Arthur Anderson & Enron: What We Can Learn From Their 2002 Crises

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In this series of a blogs, we are re-examining ‘classic’ crisis case studies that pre-date the digital era to explore what we can learn from them.

The lessons are very different than have traditionally been drawn for students of crisis management.

Nowadays social and digital media has transformed how a crisis unfolds. Many of the strategies and tactics of these golden oldies have been rendered redundant by the digital era.

Last week, we focused on Tylenol in 1982.  This week we go back to 2002 and the death of one of the world’s oldest and largest accounting firms, Arthur Andersen.

I have first-hand knowledge of this one as I led the Arthur Andersen account team at Ketchum from 1999 until we had no client to represent.

What happened?

In 1989 Arthur Andersen split from its fast-growing consulting business.

Andersen Consulting later was re-named Accenture after Arthur Andersen failed to convince an arbitrator that it should receive billions for its runaway sister company.

This meant the firm had lost its fastest growing source of revenue with no compensation. Leadership was under great pressure to replace the lost dollars.

The drive for growth led the traditional accounting and tax business to take on lucrative clients that in the past would not have met its professional standards.

One of those clients was Enron.

In 2001 Enron was found to have reported $100bn in revenue through fraud which drew intense scrutiny of Arthur Andersen as Enron’s auditor.

Arthur Andersen was then accused, and later convicted, by the Department of Justice of destroying documents to cover up its role in the Enron scandal.

As a result, the firm lost the right to conduct audits and an 89-year old organization with more than $8bn in revenues was dead.


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How might it look different today?

One of the least known quirks of the demise of Arthur Andersen was that years later, the conviction for destroying evidence was reversed on appeal. But by then the firm had ceased to exist as an operating entity.

The weight of negative media coverage around Enron and Arthur Andersen was so great that by the time the DoJ brought its legal action, the firm did not have a friend in the world.

The action was unfair, but Arthur Andersen had no influencers and advocates to rally to its support.

Now we live in the age of influence. Traditional media is only one of the platforms, only one of the influencers. Social media has created effective channels to gather support, share views and exert pressure.

Arthur Andersen would have had an effective way to fight back against the unfairness of the DoJ’s actions. In 2002, it was powerless.


What’s the lesson?

Any reputation building strategy and crisis preparedness plan must and should include the building up of influence and advocacy, to support an organization’s messaging in good times but especially in bad times.

Social media is understandably widely regarded as platform that bring threats to reputation and business. But it is also a tool to get out a message in defense, but an organization must invest in the appropriate tools, training and expertise in anticipation of the worst happening.