The Arthur Andersen Company is an accounting firm that was founded in the year 1913 by Clarence Delaney and Arthur Andersen. It is an accountancy firm that deals in auditing, consulting and tax evaluation services. It is based in Illinois. About five years ago, the company was one of the most successful accounting firms with an employee base of about eighty five thousand.
Presently, the firm has only two hundred employees under its name. Similarly, its revenue has fallen from 9.3 billion dollars in the year 2002 to very low amounts in 2007. In that fateful year 2002, the firm lost its accounting license as a result of fraudulent dealings. Consequently, the firm has lost its business, and is no longer in serious operation. It is a good example of a company that did not apply management skills in its operations. (Harold, 2003)
Planning function of management in The Arthur Andersen Company
Management within any organization is normally assigned four main roles, these include; leading, controlling, organization and planning. The planning function of management involves developing an organization’s mission and defining specific methods of accomplishing it. This encompasses a variety of ideas. Planning may be applied when starting a project or organization or it may be applied in the day to day running of the organization. The organization under review was already in existence so we shall examine its day to day planning functions. (Norbert, 1967)
The first management planning issue that the company under review failed to analyze was financial planning. The company did not allocate its budget to projects that would generate long term income. It focused on short term gains like the WorldCom audit that preceded its bankruptcy. Financial planning involves monitoring the amount of money coming in and out of the organization and noting any fund misappropriation.
This was clearly a duty that the Arthur Andersen Company failed since it lost a lot of finances. This aspect also involves planning salary packages, employee benefits, insurance and retirement packages. Before the great fall of the Andersen Company, this aspect was looked into. The employee base was quite large and complaints were quite rare.
Another aspect of planning is policy formulation. This entails coming up with strategies that counter the effect of competitors. The Andersen Company played its part in good policy formulation during the 80’s and 90’s. It knew that IT consultancy was receiving a lot of attention; it therefore decided to focus on this sector and tripled its revenue. But in the years following 2000, the organization did not plan its policies well. It decided to focus on client’s wishes instead of establishing a reputation for being a straight forward firm. This policy planning should be put together with policy development and policy implementation. (Norbert, 1967)
Thirdly, management involves human resource planning. This begins from recruitment of new employees when beginning the organization to hiring of new employees. This was well done by the Arthur Andersen Company at its inception because most of its employees were in line with the companies’ mission. In the mid twentieth century, the company founder frequently took his employees for training and ensured that they were in top notch condition.
But this was later forgotten because the firm hired employees that were dishonest and untrustworthy. The company did not evaluate its employees to ensure that they were inline with its founding principles. It should be noted that the employees considered during planning encompass all the departments in an organization including managerial posts. The Andersen Company failed in this area because one of its senior representatives in the Legal Department Madam Nancy Temple clearly did not follow due procedures. She failed to withhold company principles. This could have been prevented if employee evaluation was done.
Impact of legal issues, ethics and corporate responsibility on management planning.
A code of ethics within an organization is a sure recipe to bring about returns on one’s investment. Contrary to what people believe; that ethics are quite theoretical, a recent research by the Ethics Resource Centre in Washington has shown that employees who feel that their management adheres to strict moral standards and codes of ethics, feel valued by their organization.
Consequently, productivity will be increased by these employees and company profits will be improved. It was quite clear that the Arthur Andersen Company did not realize this hidden truth before the great Enron scandal that led to its downfall. The Company did not adhere to accounting code of ethics as it allowed numerous irregularities to continue within the Enron Company which it was auditing at that time. All the auditors were focusing on was whether their client’s share prices were increasing. They didn’t pay attention to how the income was being generated.
Legalities are a key aspect to be considered during a company’s operations. Companies ought to strike deals that are acceptable within the law of the land. The repercussions from lawsuits are quite severe because they can cause irreparable damage to the company name thus preventing any further business. A case in point is when the Arthur Andersen Company audited the Enron Company is engaged in a deal which it knew was unethical but claimed not to know that it was unlawful.
These legalities should have been considered before the firm proceeded with its activities. The consequence of these illegalities was loss of its license authorized by the Securities and Exchange Commission. Even though the decision of the commission was reversed in the year 2005, the company had an ill reputation and no company worth its salt would allow them to audit their firm. (Harold, 2003)
Corporate social responsibility encompasses giving back to the community. It is a way of saying thank you to the people who have contributed to company growth. The Arthur Andersen Company did not involve this aspect in its management plans. In the late 90’s and twenty first century, the company began focusing on expanding its client’s base and maximizing profits. It did not realize that giving back to the community would increase its authenticity. This is because, the community would feel like they were partnering or cost sharing when investing in the Company’s stocks or doing business with it.
Factors that influenced the company’s strategic, tactical, operational and contingency planning.
Strategy can be defined as an action that facilitates realization of long term goals while planning is the coordination of resources within an organization. Therefore strategic planning is analysis of all the information available to come up with the best goals for an organization. One factor that influenced the Arthur Andersen Strategic planning was establishing a reputation in the accounting field. It wanted to be identified with good intentions and strong principles. This was viable during its inception by the founding member.
Tactical planning involves putting the strategical plan into action. It usually involves the budgeting process, considering alternatives, studying the market and its competitors. In addition, reviews must be made and reports be made. One factor that influenced this aspect of the company was its revenue. The company wanted to make as much as it could. This meant that it could overlook ethical issues as long as a return on investment was plausible thus causing the company’s downfall. (Erica, 2006)
Lastly, operational planning involves the day to day running of the company. This normally involves proper communication between management and its employees. One factor that influenced this aspect was output generated. The company did not adhere to good communication practices within its structure and instead focused on input. Poor communication led to the company’s fall.
Good management practices are backbone of success within any organization. The Arthur Andersen Company had started out with these practices but was swayed away from them in latter years. If it had stuck to its founding principles, it would still be in operation today.
Harold, K. (2003): Project Management: A systems approach to planning, scheduling and
Controlling; Blackwell publishing
Erica, W. (2006): Strategic public relations management planning; University of York
Norbert, E. (1967): Management planning: a systems approach; Melbourne publishers