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Bob Wright: Courage in an Ethical Crisis

Bob Wright is the chief executive Officer of Matthew G. Norton Company and its subsidiary company, Northwest Building LLC. Bob is responsible for strategic initiative, direction, acquisition and divestitures, portfolio strategy, asset allocation, risk management, and capital allocation within the company. He also takes an active role in the day-to-day operations of both companies.

His experience prior to Matthew G. Norton includes serving as the regional managing partner of Tax for Arthur Andersen and as the chief financial officer of Brinderson Ltd., a construction and real estate development company in Southern California.

Wright received his bachelor’s degree in accounting from California State University, Fullerton. He serves on numerous nonprofit boards.

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Ethix: It’s been about two and a half years since Arthur Andersen closed its doors. How do you reflect on that experience?

Bob Wright: The one thing that caused so much damage for me personally, as well as for so many of the partners, is that we were aligned too closely with the company. It cuts both ways. The reason we were such a great company was because everybody wanted to be there and it was a great culture to work in. On the other hand, when it went down the way it did, it hurt so badly it was literally like a loss in my family and I went through some sort of depression. As recently as last month, I was having lunch with a partner who said he’s still not over it. I have moved on but it took me the better part of two years to leave that behind me. You can understand intellectually, but there’s still this emotional part of you that was torn up and takes time to heal.

What was your role for the year prior to the Enron fiasco and the demise of Andersen?

So it was intense and that’s when the worst traits come out in people.

I had been promoted to the head of the Seattle-Portland-Boise offices in 1999. In about the middle of 2001, the head of the West Coast area called me and said, “We’re thinking about making you the Managing Partner of Tax for the West Coast.” That included everything except L.A. I went “whoa” because I’d be the youngest guy in the firm to be the head of a region. So I went home and talked to my wife and we prayed about it. Historically I’ve been a very Type A, driven person and my tendency would be to accept the promotion without even thinking about it. For the first time I was extremely thoughtful about it and went through the process and believed that there was a reason why God was putting me in that position. So we decided to take the promotion. I accepted in July of ‘01 and I moved to San Francisco; then I moved my whole family in September. And then two months later Enron hit.

Do you have any sense of how many people at Andersen were aware of some level of impropriety?

I can give you an educated guess that there were less than 15—out of 4,000 partners. I don’t know, but I would guess there were probably two or three partners on the account, probably some people in their office they reported to, and then at some point further up the chain there were people making some decisions. But I don’t think even Dave Duncan, the partner in charge of the Enron account—the one who shredded the documents—one day said, “I’m going to help Enron cheat.” I think the reason he did it was the incredible pressure there is on any world-class organization to be the best all the time. Then you have a client who’s beating on you: “Why can’t we do this?” And Enron wasn’t in there alone. There were attorneys, investment bankers, Enron management, beating on this guy who’s probably trying to slow things down. Maybe I’m giving him too much credit but I don’t think so. I think it’s one small piece at a time, and then you look back after two or three years and think, “Oh my gosh, what did I do?”

All the money went to Enron; it wasn’t like he was personally benefiting from it. Unlike the investment bankers who got commissions for the deals, there was no material incentive for him to do it. I think it was just the pressure and incrementally one bad decision after another.

The Slippery Slope

There’s an interesting comment in a book about Enron, The Smartest Guys in the Room, which states, “It’s impossible to mark the moment Enron crossed the line.” It supports what you’re saying. An inch at a time the line got moved and moved and moved.

When you look at some of the criminal activity that’s gone on with some big corporations, you can see pure fraud. But I think for a lot of the people who get wrapped up in this, it’s a loyalty thing—“I love my boss and he’s asked me to do something that doesn’t seem right, but I’ll do it.” People don’t stop to put a stake in the ground and say “I won’t go any further.”

Once you’ve made that small step it makes it much easier.

It’s a slippery slope after that.

The Impact of Enron

What were your first indications that there was something wrong with Enron?

When I read about it in The Wall Street Journal. I’d never even heard of Enron. I literally knew nothing about it.

And was this November?

Yes, November. I read it and thought, “Oh, this is not good.” But nobody in November and December thought this was going to end our firm. When January rolled around and the shredding happened, people started getting a lot more pessimistic.

Talk about the climate within Andersen during this time period.

Each one of us were literally partners, so if there’s a $100 million lawsuit, I get to write a check for $100,000 or $500,000 or whatever my share of that was. So we were thinking “why don’t you guys (the auditors) just get your act together.” Tax was just rolling. I mean if you’d gone back a few years before that, Tax was doing okay and Audit was making all the money. At this point Tax was outperforming Audit.

Solutions?

But no thought of splitting off like Accenture did?

There was a tendency for partners to think only about how to protect themselves and to forget about their people.

Not at all. But by January it went from an annoyance and “we need to get it fixed” and “it’s going to cost us some money,” to “what in the world is going on? This cannot be happening.” Total shock and disbelief. How could a partner at Arthur Andersen shred documents? It just couldn’t happen! And in a couple days it was, “What’s it going to cost me, what’s it going to cost the firm, what’s it going to mean to our reputation?” And the partners, collectively, went into a total funk. I mean, they couldn’t get anything done. And remember now, I’m talking January/February, which is the busy season for the auditors and Tax. Most of the staff and managers were bummed too, but they were working through things. The partners would sit in their offices for hours at a time, just huddled together, thinking, “What am I going to do, what are we going to do?” That’s when they started asking, “Can Tax split off like Accenture?”

So there was discussion of splitting off at that point.

Absolutely. At the end of January I was asked to be on the task force. I think we had roughly 3,000 Audit partners and 1,500 Tax partners. They asked 12 of us from Tax to try and figure something out. I don’t know how, but I was asked to be on the committee.

Most of the group immediately said, “We’re splitting off,” and I was one of the only people that said, “What are you talking about? These are our partners—an Audit partner is just as much our partner as a Tax partner. How can you leave them hanging out there?” That was my first reaction. My second reaction was, “We’re so radioactive you can’t split off anyway. You think they’re going to let the liability stay here? You’re being unrealistic.”

By the middle of February they had two large investment bankers who were willing to back a private placement offer for us to go off on our own. The code name for it was New World and they were way down the tracks on this. And at the same time the leadership was negotiating with KPMG and D&T to take over the whole tax practice. But none of that happened because they were afraid that if they took too much of the old Andersen, they would have liabilities, if and when Enron ever settled.

So it was intense and that’s when the worst traits come out in people, as you might expect. There was a tendency for partners to think only about how to protect themselves and to forget about their people. But for the most part, partners stayed because of pressure from me and others who were saying, “You’re better than that. You need to worry about your people too.”

What kind of response did you get from customers?

I’m not worried about me, but I’m really worried about 500 people who don’t deserve to be put into this whole mess.

January/February was tough. They’d ask questions, we’d answer them. By March, they were saying, “You might not be around, and we’re a public company and we need to be getting some real answers from you on what’s going to happen.” So by March I had decided I was going back to Seattle. A couple of other partners and I had already started negotiating with KPMG to take all of our tax and audit people for Seattle-Portland-Boise-Salt Lake City. We had about 500 professionals and about 200 support people. They agreed to take virtually all of the professionals and over half the support people, but that was going to take quite awhile to negotiate.

We were in those negotiations and were telling our clients, “We’re going to take care of you, just trust us. Please hang on.” And while each partner was having these discussions with big-name clients, just in this town for example—Costco, Weyerhaeuser, Alaska Airlines—their boards were just hammering them. By April they said, “If you don’t give us an answer by the end of this month, we’re going to have to leave. We trust you, we don’t want to leave, but we have no choice. It’s obvious you’re not going to survive, and we need to have an audit firm.” And so we pushed and pushed. We were supposed to close on April 23rd and ended up closing on May 7th.

Did you lose customers?

To my knowledge in those four cities we only lost one public company. The customers trusted us and had enough faith in the integrity of the people they were dealing with to stay loyal to the end. To me that was a strong testimony from our clients about Arthur Andersen and our people.

The End of the Road

Tell us how Andersen—and your time at Andersen—came to an end.

I have two areas I am proud of. One was that we protected as many people as we could. I say “we” because another partner—Bob Carlile, head of the audit group in Seattle and one of my best friends—joined me to get jobs for as many people as we could. The other was that we were the first office to transfer to another firm.

The national Tax leadership had asked me to be a part of selling all of our big offices. I told them we were not going to do it because they would only take half of the people in the Seattle office. They said, “We don’t care. We’re cutting a really good deal; the partners are all going to be taken care of, we’re going to get this, we’re going to get that.” And I said, “I’m more concerned about my 500 people. If I end up without a job, I’ll deal with it.” I shared my faith and told them why I thought I’d be taken care of. I said, “I’m not worried about me, but I’m really worried about 500 people who don’t deserve to be put into this whole mess.”

They took me off the committee and the national leadership team of ten people who ran Tax in the U.S. I said, “You do what you want to do. I’m going to look out for my people.” So from about March 1st on, I was pretty well ostracized from the group.

I still talked weekly to the head of Tax and told him what I was doing, because as strange as it sounds, I didn’t want to do anything that was perceived as disloyal. I may disagree with them and I was going to do what I thought was ethically right, but I couldn’t bring myself to be disloyal to the company. We were the first office in the country to start negotiating a sale. Every other deal the company made was modeled on ours.

Approximately 500 people, and 100 support people, from Seattle-Portland-Boise-Salt Lake City Tax and Audit were able to keep their jobs. And that was very satisfying, because over the next two weeks, Dallas went, San Francisco went, and the cities started going. Anybody who didn’t close in the next weeks, the deals fell apart. Boston had a deal with KPMG that fell apart and every one of those people were out of a job.

Taking a Stand

There’s quite a contrast here between the decisions that you made, relative to the reactions of quite a few of the other partners. What were some principles that guided your decisions?

By the end of January, I realized I had totally underestimated what was going on and that I was not relying on God enough. And it was an exercise in faith for me at that point. I was starting to get sucked up into the same self-pity as many of the partners. I wouldn’t show it externally, but I felt it internally. I think the defining point was when a partner came into my office and asked me a question.

Could you explain that?

I had only been in San Francisco for four months and was still getting to know most of the partners and one day one of these partners walks into my office and says, “You’re calm and you look like you’ve got this whole thing under control. What’s the deal?” I felt a strong urge to share my faith, but I only said, “You know, I’m not losing it because what’s the purpose in that? We’re a strong company, we’re going to weather the storm.” And I really believed that at the time. This was about two weeks after the shredding and I still didn’t think we were going under. “We just need to be strong leaders for our people. We need to be out there and work through this. Huddling in your offices isn’t going to cut it. You’re hurting morale.” That was my discussion. He said thanks, and left. I immediately felt terrible for not being fully honest with him.

It’s a fine line between being a leader in the business world and forcing your values on somebody, versus being honest with them. It kept going through my head that I should have told him about my faith in Christ, but is it really appropriate, is that really the right thing to say?

Two days later, another partner walks into my office and asks me almost exactly the same question. And I said, “Do you really want to know why?” And she said, “I wouldn’t ask you if I didn’t want to know!” And so I said, “No matter what happens here, my Lord is protecting me. I am in the eye of the storm, and I am calm and at peace, because Jesus has promised he will take care of me and my family.” And her eyes were about this big and she said, “Really?” We ended up having about a 45-minute discussion and she and her family came to our church that Sunday.

I got to the point where I’d be in front of a group of two or three hundred people—from brand new staff people up to managers—and I would tell them, ” I know where my sense of identity comes from, my sense of power, my sense of sustenance comes from, and for me it’s my faith.” And I added, “Each of you needs to find where that is for you.”

Dealing with Family

Why don’t you say something about your family through all of this?

Two events happened that stand out during this time. My daughter was starting high school when we moved and had a very difficult time in September and October, but by January she was plugged in and happy. My son was also tied in. But in February or March it was obvious that we were going to lose everything, including a large moving allowance that I would have to pay back! Plus we would have to sell our house in San Francisco because we decided we were going to move back to Seattle. So I told Ruth, my wife, “I don’t want you to worry. God will take care of us, but you need to know the full picture.” Then I added, “And from now on, I’m going to be focusing all my energies on the Seattle deal so I’m not going to be around. I’m sorry, but I’m going to be working 80+ hour weeks until this thing is done; it could be four weeks, it could be four months. It’s so heavy on my heart to get all these people jobs.” My wife’s incredible. She said, “I understand. I totally agree with you.”

So we called the kids in and I said, “Look, here are some things you need to understand. Some really bad things are going on, you already know that. Mom and I have tried to talk to you about God being there as your safety net. Now it’s time for us to put action to words. You are going to see something that will be a historical event in the corporate world and we’re in the middle of it. I’m going to try to make a difference—to protect my people. But that means I’m not going to be able to pay as much attention to you for the next few months. I’m sorry for that but I’m just telling you ahead of time so you’re not wondering where I’m at.”

“Number two is that I want you to watch Mom and me, to see how our relationship works under the strain, because a lot of relationships won’t weather this storm. I want you to understand it because you’re all old enough now, and you will have these same kinds of times in your life. It may not be to this magnitude, it may be worse. But Mom and I want to try to model this for you and you need to watch us.”

Did you ever get feedback from them?

In July, four months later, when it was all done and we called them all back together, I said, “Okay, what did you think?” They said, “Dad, we didn’t see much of you, but you called us every single night. We never saw you and Mom get angry at each other; we never saw any kind of discord at all.” And I said, “Do you know why that happened?” And they said, “Well, because, you know, you and Mom love each other.” And I said, “That’s true, but it’s because we asked Jesus to give us peace in our house, to help us to rely on Him rather than on ourselves. That peace enabled us to weather the storm.” So it was a really good lesson.

Finishing the Job

You had an opportunity in the middle of all this, didn’t you?

I did. In March, just when I’m started negotiations with KPMG, I received calls from one of my largest clients and two other large CPA firms asking me to be a candidate for the position of CEO and Regional Managing Partner, respectively. This is two weeks after I got kicked off the leadership team. I had no job prospects. Everything was going bad around me and here’s this safety line … .

It’s your chance to jump ship.

I called them back and said, “I would love to consider it, but I can’t do it right now.” The client told me they already had a national search firm lined up to fill the job, but I said, “I can’t respond now and I can’t tell you when I would be able to. I have to complete this task first, so if you need to proceed, by all means do so.”

Two months later, we closed the deal and a week and a half after that, Bill Clapp, the Chairman of Matthew G. Norton Company, called me and said, “I read about your deal with KPMG; it is closed. How did it work out?” After a short discussion he said, “How would you like to talk about being our CEO?”

I can’t express the joy I felt. I had put that opportunity out of my mind because I thought the job was already filled. At this point we had closed the KPMG deal and all of my people were secure and then God gave me the opportunity to be a CEO at a great company located in Seattle, once again blessing my life beyond my expectations.

Next Steps

So tell us about your job here. What are you doing now?

Sarbanes-Oxley is trying to take care of the fraud issue. I don’t know a way that you can do it in these complex organizations.

I’m the CEO of the Matthew G. Norton Company. It’s a multi-generational family business that was founded by Norton Clapp who was the grandson of Mathew G. Norton. Matthew G. Norton one of the four men who started the Weyerhaeuser Company. Bill Clapp is Norton’s son; he’s now the Chairman of the Board. They asked me to come in and to run the company. We are primarily a real estate development and management company and we also have some private equity and venture investments.

The Role of Legislation

Do you think Sarbanes-Oxley, and the other legislation that came out after Andersen/Enron, is the answer to the business world’s problems?

It may be part of the answer but it’s certainly not the answer. There are plenty of laws right now that say you can’t steal money but people steal money from banks every day. Right? So if you’re talking about criminal behavior it’s not going to affect that. If you’re talking about marginal behavior, I think for a while it will have an impact, but like anything, once it’s there and in place, they’ll find loopholes. I don’t think it’s going to have a long-term impact. More important—like in the tax law that I know better—rather than only penalizing the taxpayer, they’re going after the tax preparer. I think that is good legislation. I think you could say there are going to be criminal as well as civil charges, if you are giving fraudulent tax advice.

The investment banking firms make the accounting firms look like amateurs when it comes to aggressive stuff that’s going on.

Auditing is different. With the complexity of a Boeing or a Costco or a Citigroup, you could have a million people out there auditing them and you’re not going to find fraud. You have to assume that most people are honest and are doing the right things. You’re assuming that they’re telling you the truth and trying to make sure that it’s reasonably correct and looking for accounting errors, not for fraud. And I think that’s where the big confusion has come in—that Sarbanes-Oxley is trying to take care of the fraud issue. I don’t know a way that you can do it in these complex organizations where you have somebody who grew up on the audit side, which is typically the case, now working in-house as a controller or as the treasurer, who knows every test that you’re going to do, so they can figure out a way to circumvent the test. You can’t fight that. I think that we need to have more accountability at the C-level—you know, CEO, CFO. And the ones who do criminal things need to be put away, because currently people say, “My company paid a $200 million fine. So what? I didn’t get hurt by it.” That’s the message that’s historically been out there.

The investment banking firms make the accounting firms look like amateurs when it comes to the aggressive stuff that’s going on. I think Spitzer is more important than Sarbanes-Oxley, in going after these guys. The question is whether the lawmakers will have enough to back him up and push this all the way through. It is so complex, and a lot of these things, frankly, aren’t clear-cut issues.

When the government passes another law, the response is, “How do we get around it?” That’s what billions and billions of dollars are going towards, every single year—to attorneys, to accountants, to investment bankers—to figure out ways around the law. It’s a huge industry. The problem is, wherever there’s money involved, that pressure is going to be great. What happens is the CEOs are under pressure by Wall Street to get the stock price up, so they’re putting pressure on the CFOs to do whatever they can. They get the investment bankers who figure it out, and then everyone looks at the auditor and says, “Well come on, show me where any one of these steps is wrong.” “Well, I can’t, but this just doesn’t seem right.” “Well then fine, either you do it, or we’ll get somebody who will.” And that conversation happens all the time.

Advice for Others

Do you have any advice for other managers?

If you’re involved with ethical choices, or moral choices, you need to do the right thing. There’s not an exception in my mind, even if that means losing your job over it. I’ve lived that, I’ve done that, so I feel like I can say that. If you’re going to lose sleep over it, then you probably are making the wrong decision. And seriously think about what you’re doing. You are given a brain; use it. If it doesn’t pass your own ethics test, then it’s probably not right. And if it’s not right, then you shouldn’t be involved with it.

Regardless of the consequences?

I really think so, because you will end up losing sleep and have emotional stress. And you’re going to end up leaving anyway because if it bothers you that much, you can’t be in an organization like that, long-term.

Or the worry is, you get calloused to it, start accepting what you wouldn’t have accepted before. That’s a different kind of a problem.

It is.

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