The Effects of Corporate Culture on Organizational Behavior
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Question 4: Discuss the relation between what happened at Arthur Andersen and multitask principal-agent theory.
Question 5: Discuss the relation between the 'hard' and 'soft' elements of a firm's corporate culture in the context of this case.
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Solution Summary
The discuss analyses the various aspects of corporate culture, applied to a specific case. It offers suggestions as to how the various aspects of corporate culture influenced decision making and the ultimate demise of the organization.
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4. Multi-task principle agent theory proposes that the agent is rewarded for productivity and is allocated risk. However, it takes the principle agent theory a step further, by requiring the agent to take on many different tasks within the organization, or by requiring many tasks that are subdivided within a specific function. The problem at Arthur Anderson begins when the new reward system is based on revenue generated, rather than performance. The 2X performance evaluation system designed by Samek, in 1998, led to a shift not only in focus of profit over quality, but in moving from a principle agent theory to the multi-task principle agent theory. The previous 'walk straight' 'talk straight' philosophy is no longer embraced when agents' worth is based on profits.
When profit becomes the bottom line, agents, in this case accountants at AA, are forced to consider profits above all else and are more likely to believe it is necessary to take risks. When agents serve more than one function, such as they did at Arthur Anderson, as auditors, tax advisers and technology consultants, they are taking on multiple tasks. This leads to risk taking multiplied by the various functions, as auditors are expected to generate profits in each functional area. Basing the agents' worth on productivity, rather than quality of performance, produces inherent risks, as agents compete for top positions, or even to keep their positions at Arthur Anderson.
The trouble at Arthur Anderson began well before Samek developed his new 2X performance evaluation system, however. When the firm decided to offer technology consulting services in the 1950's, a market opportunity was recognized, but little thought was given as ...
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