The environment contemporary businesses are expected to perform in is becoming increasingly complex. This has necessitated the coming into the picture of capable leaders and managers where the former are having the upper hand of the leadership race because of the ability they showed in handling more complex situations better (Bennis 2007). This has led Overbolt (2003) to highlight the prevalent organizational complexity so that organizations can integrate flexible designs into what they are doing to enable them to weather through the change that is occurring in the business environment more effectively. Hallet (2003) also had noted that it is the interaction of people that will eventually develop organizational culture. Hallet also talks about individuals in organizations who have symbolic power in interpreting correctly what kind of interaction is taking place and can influence the culture of an organization. Arthur Andersen the individual was such a charismatic leader who had set strict goals that the company he was running had to follow in order to make it successful.
One way such leaders can accomplish that is by outlining the kind of role existing and new individuals joining organizations can play and their input is dependant on the effectiveness of the method the organization has in place to integrate its employees into what it is doing. According to Hallet, a culture of an organization is always more than the beliefs, behaviors, interactions and habits of individuals. Accordingly, it is individuals in power in a given organization who have the ability to introduce new kind of tradition, rules to follow, and could end up enforcing cultures they envision. This culture could evolve and become peer pressure that everyone in the organization should adhere to. This include the newcomers into an organization who would be put under pressure to adapt to the new peer pressure and abandon any belief they have if they want to have a good future at the organization they join.
Arthur Andersen LLP
The company whose organizational behavior is under evaluation was a leading accounting firm that had presence globally as a leading accounting and auditing firm. Unfortunately, the company ceased to exist in 2002 following a number of scandals that became public knowledge and that might have been the outcome of unethical leadership, working process, and collective belief. The essay will evaluate what exactly took place and if there had been unethical leadership faltering, the evaluation will try to go to the root of the problem and find out why such an unethical behavior would be part of a once highly regarded and trusted corporation.
Brief Background of Arthur Andersen
The company known as Arthur Andersen LLP started its accounting business on December 1, 1913 when it purchased a small accounting firm in Chicago owned and run by Arthur Andersen and Charles Delany. The company had grown to hire up to 85,000 employees and had operations in 84 countries. It eventually had evolved into a consulting firm in addition to what it was doing as an accounting and auditing firm. However, at one point, because of conflict of interest the two services were handled by two separate firms created for the purpose of managing both responsibilities independently. One of the influential individuals in building the culture, design, structure, process, practices, beliefs, and values of the firm was Arthur Andersen who had a very strong belief in what the company should be doing by harboring the highest integrity and upholding the public’s confidence above everything else. According to Boyd (2004) he had stated that if the public confidence is shaken for any reason, the value they hold for the company would erode to the point of no return. That was the main reason that forced the company to close its doors in 2002, as it will be part of the discussion why the firm chose to close its door after it encountered a legal entanglement that caught the public’s attention.
The company had been operating seamlessly for 60 years doing its core business which was accounting and auditing, side by side with its newer consulting business that were a lucrative source of revenue for the stakeholders. Nevertheless, the company was forced to change course when the Securities and Exchange Commission recommended that firms involved in accounting responsibilities should avoid bundling it with a client service of any kind that includes consulting, because of the conflict of interest that could arise that could interfere with the vested duty of the firm. Such firm’s priority should focus on protecting the interest of the public that is investing in the numerous publicly held companies the firm is responsible to verify if the accounting procedures they are using meet the standards and the requirements.
According to Boyd (2004) and many other media sources the consulting branch of the business took a new name and called itself Andersen Worldwide instead of being called Andersen Consulting and being run as a subsidiary by the parent company Arthur Andersen. The new company Andersen Consulting was able to generate a higher revenue of $4.9 billion more than the parent company Arthur Andersen could muster that was at $4.6 billion in 1996. Eventually in the year 2000 the company was forced to come up with a totally new name that does not use the Andersen name and it came up with a new name and called it consulting company Accenture.
The Organizational Culture Development
Since the company’s culture had made its priority the integrity of what it is doing according to Niece and Trompeter (2004), the acceptability procedure carried out by the firm always sought conformity, as well as standardization. The main drive was to make what takes place in all the company workplaces uniform in such a way that whatever process, procedure, terminology, and behavior applied should be the same across the board. One of the reasons for that was to make mobility of staff at whatever level they are easy, whereby they will be fit to serve at their capacity at any of the branches owned and run by the firm.
When it comes to new employees, they have to go through a rigorous training and orientation at a Chicago facility the firm runs. The rigid dress code had fortified the culture that everyone has to adhere to, to the point where the behavior of the staff had become predictable and was standardized at whatever level the staff were. It is difficult to reveal the negative effect of such a rigid culture, except that what came into existences according to Boyd (2004) was it had led to the fact that the senior staff were totally aloof where they felt that no one can evaluate the various decisions and judgments they were making.
Nevertheless, in the consulting business the attitude was different such that whatever they were doing was less constrained by rules. Instead, the drive was different and had its focus on pleasing or satisfying clients by disregarding the cost and some of the ethical breaches that might ensue. Focussing on internal rules similar to what the accountants and auditors were doing was not practiced strictly at the consulting branches.
There had been efforts and theories that tried to evaluate the difference that existed between the two sections and what influenced the outcome might have been a selection-socialization effect where the hiring practice at the company focuses on bringing in only those who are graduating in accounting field. There is an assumption that such employees could develop a special sensing and thinking according to what Myers-Briggs classify as cognitive styles that are rooted in a particular profession, where Lamp and Finn (1992) and Armstrong (1987) have asserted that such graduates could be inclined not to reason ethically when compared with other students graduating in various fields. Others have gone as far as saying that auditors will part from ethical reasoning as they gain more experience (Ponemon 1992). Others such as Abodlmohammadi, Read, and Scarbrough had gone even further by claiming that there is an ethical group-think among accounting students.
When that is the case Tetlock, Peterson, Mcuguire (1992) assert that the group-think could lead to the buildup of uniformity pressure among the group that could easily interfere with normal cognitive efficiency and moral judgment. They further state that some kind of omnipotence feeling where the group is immune of failure could also develop. Wilks (2005) further states that unless there is a specific “ethical guidance” that usually originates from an industry group, professionals could be led to believe that anything that is thrown at them from outside of the organization could be considered to be unethical.
Newstorm and Davis (2002) have come up with what became to be known as the Person-Situation Interactions Model where they stated that when certain individual-moral and situational variables get mixed they will tend to lead to unethical moral decision process that is predictable and such assertion reflects on what Kohlberg introduced concerning decision making based on morality. Some of the elements are field dependence that reveal how much the decision making process is dependent on the environment. Ego strength is the unwavering conviction of individuals that they will not go wrong. The locus of control reflects the confidence of individuals about the control they have over the environment. Wilks (2005) and others had depicted the environment in which Arthur Andersen based its decision making as being focused heavily on the revenue they generate, the kind of room for creativity what they are doing was creating for them, and the high level satisfaction of their clients instead of exerting effort to comply with the set out standards that had been their main priority from the outset, which was the integrity of the firm. This clearly demonstrates what the outcome will be when group-think takes over. It will underscore ethical decision making by making a narrow goal such as pleasing and retaining clients the main drive. The three elements mentioned in the Person-Situation Interactions Model are clearly shown at work at Arthur Andersen affecting everyone involved from top management to the professionals, where they had found it difficult to make ethical decisions that they believed will displease their clients. This obviously resulted in tarnishing the integrity of the firm, because the unethical behavior had started from the top where they were supposed to be the role models and there was no one to put a check on it. The new employees were not immune either because they do not have any choice other than to be absorbed into the unethical culture since the priority upheld was high revenue and client satisfaction. What the company should have realized must have been that it was working to protect the interest of the public, not to protect the interest of the firms it calls its clients that only want it to verify to the public that is their stakeholder that the method and process they have in place is safe, efficient, meet the standards and will protect their investment.
Niece and Trompeter (2004) by citing a 2002 Chicago Tribune article had noted that the fact that the company had come up with a new consulting firm under the name of Accenture might have contributed to the reluctance where the theme that was held by the company since 1932 had to erode, because they have chosen not to maintain the public confidence that they were dependent upon to continue doing what they were doing. The fact that pleasing the client had taken the driver’s seat became to be true when companies such as Enron, WorldCom, and Global Crossing surfaced. These companies had engaged in unethical accounting practices and the accounting and auditing firm had failed to expose their wrongdoing because it did not want to lose them as its client. Those cases had brought the accounting firm to court although the verdict was the firm was only obstructing justice that would clear it from any other professional wrongdoing. That did not repair the loss of public confidence the firm suffered that led to its ceasing auditing publicly held companies, which was the company’s mainstay even if the legal system had made it easier for them to regain their luster.
Jones (2004) suggested that there are indisputable competencies firms have to have in order to continue doing what they are doing effectively. What this means in the case of Arthur Andersen is that it might have shifted its main focus from its major competency, which led to its demise in spite of the fact that it could recover leaning on its other competency that was consulting. However, the unethical accounting practice it utilized had eroded the confidence the stakeholders had on the firm causing it unrepeatable damage.
Answering Some Questions
Did the organization conduct appropriate research in developing its organizational behavior strategy?
The answer to this question might be no because from the outset the behavioral strategy was proper since it had made its priority the integrity of what it is doing by upholding the public’s interest. This eventually had changed because the company slowly started to change its priority when it started to pay more attention to the relationship it had with the companies it was auditing, as it started to go out of its way to please its clientele base. While doing that, its other new priority was generating more revenue at the expense of eroding its integrity.
Did the organization effectively analyze environmental impacts?
It seems that the organization did not effectively analyze the environmental impact since it is easy to depict that from what its priorities had became, as they were different from what they were on the outset, where the first priority would be the integrity of what the company does. What that meant was it will look after the interest of the public instead of making generating high revenue its priority, or instead of working hard to please and retain clients, or instead of focusing on the kind of room for creativity what they were doing were availing to them. This clearly indicates that they were not aware of the environment they were operating in that was expecting them to make the public interest their main priority.
Which organizational behavioral theories were manifested in the organization?
There were three main theories used and one of them was the selection-socialization theory where the narrow hiring practice of the firm was the focus. The firm hires only accounting graduates who could develop a special sensing according to what Myers-Brigs classify as cognition styles that could be rooted in certain professions, where their reasoning might not be ethical when compared to other graduates.
The other one is group-think theory that will buildup a uniformity pressure that everyone would be required to adhere to. Another theory to mention is the Person-Situation Interaction Model that has three elements and when mixed together they could introduce unethical decision making behavior at the work place.
Were the organizational behavioral theories properly incorporated?
The behavioral theories were used to evaluate or interpret what the environment at the evaluated firm was and they had been used to highlight the reason why the firm sidestepped from the original value it upheld that would have saved it from practicing unethical working behaviors.
Were there any theories omitted that could have resulted in an optimized outcome?
There were and to mention a few AGIL could be a good example where its correct implementation would have averted the closure of the company. The Human Relationship Theory could also be adapted to what the firm was doing and it could have served as another source of guidance for the employees to follow instead of assimilating themselves into a given organizational culture without questioning, especially when there is unethical practice.
The contingency theory also would have sent a signal if it were in practice when the firm’s procedures were taking wrong turns when the firm made its own interest and its clients’ satisfaction the priority instead of the public it was supposed to protect. Another theory that might have had relevance at the particular firms is the Scientific Management that would focus on result instead of rule of thumb, where as long as firms continue to operate profitably they can make their own rules to adjust the priorities that they come up with from time to time. Here, the assumption is if there was adherence to the rules with scientific fervor, all the problems created that had cost a lot of money to those involved would have been averted.
What are the indicators of successes and failures in the organization?
The indicator of success and failure at the particular firm was not very complicated, where as long as the firm is aware of its priorities its possible to guarantee its success. But the minute those at the top become lax and made the priority their own interest, the satisfaction and happiness of their clients, and some creatively they could attain from what they were doing they missed the main priority, which was protecting the intereste of the investing public in the publicly owned companies the particular firm was auditing.
How could these have been enhanced (successes) or averted (failures)?
It is the priority that will make and break a firm as witnessed from what happened to Arthur Andersen, because once that priority is replaced with any other that looks after the personal interest of the firm unfairly or the interest of third parties that should not be part of the main priority, the failure of such a firm could not be averted. However, if there had been a clear priority from the outset based on what the environment demands and if it was possible to adhere to it, there was no need to worry about failure.
What recommendations can be made for a future business of this nature?
The recommendation is once firms made their priorities based on what the outside environment demands from them, they have to follow it through unless they encounter unworkable problems. Especially, some kind of self interest sacrifice have to be made in order to adhere to what the environment demands and to avoid faltering, as it was witnessed by what happened to Arthur Andersen. They started out with a strict priority where integrity would be the cornerstone of what they will be doing and as the years progress they started to cultivate a culture that was prone to making unethical decisions such as making generating more revenue a priority without meeting the requirements. To make things worse the firm started to look after the interest of the wrong group when it was supposed to verify to the public whether the companies it was auditing were doing things properly or not. That itself could be illegal because it is a falsification of records, although they were smart enough to evade the illegality by admitting that they were not doing wrong knowingly. Therefore, if companies want to avoid the fate this particular firm encountered, they have to study what the environment exactly demands and they have to integrate it to their working arrangement in such a way that it will be their main priority, to avoid the problems encountered by the firm evaluated here.
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