Introduction
For a firm like Arthur Andersen, reputation is the basis for building and maintaining a customer base. Clients will hire an auditor for their reputation based on contacts with their families and friends. In this regard, reputation is as important as the effectiveness of business relations between audited entities and independent auditors.
Speaking about the company’s reputation, first of all, it should be noted that its image must correspond to the goals it wants to achieve. In order to improve the efficiency of a business, it is necessary to provide all its participants with a clear idea of the direction of the company’s development. A common goal can become a rallying point for employees to increase business productivity.
For this purpose, the company’s corporate values are created, which all employees of the organization strive to achieve. Honesty, respect, and working as a single firm are the values that Andersen adheres to (Diermeier et al., 2016). He believes it is important to maintain a passion for innovation, service, and human greatness. The core principles are integrity, teamwork, creativity, and the pursuit of excellence.
New Culture and Its Problems
In building its strong corporate culture, Andersen used legal accounting practices to avoid conflicts of interest. The company has striven to present accurate financial statements that have not yet been amended. However, the conflict of interest still arose due to significant cultural changes within the firm. That, in turn, jeopardized the obligation to protect the public interest of the business.
Andersen justified the creation of a new sales culture through internal and external pressure, which led to the requirement and reward of receiving royalties (Diermeier et al., 2016). This change, coupled with rapid growth that has increased the independence of local chapters, has resulted in increased levels of risk. The firm’s focus on the fast-growing consulting markets was one of the reasons for the conflict of interest with audit clients, who brought in significant consulting fees.
Internal and External Conflict Factors
Internal factors that influenced the development of conflict within the firm became the new economy of the company. It required additional auditors to focus on controls to avoid increasing the risk of unusual transactions (Diermeier et al., 2016). Creating new audit methods meant more training and experience for auditors.
External factors that contributed to the change in culture included the development of a new consulting services industry as the issue of independence between audit and consulting functions arose (Diermeier et al., 2016). It has led to the need for additional reporting from boards of directors that non-audit services are compatible with their independence.
Advice to Andersen’s Leadership
Domestic laws and regulations should govern most Conflicts of Interest (COI). The creation of short audit contracts will help reduce the tension of the conflict, as well as more attention when reviewing the audit results, especially at the highest positions. Moreover, careful designation of members who can take action on audit reports is one method that can enhance the force of law in such cases (Boffardi et al., 2021).
In addition to internal quality control, it is important to self-monitor the firm’s processes, regularly update these procedures, and closely monitor results (Mastos et al., 2020). Performance appraisals should cover ethical behavior, and leaders can encourage it by showing appreciation when they do so.
The main actions an organization takes to increase productivity, improve product quality, enhance organizational culture, or end the current downward spiral the company is in are known as change management efforts. Every business needs to change management activities because organizations tend to lose out if they do not reinvent themselves in a competitive market (Bhaduri, 2019). The key actions that a company needs to take to increase productivity are to improve product quality, enhance organizational culture, or stop the current downward spiral in which the business finds itself.
Every firm will eventually need to use change management strategies as organizations that do not reinvent themselves often lose out in a cutthroat market climate (Bhaduri, 2019). Its competitors catch up in product and service delivery, disruptors rob it of interest and niche market positioning, or management rests on its laurels and overlooks the latest industry trends, opportunities, and innovations. Subsequent analysis of competitors and identification of their weaknesses and advantages will allow the company to create its strategic plan, which will also consider the tips presented above.
Some areas that require urgent improvement are the organization of the sales force in line with the realities of competition and the creation of new organizational structures to enter new markets or explore new opportunities. The leader must convince the manager that the current situation is far more dangerous than any attempt to change it.
Most change initiatives are led by new management, who have far less trust in the bank than those with whom the organization’s employees have long-term relationships (Boffardi et al., 2021). To manage change effectively, new leaders must use the skills of current managers. It will lead to forming a strong ruling coalition that recognizes the severity of the crisis and respects the organization’s employees.
Conclusion
Thus, the changes in Arthur Andersen led to conflicts caused by internal and external factors, resulting in the company’s decline. In order to solve problems, leaders must take the initiative to develop and disseminate a vision that employees can more fully support. Reducing the additional focus of auditors on controls will allow the company to reduce the level of tension. At the same time, the organization can introduce new methods of self-control. By analyzing the external and internal situation, the company can create goals that will allow it to solve existing problems.
References
Bhaduri, R. M. (2019). Leveraging culture and leadership in crisis management. European Journal of Training and Development. Web.
Boffardi, R., De Simone, L., De Pascale, A., Ioppolo, G., & Arbolino, R. (2021). Best-compromise solutions for waste management: A decision support system for policymaking. Waste Management, 121, 441-451. Web.
Diermeier, D., Crawford, R., & Snyder, C. (2016). Arthur Andersen (a): The Waste Management Crisis. Web.
Mastos, T. D., Nizamis, A., Vafeiadis, T., Alexopoulos, N., Ntinas, C., Gkortzis, D., Papadopoulos, A., Ioannidis, D., & Tzovaras, D. (2020). Industry 4.0 Sustainable Supply Chains: An application of an IOT-enabled Scrap Metal Management Solution. Journal of Cleaner Production, 269. Web.