Magazine for Senior Financial Executives: What’s a reputation worth? – From the Editor

What’s a reputation worth? – From the Editor – Brief Article

JUNIOR HIGH SCHOOL TEACHES US THE HARSH LESSON that reputations are hard-earned, and, once lost, never regained. In adult life, the rules only seem more relaxed. Arthur Andersen has discovered this in the most painful way possible, losing its reputation–and jeopardizing its continued existence–as a result of the actions taken by a handful of partners. Only a tiny fraction of Andersen’s 85,000-person workforce had any inkling of the problems in Houston, yet all are implicated. Longtime Andersen clients have felt compelled to drop the firm just to demonstrate their own integrity.

In the private sector, I can think of no other examples in which the misbehavior of a few has brought down such a large, established company. Ford survived the Pinto; Union Carbide survived Bhopal. For all the focus on the role of the CFO in the Enron case, I predict that the demise of Andersen will have far more impact on the lives of finance executives.

For generations, the relationship between finance executives and their auditors has been largely collegial. As one reader points out on page 13, the phrase audit client has always embodied a certain contradiction between the service and the way it is rendered. Hiring finance staff from one’s auditor has been standard practice. Every one of the Big Five has had consulting projects with its audit clients. For that matter, every one of them has been involved in an accounting scandal.

Whether or not financial reporting reforms are enacted, the auditor-client relationship has changed forever. The accounting firms have to recognize that their reputation for integrity is not merely important–it is their defining asset. Individual auditors will be approaching each new engagement with more fear of sullying that reputation. Their clients, in turn, should expect more confrontational audits.


COPYRIGHT 2002 CFO Publishing Corp.

COPYRIGHT 2002 Gale Group