2. ANDERSON ONCE CLAIMED THAT THEIR PROBLEMS ON THE ENRON AUDIT WERE DUE TO A FEW “BAD PARTNERS” IN THE ORGANIZATION. DO YOU AGREE WITH THIS CLAIM? IF NOT, DISCUSS WHAT YOU THINK WERE THE ROOT CAUSES OF THE PROBLEM

We disagree with above statement. Enron was not only Andersen’s only crisis. The claim of Arthur Andersen that their problems on Enron audit were due to a few “bad partners” in the organization is not correct.

We focused on the culture problem of firms a. Arthur Andersen The problems occurred because of its organization and corporate culture. The company decided to focus on generating new business and reducing costs. The atmosphere of Arthur Andersen changed when the company began evaluate its partners on how much new business they brought to AA. The culture aimed to make money grow. This idea along with pressures like keeping the retiring age at 56 years meant that the firm policy was wrapped and the rush for revenue growth led to higher profits and revenues per partner. These were the main reasons that caused problems in AA.

b. Enron Moral hazard sometimes actually happens in the companies when firms are under pressure of profit. Enron was same as well. The founder on Enron focused on only growth and Enron even made a PRC(Performance Review Committee) department. This department evaluated result of employees and 15% employees of low rank were fired. The CEO of Enron, Jeffrey Skiling, ignored morale problem of idea at least he thought that the idea could make profit. This culture of Enron made the employees including board of directors not to consider morale as they could make profit such as speculating and even cooking the book.

Conclusion. As a result these two companies had same culture that they must generate profit without considering aspect of morale. This brought about big problem. The Cultures of organization are