Organizational Leadership: Examining the Failure of Arthur Andersen

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Examining the Failure of Arthur Andersen
Hester Rall
LDR 531
November, 28 2011
Tom Melpolder

Examining the Failure of Arthur Andersen
Introduction
Organizational Behavior (OB) is the study of an organizations individuals, groups and structures and its impact on workplace behavior (Yukl, 2010). In reviewing the failure of the storied Arthur Andersen (AA) accounting firm we see the influence of individuals’ decisions, particularly that of its leaders, but also the lack of individual accountability and a willingness to do whatever the group is doing. How can an organization of 85, 000 people all be willing to do the wrong thing. The company encouraged sameness with a focus on its core values, but this developed into arrogance and superiority resulting in an above the law attitude and a belief that the company could not fail. We observe deviant behavior and great internal conflict with a lack of leadership and organizational structure to guide it all. Hindsight is 20-20, but it seems almost impossible that no-one noticed the lack of organizational citizenship behavior. It sure seems that all of these are giant red flags that should have redirected the company. A promising beginning

Arthur Andersen (AA) was established in Chicago in 1908. The namesake of the company was a math prodigy who at 23 became the chair of the accounting department at Northwestern University. In 1913 congress established the Federal Reserve and passed a federal tax. Accounting firms became popular and AA grew rapidly. In 1930 AA gained national notoriety when they reorganized the virtually bankrupt, Insull Empire. They did this while maintaining liquidity of the organization; not a small feat during the depression. National growth, with high profile clients, followed.

Organizational structure
Up to the end of the 1960’s, AA clearly demonstrated the traditional organizational structure described by Robbins and Judge (2011). There was a clear hierarchy with the CEO as a...
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