Andersen, Arthur

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Andersen, Arthur

(1885-1947)
Andersen Worldwide

Overview

Arthur Andersen was the founder and senior partner of Arthur Andersen and Company, now the second largest of the Big Five accounting firms. His Chicago-based firm offered a full range of financial services including auditing, tax services, and specialty consulting in areas such as technology applications. Andersen established the company's focus on maintaining a strong organization through training, effective corporate policies, and a strong understanding of economics and business trends.

Personal Life

John William and Mary Aabye Andersen, Arthur Andersen's parents, immigrated to the United States from Norway in 1881. Arthur Edward Andersen was born on May 30, 1885, in Plano, Illinois. He became the youngest certified public accountant in Illinois when, at the age of 23, he earned his degree from Illinois University in 1908. He went on to receive a B.B.A. from Northwestern University in 1917. Andersen married Emma Arnold on August 8, 1906 in her hometown of Chicago. The Andersens had three children: Ethyl Bernice, Arthur Arnold, and Dorothy Emma. Andersen was considered a "liberal Republican" and enjoyed photography, fishing, and golf. He died in Chicago on January 10, 1947.

Before receiving his business degree, Andersen took a job teaching accounting at Northwestern University. In 1911, he briefly worked as controller for Schlitz Brewing, but returned to Northwestern to become the head of the accounting department at age 27. Andersen would continue to teach at the university until 1922. He also worked for the Chicago office of Allis-Chalmers Co. and, from 1907 to 1911, was a senior accountant for Price, Waterhouse. During 1911-12, he was comptroller for the Uihlein interests of Milwaukee. Andersen was a member of numerous professional and civic organizations, including the American Institute of Accountants, Illinois Society of Certified Public Accountants, American Economic Association, United States Chamber of Commerce, Norwegian-American Historical Association, Illinois Historical Society, Alpha Kapa Psi, Beta Gamma Sigma, Beta Alpha Psi, and several golf clubs. He received LL.D. degrees from Luther College in 1938 and from Northwestern University, Grinnell College, and St. Olaf College in 1941. In 1940, the government of Norway made him a commander of the Royal Order of St. Olav.

Career Details

In 1913, Andersen founded his own accounting firm, Arthur Andersen and Company. He was the first university professor to go into public accounting, and aimed to challenge existing practices in the business. He envisioned a firm that would be a knowledge enterprise, and emphasized the importance of a sound understanding of economics and finance. He based his philosophy on the belief that this knowledge should come from three sources: experience, education, and research, and he set out to build his company on these principles.

"We want to measure our contribution more by the quality of the service rendered than by whether we are making a good living out of it," he claimed when he opened his company. "It has been the view of accountants up to this time that their responsibility begins and ends with the certification of the balance sheet and statement of earnings. I maintain that the responsibility of the public accountant begins, rather than ends, at this point."

The firm was licensed as accountants and auditors in most states and soon acquired large corporate clients, including ITT, Colgate-Palmolive, Stratton, Briggs and Co., and Parker Pen. When the company expanded in 1915 and opened an office in Milwaukee, it strengthened ties with one of its most important clients and Andersen's former employer, Schlitz Brewing. Andersen's partner Clarence Delany left the firm in 1918, and Andersen continued as director of the company.

The firm grew rapidly, and Andersen became an authority on financial affairs. He was often asked to provide expert analysis in legal cases and provided advice as a member of various boards. He served as chairman of the board of certified public accountant examiners for the state of Illinois; he was a director of the State Bank and the Trust Company of Evanston, Illinois; he served as a trustee for Chicago's Century of Progress, and he was the president of the board of trustees for Northwestern University. Andersen also authored a number of magazine articles and books, including Major Problems Created by the Machine Age, (1931); Duties and Responsibilities of the Comptroller, (1934); The Future of Our Economic System, (1934); Present Day Problems Affecting the Presentation and Interpretation of Financial Statements, (1935); and A Layman Speaks, (1941).

Andersen's fledgling firm was aided by the 1913 implementation of the federal income tax, which created an increased demand for accounting services. To be near the Internal Revenue Service, he opened an office in Washington, D.C. During the 1920s the firm opened six new offices and began providing financial investigation services. This led to Andersen's appointment in 1932 as the representative for several New York banks when Samuel Insull's utilities empire collapsed. The firm investigated Insull's financial affairs, Andersen testified in court on the matter, and the firm guarded the remaining assets during refinancing. This proved to be an important event for the firm during the Great Depression, and helped establish its superior reputation.

The company also grew to be an international force under Andersen's direction. In 1930 he coordinated expansion to other countries and continents, with his firm's affiliation with McAuliff, Davis & Hope, Chartered Accountants. This led to work in the British Isles, Europe, Asia, and South America.

In 1938, Andersen was asked to become the first salaried president of the New York Stock Exchange. Though flattered by the offer, he declined to focus on management of his growing firm.

Social and Economic Impact

Andersen instituted managerial, recruiting, and training advances that provided an important foundation for the company's continued growth. In 1915 the company became the first accounting firm to adopt a formal recruiting program for college graduates. In 1940 a school was created for training the firm's 35 new auditors. This tradition was evident when, in the early 1970s, the company opened Andersen University, a center for professional education. Andersen also established policies and procedures that transformed the workings of the small, informal company and allowed it to become a large, complex organization. In 1942 a new branch of the firm was created, that would become known as management information consulting.

When Andersen died in 1947, his 25 partners felt the tremendous void that was created by the loss of his strong influence and presence. However, with Leonard Spacek as the new managing partner, Arthur Andersen & Company was positioned to further develop its reputation as a progressive firm and to grow into the largest organization of its kind. It tested the practicality of using computers in business by computerizing a client's payroll in 1952; and it made important contributions to the emerging areas of industrial engineering, functional accounting, and management information practices. The business is now divided into two separate organizations, Arthur Andersen and Andersen Consulting, which have been administered from a headquarters in Geneva, Switzerland since 1977. Today, Arthur Andersen is a global organization employing more than 58,000 people in 363 offices in 78 countries.

Chronology: Arthur Andersen

1885: Born.

1908: Became youngest C.P.A. in Illinois.

1913: Founded Arthur Andersen & Co.

1915: Became the first accounting firm to adopt formal recruiting program for college graduates.

1930: Coordinated expansion of firm in Europe, Asia, and South America.

1932: Appointed to represent several New York banks after collapse of Samuel Insull's utilities empire.

1938: Invited to become first salaried president of New York Stock Exchange.

1940: Opened school for training new auditors.

1942: Created new branch in management information consulting.

1947: Died.

In 1950, Ohio State University established The Accounting Hall of Fame. The board elected Arthur Andersen in 1953, commending his "contributions as an educator and outstanding practitioner . . . . He had an unswerving faith in education as the basis upon which the new profession of accounting should be developed."