“And the winner is,” said Warren Beatty as he handed the envelope to Faye Dunaway, “La La Land!” It was a moment that would define the Academy Awards ceremony in 2017 because the winner of the premier best picture award was not La La Land but the breakthrough movie Moonlight. Instead of celebrating the achievement of an African American- centered film about discrimination along multiple dimensions, the Oscars had become a farce. The scene was like a nightmare sequence, specifically for one firm: PricewaterhouseCoopers.
For decades, the accountants had been charged with keeping the list of Oscar winners safe and secret to be re- vealed at precisely the right moment. Every year, the two accountants given this important task were shown on television, purposely nerdy, purposely boring. Their job was to remain boring. The things that kept them up at night all involved getting too much attention.
Beatty had the wrong envelope (somehow for Best Actress rather than Best Picture). Thoughts of who was at fault immediately turned to PwC. The nightmare was real. The two accountants would never attend another ceremony. And PwC’s careful branding was in tatters.
To be sure, nightmarish though this was, it was not of existential consequence. The accountants involved lost only their dignity but not their jobs. PwC would at worst lose the Academy as a customer. This was nothing compared to the destruction that had befallen Arthur Andersen more than a decade and a half earlier. Its errors led to the complete failure of the ninety-year-old company.
In 2001, Arthur Andersen was one of the big leading accounting firms. Those firms had an overwhelming share of the main corporate giants. In Andersen’s case, that included one of the top ten most valued companies in the United States: Enron. Enron was an energy trading and finance company that had grown off the backs of energy deregulation in the 1980s and 1990s. It had a “go for broke” company attitude that made it the darling of many a popular management guru. But as it turned out, its financial foundations were weak. When these were exposed, Enron promptly failed. But as with the Academy Awards, attention turned quickly to the designated caretakers—in this case, the auditors: Arthur Andersen.
Overnight, other corporations lost confidence in the accounting company, employees in the thousands left to other accounting firms, and before any investigation was completed, Arthur Andersen was effectively no more; 85,000 employees and almost $10 billion in annual revenue went elsewhere. This was more than just a bankruptcy; there was simply nothing left.
It turned out that Andersen had left behind some years before the meticulous practices that had made it what it was. In other words, the failure was a symptom of a slowmoving and then long-standing problem. That problem, as it turned, out threatened their existence. So, unlike with PwC, the nightmare of Andersen was not one of embarrassment and the loss of a single client but went to the core of the firm itself.
This book is about these kinds of existential threats to businesses. It is about those potential crises that keep corporate leaders up at night. And, the problem with these threats is that they come from every direction.