The Andersen Tape

Are the corporate scandals the work of a few "bad apples" in an otherwise healthy business world, as President Bush asserts? Or do they spring from a "bad seed" that's sprouting corrupt practices all over the corporate landscape?

A promotional video made by eight corporate executives on behalf of Arthur Andersen and aired on the British Broadcasting Company's Web site July 10 provides a test. With its clips of Vice President Dick Cheney testifying to the merits of the disgraced accounting firm, the tape made partisan hearts in Washington go pitter-pat. As Terry Neal reported for washingtonpost.com, Democratic strategists are dreaming of using a snippet from the tape in fall election ads. The White House, meanwhile, objected to Andersen's identifying of Cheney on tape as "vice president," and insisted that the tape had been made in 1996. In fact, the tape was produced for distribution no earlier than December 2000, after Bush and Cheney were elected.

But even more interesting than the vice president's cameo is that the video shows how the Andersen way of business was marketed and sold. The tape, which was made in 2001, seems aimed at winning the business of insecure corporate executives. "Andersen presents ... the players," a narrator announces at the outset. The eight executives then appear in tastefully relaxed corporate settings, mouthing platitudes about Andersen's allegedly invaluable assistance. At least half of these "players" have been played out: Four have seen their company stock price plunge by at least 50 percent, three face security and Exchange Commission investigations, and two have been ousted from their jobs and disgraced.

The first howler on the tape comes from the lips of Steve Gardner, former CEO of Peregrine Systems Inc., a San Diego software firm. Gardner praises Andersen for introducing to Peregrine "the best practices that can be brought into a variety of issues." When it was revealed in May that Peregrine had overstated earnings by $100 million, Andersen was fired and Gardner resigned. Fraud charges and an SEC investigation have since contributed to a 99 percent drop in Peregrine stock price. Dozens of lawsuits allege insider trading by Peregrine board members, and the company recently laid off 1,400 employees -- nearly half its workforce. Andersen, says Gardner on tape, taught the company "how to structure transactions so that they are beneficial to Peregrine and the customer."

Next up is Lord George Simpson, former CEO of the British telecom Marconi, who says hiring Andersen was "a great decision that is working out very well." And so it was. Andersen was on board in 1997 when Simpson took over General Electric Company, formerly the British subsidiary of General Electric, renaming it Marconi in 1999. He immediately went on a "spending rampage," according to London's Daily Mail. "The company shifted from modest inexpensive offices in central London to Bruton Street in Mayfair where directors of the telecom group sit cheek by jowl with the fashion salon of Vivienne Westwood and the luxury goods firm Bulgari," the paper reported last September. Simpson also took on two corporate jets at the cost of 5 million pounds per year, according to the Daily Mail, and once spent 100,000 pounds on a corporate junket to the Italian Grand Prix. Last year, mounting losses forced the company "into the biggest write-off of assets in the history of British finance," according to the Daily Mail. Simpson was forced out, the company's stock price fell to 33 pence per share and, by March 2002, 10,000 employees were laid off. "We've been very pleased" with Andersen, says Simpson on the tape.

Then there is Sanjiv Sidhu, CEO of Silicon Valley software firm i2 Technologies Inc., who is seen praising Andersen for "put[ting] into a place a partnership that is transforming shared vision into shared execution" -- whatever that means. But while partnering with Andersen, the software company saw its stock totally tank: It lost 80 percent of its value -- though not through any visible accounting chicanery. No, i2 lost money the old-fashioned way, according to computer stock analyst Brad Reback, quoted in Bloomberg News, "with poor service and programs that promise more than they can deliver."

Finally, Dana Mead, former CEO of Tenneco Inc., the Illinois automotive conglomerate, is seen describing Andersen as having "people that are committed to attacking the same kinds of problems" any competitive company faces. After George W. Bush was elected, Mead was reportedly in the running for the SEC chairmanship that eventually went to Harvey Pitt. As chief of Tenneco, he is best known for implementing a series of complex stock schemes that left the company's employees with shares of four different firms in their 401(k) plans. Shares worth $5,150 in 1996 are worth about $3,680 today.

Of course, just as Andersen probably overstated its contribution to its clients' successes, its role in their failures can be overstated, too. Three other CEOs who vouch for Andersen on the tape -- Ray Bingham, CEO of Cadence, a California semiconductor design firm; David Rubenstein of the Carlyle Group, the politically connected Washington investment firm; and Steve McMillan, CEO of Sara Lee -- seem to have emerged with reputations intact.

Which brings us back to Cheney, former CEO of Halliburton and the penultimate endorser of Andersen on the tape. Identified as "vice president," Cheney's imprimatur is intended as definitive. "I get good advice, if you will, from their people based upon how we're doing business and how we're operating over and above the normal, by-the-book auditing arrangement," Cheney says.

When taking that "over and above" advice, Halliburton overstated its earnings and attracted the attention of SEC investigators. Now its stock is way down and Cheney, once the proud standard-bearer of the corporate cause, is ascetically devoting himself to foreign-policy issues.

In short, the tale of the tape is Andersen's influence on American business -- how shoddy business practices spread. In a self-selected sample of clients with whom it had good working relationships, Andersen boasts of helping two disgraced CEOs, two presumably honest underachievers, three respectable corporate citizens and the future vice president of United States, who may or may not fit into one of the above categories.

Other companies may have been bad apples. On the tape, Andersen looks more and more like a bad seed.

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