The collapse of Arthur Andersen

In 2002 American energy giant Enron collapsed. Its auditor Arthur Andersen faced criminal charges, and ultimately disappeared. This is an article that Anne Groves, former head of PR EMEA at  Andersen, wrote in the aftermath about the lessons she learned. She is now an independent communications trainer and careers adviser.

When I took a call at 8.00pm on 12 January [2002] summoning me to a meeting in Miami, I realised this meant events regarding Arthur Andersen and Enron were, to say the least, about to take a turn for the worse. We had  already been on alert at Andersen.

Having restated its past three years' accounts, Enron had filed for bankruptcy in December, and the Securities & Exchange Commission had started an investigation into Andersen's role as auditor. Two days earlier, Andersen in the US had discovered evidence of inappropriate disposal of documents relating to Enron (the infamous 'shredding').

But nobody could have foreseen that, within six months, Andersen would have moved from its position as a $9 billion global professional services firm, employing 85,000 people in 84 countries, to one where the US firm was convicted on criminal charges of obstructing justice, the global network had ceased to exist, thousands of US and UK staff were redundant, and the Andersen name had effectively disappeared.

Andersen's story will be a business case study for years to come. Living through it was an experience of unprecedented intensity and has left its mark on everyone concerned.

One of the most stressful aspects was the daily media coverage of 'beleaguered', 'troubled' and, latterly, 'doomed' Andersen; our people could not recognise the firm they worked for in these reports. As the situation  developed, they were anxious to find out as much as they could to reassure their clients, their colleagues, and themselves. Communicating to Andersen's clients, staff, alumni and, of course, the media, became increasingly vital as the crisis deepened.

Key moments

Two key moments stand out in this period: the 10 January discovery that documents concerning Enron had been shredded and the indictment on 14 March of Andersen as a firm on criminal charges of destroying  evidence.

The first escalated the situation from a local, albeit very significant, situation to a global crisis, with implications for the entire firm. The biggest-ever US bankruptcy case became life-threatening for Andersen, as the firm was effectively faced with a choice to plead complicity or incompetence in regard to its work for Enron.

The second sounded the death knell for Andersen: the unprecedented charge of the whole firm (as opposed to individuals) meant that US clients inevitably started to leave in large numbers. This quickly led to the unravelling of the global Andersen network, which brought huge internal ramifications. Events continued to develop at breathtaking speed: a proposed global, bar the US, link-up with KPMG was announced on 19 March, but was quickly found to be unrealistic. Individual member firms concentrated on finding the most appropriate Big Five partner for their future; and our global chief executive Joe Berardino resigned on 26 March.

By the time Andersen was found guilty on 15 June of obstructing justice (but not of the original charge of destroying evidence), most member firms were well underway with their link-ups, and large parts of the US firm had joined former competitors. The Andersen name in the UK officially disappeared on 1 August.

Communicating to clients

Our communications centred on keeping up with events and interpreting them for Andersen's different audiences. Of course, it was absolutely critical to keep close to UK clients. Partners and managers strove to keep them informed on a personal level. We wrote to all clients several times, once including a document entitled Perceptions and realities, which was an attempt to set out the facts and address many misconceptions. Our UK clients were overwhelmingly supportive. We tried to give them reassurance and information. For example, we helped to anticipate shareholder questions at forthcoming AGMs: much of the action took place during the proxy season.

Some people have asked why we were so high-profile on some of our media interviews, specifically BBC TV Ten o'clock News, Newsnight and Radio 4's Today programme. But we found this an effective way of communicating to all our audiences. They wanted to hear our point of view put publicly, and it was an occasion when mass media broadcast was an excellent method of reaching a highly targeted audience.

Crisis media service

The crisis management media service was set up in the UK in mid-January and sustained continually for the next 15 weeks. Our priority was to try to accommodate a 24 hour global media schedule: there is a highly symbiotic relationship between the US and UK media in particular and, usually, events unfolding in the US would be reported on the Today programme. We instituted a system of conference calls, personal calls and voicemails between the US and UK to try to anticipate events and plan on a daily basis, and to advise each other on how developments were likely to be received in each area. Advice and briefings were passed on globally so each individual country could handle their own media.

We introduced a shift system in the UK press office: with 300 plus pages of press coverage generated daily around the world, the early shift's first job was to prepare a digest for the rest of the team. The late shift followed through to the evening senior management meetings to plan the next stage. Discussions and media calls continued from home.

We installed a hotline. Each call was logged and prioritised. Each PR had a list of journalists they were responsible for. With literally hundreds of calls coming in to landlines and mobiles, we struggled to cope at the height of the crisis. One of the most satisfying moments, however, was the PR team's overnight arrangement of a press conference to announce the proposed global merger with KPMG. The level of media interest was so great that there was simply no alternative to holding a press conference, which was attended by around 50 journalists, including eight TV crews - four of them from the BBC.

Our website was invaluable. We could direct journalists to explanations of complex subjects, such as the relationship between Andersen member firms and Andersen Worldwide, the difference between Arthur Andersen LLP (the US member firm) and Andersen Worldwide, the nature and scope of our government work in the UK, and other fundamental issues.

Communicating with Andersen people

Internally, voicemail was used as the emergency channel for major announcements. It was established as a regular weekly event. These were supplemented by face-to-face briefings for all staff, email bulletins with updates and answers to the most often asked questions, and a daily media summary, which interpreted stories as essential preparation for daily conversations with clients. We learned to keep communications short, and to beabsolutely rigorous about the quality of content. It was also vital to try to manage people's expectation about the type of information available in a time of great uncertainty.

The intranet came into its own as a critical means of providing support detail, facts where they were known, and updates.

What we learned

So, what did we learn from the crisis? First, we had to recognise that this was a war: a 'war cabinet' was established, comprising a handful of senior partners and communications people, and a command and control  structure was set up. In a crisis it is essential for leaders to lead and direct, and not to spend too much time taking soundings. Those people used to a partnership structure will recognise the culture shock this represents!

We tried hard to establish the facts and to counter misinformation. In a crisis, rumour gets ahead of reality very fast, and there is a real danger of losing control.

Above all, we tried to take the initiative and to put our point of view. Not everyone agreed with this tactic, but we felt that, since we would inevitably be shot at, we should come out fighting. It also boosts people internally if they can see that you're trying to put up a fight. You also need to keep your nerve: keep communicating, and be bold and firm in your arguments.

As the war wore on (and we seemed to be front page news in the Financial Times every day for weeks on end), we learned other useful tactics: not to get complacent after the first storm, but to recognise that, in a lull between battles, we needed to plan tactics for the next stage. And to acknowledge which battle we were fighting. In a crisis, there are a number of questions which help answer this. Is this a local or a global crisis? Is it a real or a perceived problem? One-off or systemic? Is remedial action or reform needed?

Lessons from the meltdown

The supreme importance of reputation: reputation is a priceless asset and, particularly for organisations marketing intangible products, it is immensely fragile. Public scrutiny has never been more intense; reputations need constant protection. This is the first example of a professional services orpartnership firm facing a reputation crisis on a global scale. It demonstrates that, if a brand which is based on trust is 'globalised', the  exposure to risk is increased. It also shows that no-one is immune: the most confident organisations can go 'over the cliff'.

It can happen to you - no matter how strong your brand.

A crisis can be anticipated and prevented - but don't be complacent about your company's risk management systems.

Ask the hard questions: does your company have a compliance culture? Would the policies stand up to outside scrutiny? Is there a potential gap between how you view your organisation and the expectations of the outside world?

A crisis can be turned around if there is real evidence of change.

Once the crisis starts, it can get worse - and you need to prepare yourself for the worst possible outcome at each stage.

The crisis will finish: other stories will supplant it in the media.

Acknowledge when it's a rout and switch to damage limitation. Andersen fought for its life and reputation from December to March; from March it faced the death sentence.

What survives?

What survives when a corporate reputation is destroyed? It is possible to rescue something from the wreckage - and that is in the realm of individual rather than corporate integrity. The integrity of Andersen management and people in the UK remains untainted. Their individual reputation is intact. The communications team emerged with credit and stronger for the experience.

It is possible to salvage personal integrity from corporate meltdown. It is a scarring experience but the only thing to do is to give it your all while you can make a difference, then to learn from the experience and, finally, to move on.