Balancing Flexibility with Control
As Andersen grew, both from international expansion and through diversification of services, its independent local offices provided the firm with the flexibility to expand. However, the firm was not designed to manage an organization of Andersen’s increasing scale. Only two things kept Andersen from falling apart: its strong, shared culture of values and methods and the unity of the partnership. Without these two safeguards, the local offices would be free to do whatever they wanted—right or wrong.
During his lifetime, Arthur E. Andersen had warned the partnership to remain small—no more than 100 partners—in order to retain a unified voice. Each of the 25-member partnership remaining after Arthur E. Andersen’s death knew each other personally—their strengths, their weaknesses, their aspirations. Trust was founded on personal knowledge, as well as shared ideals. Personal knowledge helped make decision making faster and easier. Although each partner was responsible for the operations of his, and later her, own office and client engagements, each also had a firmwide obligation to help others if needed. Under Leonard Spacek’s 25-year guidance, cooperation and a common experience kept the partnership and the firm united.
The partners developed a self-reinforcing, informal exchange system of rewarding favors. A partner might share available staff or steer work in the direction of another partner. A staff person might help a partner with a charity or professional association event on his or her own time or take an undesirable assignment for the sake of the firm or out of loyalty to the partner. Such a sacrifice might be repaid by a high-visibility assignment and eventual promotion. Exchange arrangements helped to cement and stabilize the partnership and provided a flexible system for finding and deploying staff quickly, giving Andersen an edge over the competition.
Partners who worked well with the others could multiply efficiency and improve the bottom line. Cooperation opened doors and smoothed operations. The more staff a partner could send into the field on an engagement he sold, or on one sold by a colleague, the more money he or she could bring into the firm. The more money a partner brought into the firm, the higher the rewards were for everyone. The partner benefited on an individual level, and the partnership benefited as a group. Reciprocal exchange of resources and engagements kept the offices within the firm connected and made it successful. As the number of Andersen partners grew in pace with the growth of the firm, the partnership tried to maintain cooperation. This became increasingly difficult. By 1956, the partnership had more than tripled since the founder’s death in 1947 to 85 partners. In 1973, when Spacek retired from the firm, there were 826 partners, 137 of whom were nationals of countries other than the U.S. Between 1947 and 1973, the number of local offices grew from 16 to 92.
Technical skill, hard work, commitment, and performance did not make advancement to the top automatic. Each and every partner was selected and groomed by Arthur E. Andersen’s former protégés exactly as they had been selected and groomed. Prospective partners needed to show that they were clearly one of Andersen’s own, fit the partner profile, and could be trusted to work for the good of the firm, as well as for their own benefit. To win acceptance and the election, a successful candidate had to demonstrate a mix of technical and personal talent.
But, as early as 1965, continued growth had Andersen’s new managing partner, Walter Oliphant, worried about the possible division of the firm into geographic compartments of interest, saying, “Such divisions need not and should not occur,” and he moved to improve communications between offices.
But many partners weren’t worried. What could go wrong? Fueled by belief that bigger must be better and encouraged by deregulation, American business was expanding rapidly in the later part of the 20th century. Andersen, especially the younger partners, wanted to get into the game. “Winning isn’t everything, it’s the only thing,” was a favorite Vince Lombardi quote heard around the firm. Beginning in the 1970s, Andersen began to grow rapidly and, by 1978, it was already one of the top eight accounting firms in the world. But to win, Andersen had to be number one. To win, Andersen was going to have to be the biggest, most aggressive kid on the block.
When the European Union became a reality, Andersen was well established in the Union’s member countries and already had an eye on the most profitable opportunities. As the Soviet system deteriorated, teams were dispatched to Russia to determine the right time to invest there. Andersen established an office in China years before other Western accounting firms began to think about doing business there. Henry Kissinger was the keynote speaker at the firm’s globalization conference in 1992. Andersen had embraced worldwide growth with ease. By the time Andersen closed up shop, it was operating in 84 countries around the globe.
Leonard Spacek lived to see it all. By the time he died in 2000 at he age of 92, he had become accounting’s elder statesman, who had never been afraid to say what he thought. Throughout his career, he advocated strengthening audit procedures and standardizing accounting rules so that financial statements could be fairly compared. Under his watch, Arthur Andersen had undergone worldwide growth, with revenues jumping from $8 million in 1950 to $190 million just 20 years later. And although he had been responsible for growing Andersen’s consulting services, he spoke often and eloquently about the auditor’s role as a protector of the public interest. “There aren’t any Leonard Spaceks in the industry anymore,” former SEC Chairman Levitt eulogized.