we monitor plea bargains and jail sentences for Enron officials, perhaps it is time to evaluate the choices privately held businesses have made to survive.

“I received two letters from my former employer, AA & Co., in the midst of the Enron disaster.  As a marketing professional and former CPA who worked in AA & Co.’s Houston, Texas office from 1984 - 1988, I was astonished to open a letter, addressed to alumni, and remove five pages of text,” stated Janet Smith, President of 5^th Dimension Marketing, Inc.
(5^th Dimension) a Jupiter, Florida based marketing consulting firm.  “Five pages, typed single space.  The next letter arrived a few weeks later; it was three pages.  They stopped after that.  Clearly, the ‘only a few bad apples’ message AA & Co. attempted to convey to alumni and the media, failed.”

Was this AA & Co.’s version of “spinning”?  Every company involved in these corporate scandals had a story to tell, and there were many ways AA & Co. could have told theirs.  The law firm, Vinson & Elkins, escaped the Enron fray while AA & Co., a worldwide, prestigious firm the size of Hewlett-Packard, was wiped off the planet.  Did an influential firm like AA & Co, comprised of extremely bright people, never analyze the basics of business communications, in relation to the awesome power of the press?  After years of high regard, perhaps the sins of horrific behavior and inexcusable arrogance that culminated in AA & Co.’s demise could have been avoided.

“Several ideas AA & Co. did not launch in the media, were, ironically, all business management concepts,” said Smith.

• Quantify the problem
• Enron was equivalent to approximately .0004% of AA & Co. client base.


• Clean house, from the responsible partner all the way to the top.
• Fire the guilty and publicly approve charges be pressed.


• Assist innocent victims.
• Establish, promote and maintain an Enron America fund with a significant contribution.

AA & Co. perished, the Public Company Accounting Oversight Board was founded and accountants found new services to charge called Section 404: an annual evaluation of internal controls and procedures for financial reporting of public companies.  Consequently, audit fees increased substantially to accommodate the new requirements.   But privately held firms, who require an audit to satisfy banks, partners, bondholders, etc. are incurring rising audit fees as well.  Why? Many privately held companies believe that accounting firms are not delivering valuable services from the intellectual capital they have been paid to acquire by reviewing financials year after year.

The poor economy generated a wave of consumers pushing businesses to be more competitive on price and value of products and services delivered.   Privately held businesses rode this wave and many crashed; but it appears that this same momentum was NOT felt in the accounting firms.  Perhaps Sarbanes-Oxley should have demanded the delivery of better price and value in accounting services while it defined stiffer requirements for the accounting world.

New hires at public accounting firms, fresh from college with virtually no real-world industry experience, are billing clients at $85 per hour.  Some partners charge between $400 and $600 per hour, a high cost of entry for non-public companies who require an audit to satisfy their loan officer.  Should industry expertise beyond financial statement conformance and tax strategies be a requirement to perform an audit?   Should accounting firms be required to come up with n% of cost-savings or revenue generating ideas to justify their annual fee?  Is it too much to ask to extend reviews beyond internal controls to operational efficiencies?

Why stop at accountants?  Professional services firms, consultants, lawyers, public relations agencies, advertising agencies and accountants have all relied on clients to fund the industry education of their staff.  After paying top dollar and having their customers demand better price and value, businesses are questioning whether bigger is better and are exploring alternate services firms that offer higher quality services at reasonable costs.

5^th Dimension exists because businesses are no longer willing to pay inflated fees for big name firms, stated Smith. Value is in.  Businesses have discovered that senior-level personnel are available at affordable rates in small shops.

Ethical breakdowns and greed dictated the Enron scandal and many question whether new regulations will generate consulting fee opportunities rather than public confidence.  A corporate culture of integrity and ethics in all aspects of business is the cure.  To recognize ethical breakdowns prior to this disease tainting operations, businesses need to take responsibility to assess the qualifications and personal integrity of individuals within their organizations, as well as those billing their account.

In retrospect, big business is not always worth the cost and sometimes you don’t get what you paid inflated prices for, but true value will never go out of fashion.  Businesses who hire the person delivering targeted, high-quality services, as opposed to the big echelon name, will purchase value.  Motivated, experienced professionals are penetrating many service industries through small businesses, after accumulating a wealth of knowledge in prominent positions at large corporations.

Eventually, the army of Arthur Andersen alumni, 99.99% who are accomplished professionals with solid principles, will stop cringing and remember those high-energy work years, fondly.   Until then, let’s not forget how a few bad apples uprooted the entire tree.