Letter from Dr. Tom Blue
To show where my motivation to find and fix the problem of a vacant Midlevel came from, I start with my experience fresh out of college at Arthur Andersen (AA) having graduated as the top accounting student of my graduating class at the University of Nevada, Las Vegas. It’s a gripping story filled with intrigue. As found at the Midlevel, should people find themselves alone there, they most likely lose their jobs: particularly when it comes to the best and the brightest.⁶ Eight months later, that’s where I found myself at Andersen. Worse yet with no Midlevel group in place, organizations predictably fall as AA did. In 2002 having shredded workpapers in the Enron case—within days—Andersen closed all of its 95 iconic double doors, worldwide, putting 85,000 people out on the street.
When I entered the firm in 1971, AA was well on its way to blatantly violating generally accepted accounting principles (GAAP). I was part of the first class to attend “Andersen University” at a former Catholic women’s college that AA had purchased. As AA’s managing partner from 1947, when the founder died, to 1973, Leonard Spacek addressed the graduating class.
Impeccably dressed, he had traveled by limousine from Chicago to St. Charles to address the class. During the question and answer period, following his address, I asked something I had thought about in college. Did Andersen, book the anticipated costs of pollution—booking these costs being a cornerstones of GAAP. If AA did book these costs, it would hit utility companies particularly hard. Only later did I learn that utility companies were one of AA’s major clients.
A hush fell over the room as Spacek replied that AA was doing a good job in general. Whoops, I shouldn’t have asked! In another woops discussion, the managing partner in the Columbus, Ohio office, where I worked, said something to the effect that my comment about an accounting court to decide tricky GAAP issues was misplaced. Again, I had thought about such a court in college. Actually, Leanard Spacek had first proposed such a court in his keynote address at the 1958 American Accounting Association Annual Conference (later published in the July 1958 issue of the Accounting Review). Apparently, the managing partner in the Columbus office hadn’t read the article. As you will learn, an accounting court would have been preferrable to Waste Management, World Com, and Enron—to name just a few—paying lucrative fees to have Andersen coverup aberrant accounting practices in its audited financial statements.
The tally of the costs, listed below, does not include the fines and costs at the Arizona Baptist Foundation of a Ponzi scheme to pay old investors with new investor money (1984-1999) at Colonial Realty Co. of unsound investment deals (1988-1990) at Boston Chicken of massive franchisee losses (1993-1997) at Sunbeam of fake sales (1996-1998) at Asia Pulp & Paper of derivative contracts and misleading bank deposits (1997-2000) at Global Crossing of selling network capacity while buying it back (1999-2002) and at WorldCom of capitalizing expenses to inflate profits (1999-2002). In addition, who knows the hidden schemes that escaped discovery that Andersen had covered up in its audited statements? No wonder AA was so quick to close its doors in 2002.
That leaves the tip of the Andersen iceberg of collusion and coverup at $76 billion:
- 1971: Dayton Power and Light (DP&L) postdates $1.56 million in checks that I discovered and, if correctly entered, would have overdrawn the bank account by $500K in AA’s SEC filing.
- 1997: AA pays $21 million to the British government for its coverup in audited statements of John DeLorean’s embezzlement from investors (1978-1979)
- 1999: AA pays a $7 million fine levied by the SEC for the coverup of Waste Management’s $1.7 billion inflation of its profits (1992-1997)
- 2000: AA pays $27.75 million to U.S. creditors for the DeLorean coverup (1978-1979)
- 2001: Enron shareholders suffer as much as $74 billion in losses in the Enron collapse with AA having hid Enron’s illicit financial practices in audited financial statements (1990s-2001)
The totality of all this collusion and coverup at AA defies comprehension. It’s the dark side in organizations of the mechanics found there that defy comprehension.³¹ In this realm, the Midlevel is the virtual level that unseen mediates the other levels, similar to how virtual particles invisibly mediate other particles in atoms.
You might think that turning coverup and complicity into stability and productivity would be easy. How hard can it be to face facts and staff the Midlevel? But as Carl Jung wrote:
With a little self-criticism one can see through the shadow—so far as its nature is personal…. [So] it is quite within the bounds of possibility for a man to recognize the relative evil of his nature, but it is a rare and shattering experience for him to gaze into the face of absolute evil.¹
The way to turn around this state of affairs in organizations—to tap into the boundless potential and beat back the cancer of collusion—is to place and train Midlevel groups to give mind and collective thought to an otherwise mindless and malicious Midlevel.
Sincerely,
Tom Blue
The rise and fall of Arthur Andersen LLP
Just being a straight shooter, as Andersen’s founder was, didn’t prevent the collapse. Arthur Andersen was a full professor and head of the accounting department at Northwestern University until 1922. In that position, he lived and breathed GAAP. As he said, “Think straight, talk straight” a Scandinavian axiom taught him by his mother and something his firm forgot about as it rose to the top of public accounting worldwide.
AA folded in 2002 from its obstruction in the Enron fiasco. “Within days desks were being packed, families relocated, whole offices parceled off. Everyone left looking back at what had been.”² Had Andersen stood its ground and called Enron on its corrupt practices, it’s believed, the whole affair might have been avoided. AA got sentenced to probation and fined $500,000. On appeal, the Supreme Court reversed the ruling, but by then it was too late—Arthur Andersen’s “Think straight, talk straight” imprimatur a disgraced, distant memory.
As Ross Fuerman wrote in his article “Accountable Accountants” in Critical Perspectives in Accounting (Vol. 15 Nos. 6-7, August-October 2004, pp. 911-926) “Arthur Andersen LLP spent the past generation purging its best and brightest audit partners like Mike Gagel [remember that name] reducing the influence of Carl Bass and other members of its Professional Standards Group, and promoting its engagement partners of its failed audits, like Dick Measelle [who headed the DeLorean Motor audits] and Robert Kutsenda [who headed the Waste Management audits] to the highest levels of leadership of its audit practice.”
The Columbus office once brought in a group of insurance underwriters to make a presentation on insurance fraud. Auditors need to be on the lookout for fraud, disclose it, or withdraw from the audit. The upshot of the presentation was that those who file false claims become increasingly addicted, as do alcoholics, gamblers, and drug addicts; just as Arthur Andersen was becoming increasingly addicted to the thrill and greed of collusion and coverup, By the way, the AA also stands for Alcoholics Anonymous.
In sharp contrast in 1914, a year after he had started the firm, Arthur Anderson refused to overlook a local rail utility’s financial manipulation. “There isn’t enough money in Chicago”, he told the President. While it cost him the client, his no nonsense approach built AA’s reputation along with its portfolio of utility clients. Having recently started at AA in 1971, I was on a utility audit at Dayton Power and Light, just as Arthur Andersen himself had been on a utility audit 57 years earlier. Also like him, I came across financial manipulation. But this time, while there wasn’t enough money in Chicago, there sure was more than enough money in Dayton.
I uncovered a check kiting scheme that overdrew Dayton Power and Light’s bank account to pay real estate taxes in time to get a large discount. On the back of two checks, hand stamped across both checks when they cleared the bank, was a May date with June dates on the front of the checks. The checks totaled $1.56 million and properly booked in May would have overdrawn DP&L’s bank account by $500,000. Anderson did not disclosed this in the audited statements on the registration with the SEC. Incidently, the overdraft matched Andersen’s fine, 30 years later, in the Enron case.
The audit manager (dramatized in the picture) undressed Dr. Blue in front of the entire audit team for finding the two checks. It was surreal, so absurd. Of all things, he dressed him down for doing his job. Perhaps, he meant it as an object lesson for the audit team: collude and cover up or go home. Then, the audit supervisor, Mike Gagel, told Dr. Blue to remove all evidence of the kiting from his workpapers. Dr. Blue concluded that the ticket to success at AA must be colluding and covering up on your own.
What a pressure cooker! With no group positioned at the Midlevel in AA’s offices, it left the level mindless and malicious. Mindless in its mediation of the other management levels, the level blindly followed the law of entropy to greater disorder, collusion and coverup.³² Isolating Dr. Blue away from the audit team, as the audit manager’s undressing had, set Dr. Blue up as a loner lacking the required mental capacity of a group to grasp the individually incomprehensible quantum condition evident at the Midlevel,²⁷, ³¹ Like any person facing this quantum condition, alone, he was toast. It was Sigmund Freud’s death drive rearing its head, a drive that “takes specific pleasure in what is most painful.”²⁶
With the Midlevel left vacant without an intervention to staff it, just about anyone can be seen as a potential threat. In other words, a person’s sense of ethics conflicts with the unethical-to-criminal norms in a corrupt corporate culture. It’s what one doctor called an “unpleasant paranoia genic zoo”.²³ “Paranoia genic” in the doctor’s use of the term eluded to the imprint of paranoia on corporate cultures, marked by a strong bias toward hubris and greed (as at AA). While rare, individuals with Prader-Willi syndrome (PWS) carry genetic markers from their parent’s paranoia.³⁴ Whether those markers come from paranoia genic imprints by organizations on their parents—as when the audit manager railed at Dr. Blue—remains a matter of conjecture. However, PWS does provide a dumpsite in offspring for those markers, since PWS not only leaves its victims paranoid, but also infertile with their life expectancy halved. There’s also “converging evidence” that intense trauma experienced by parents prior to conception leave offspring struggling with post-traumatic stress, as their parents had.”³⁵
But to simply leave organizations in the hands of a mindless Midlevel puts people at the mercy of Freud’s death drive, heading down a path to greater disorder and chaos. Under these conditions, barring a group at the Midlevel, a corporate culture goes counter-productive with individuals paranoid in the threats they pose for being over-qualified, too old, too blue collar—just too proficient. On top of that, there’s the contradictory evaluation criteria,²¹, ²³ No wonder the lead tax partner in AA’s Columbus office killed himself.
Two sides of the same coin
As Dr. Blue’s Uncle George said as he glared at him, having learned about the DP&L fiasco from his mother, “I thought you were smarter than that!” His uncle sounded just like the audit manager. It was AA at its peak, expecting nothing but the best of collusion and coverup from its junior accountants. Anything less riled the Columbus office to no end, as it did the audit manager. It’s deep seated, destabilizing, unproductive, irrational and ultimately disastrous, as with Enron.
Failing to collude and coverup on his own accord, Dr. Blue never was assigned to another audit, sitting day after day in the Columbus office. So, he quit and stepped through Andersen’s double doors one last time. He still remembers looking back at the 14th floor of the Borden Building, as he walked down Broad Street thinking, “What now?”
Mike Gagel made partner eight years later. Then in 1993 not fitting AA’s snake-oil profile of a salesman, Andersen sent him packing through the same double doors that, 22 years earlier, the Columbus office had sent Dr. Blue. “After his retirement party a few months later, [Mike’s] staff presented him with a framed caricature: it showed him passing through Andersen’s trademark wooden doors for the last time briefcase in hand and a white cowboy hat above his eyeglasses. An inscription read…, ‘Mike Gagel. One of the good guys.’”³⁰ If he was a good guy, just how bad were the bad guys? The answer came eight years later and unmistakable, “Enron bad.”
The audit at DP&L was a harbinger of the collusion and coverup to come at AA, the canary in the coal mine. The audit was for an SEC registration on financing three power plants: two coal and one nuclear. As to the nuclear plant with DP&L one of the original owners, the devil-may-care attitude surrounding kiting found its way into the plant’s construction. Problems with construction and safety concerns there plagued the plant. In 1984 with $1.7 billion in sunken costs and the plant 99% complete, and no NRC license to operate; the owners halted construction and converted the plant to coal. Then in 2022 Vistra Corp closed the plant five years early. Overnight, the Village of Moscow, Ohio lost 90% of its revenue. AA’s shameful behavior haunted future audits as well. For instance, the nuclear plant’s $1.7 billion in sunken costs in 1984 showed up later in Waste Management’s $1.7 billion inflation of its profits in 1999.
It’s a two sided coin: one one side there’s collusion and coverup without a Midlevel group, and the other side there’s the stability and productivity with a group. Imagine the added stability and productivity had the money wasted on AA’s collusion and coverup been spent on BOSS’s intervention to place and train Midlevel groups. Can you imagine?
Major advantages with the intervention
Preventing financial failures, such as at Enron, takes properly staffing the Midlevel in a management structure with a group. Once staffed, the Midlevel stabilizes the management structure and that increases productivity. On the other hand without such a group, the Midlevel mindlessly follows the law of entropy to ever increasing disorder with collusion and coverup increasing.³² Sight unseen, the virtual Midlevel:
- has measurable effects
- stands between the upper and lower levels in management and mediates them
- requires the mind of a group to comprehend the mindboggling mechanics
Look at the contrasts in the table between having and not having an engaged Midlevel group. Company-wide, the group provides stability and productivity vs. collusion and coverup without a Midlevel group.
Placing a group there, you could say, “Is a no brainer.” However, should a group-less Midlevel overhear you say this, it might take it personally, “Hold on there, buster! I’m the one with no brains.”
Kidding aside—and this is where BOSS comes in—with the Midlevel left unstaffed, entropy chews up and spits out dedicated individuals (Mythic Insights) even CEOs who dare set foot there. As convenors of Midlevel groups, drawing on Dr. Blue’s PhD in organizational behavior and his background in group dynamics and group facilitation, we place and train groups to staff the Midlevel. In three to six months¹² (the Midlevel’s seasonal 3-month to solstice 6-month time span of resource commitments) the group comes of age, takes control,⁴ and respectfully ask us to leave.⁵
So, instead of dedicated individuals taking the fall at the Midlevel,⁶ we’re the ones who get the boot. By getting fired, we meet the trauma-induced need in hierarchies for firings to break through the barriers to change (see Seshat team articles in Scientific Advances and PNAS). The Aztecs took this to an extreme: Victims “lined up for the length of more than a mile, waiting for their turn on the sacrificial platform.” The Aztecs believed that these blood fests satiated the gods and saved the world from collapse.⁷
This fear, present day, is all the more justified with at-will employment in all 50 states, except Montana. Ironically, firms that struggle to institute changes make the changes with relative ease after firing staunch advocates. In framing such firings, James Hillman eluded to the Hebrew Day of Atonement with its former brutal sacrifice of a goat annually at Zuk. As he wrote (Senex & Puer , 2005, page 35) “anyone, who makes a clearing in his bit of the forest of the past is the hero who redeems time and is the scapegoat who by taking on the [community’s] sins undoes time.”
As an attorney, lawyer, engineer, and the Head of Industrial Psychology at Case Institute of Technology in Cleveland; A. B. Cummins not only did the original supervisory training at Lincoln Electric in Cleveland and arbitrated hundreds and hundreds of labor disputes nationally, he also headed the production effort throughout the Philadelphia Region covering Pennsylvania, New Jersey and Delaware during World War II.
In this position with the War Department, he worked with groups from across industries. As he wrote in 1983, the crews had “no more than one finished prototype…but they carried the ball from there, including team formation, balancing tasks among themselves and, usually, taking care of most of the maintenance.” Many were women—Rosie the Riveters, 6 million strong nationwide—new to the workplace and with little or no supervision, the supervisors off to war. Fresh out of high school, Esther Green worked under A. B. Cummins at the Philadelphia shipyards welding seaplanes. She quickly rose to “Lead Lady” and conducted the weekly safety meetings. Even under these war-time conditions, as A. B. Cummins wrote, “output always exceeded estimated time standards.” As “Doc” (to his colleagues and “ABC” to his students) concluded, “Anyone fortunate enough to have experienced this explosion of talent and energy has seen the unblocking of…basic human drives.”
As part of our staffing process, Midlevel groups take on high-value projects and their companies get the benefits. Given the large illicit amounts on dark side of that two-sided coin, it comes as no surprise that the benefits available with a group at the Midlevel on the other side are substantial. Yet organizations don’t seem to have the time. Midlevel groups make the time! Perhaps, you have some projects in mind, such as succession planning. If you click on About Us on the menu bar you’ll find succession planning among other popular projects.
Efficacy of the intervention
“Are you Otto Pracejus’ grandson?” he asked. “Yes I am”, Dr. Blue replied. “I have just one thing to tell you”, the man said, “When we had a problem, your grandfather took us for coffee.” In the 1920s and 30s he had worked for Dr. Blue’s granddad in Solon, OH. In nearby Twinsburg Jack Harley, PE founded Harley Pump in 1979. He had worked for Ingersoll Rand as a district sales manager for 18 years. When he had proposed rebuilding oil pumps, and not just manufacturing them, Ingersoll turned him down. So, he started Harley Pump. In the mid-1980s, when Harley Pump relocated to its new location, Dr. Blue intervened there. He met with its 15 employees for little over an hour once a week for three months. After the meeting, everyone went to a local restaurant for lunch, paid for by Harley Pump.
During the intervention, Harley Pump added rebuilt air-blast compressors to its product line of rebuilt oil pumps, both used to cool contact points in substation transformers. The secret to rebuilding the compressors to the high quality standards was to be have workgroup members crosscheck each other’s work. Also during the intervention, Jack Harley worked jointly with the Cleveland Electric Illuminating Co (now FirstEnergy Corp.) on the sonic monitoring of bearing wear in Harley’s rebuilt oil pumps. The monitoring proved critical since, should metal flakes from worn bearings fall into the oil, they would short out contact points in million-dollar transformers.
FirstPower’s Stinger® improves disconnect switch operations
Plastic bearings avoided the problem, but didn’t last nearly as long as metal bearings. Some years later, Jack Harley put it this way, “90% is putting one foot in front of the other.” He said this not long before forming FirstPower Group LLC in 2007 with Frank Ricard, the former Manager of Engineering and Quality at GE Harley—GE having acquired Harley Pump in 1999. As FirstPower’s website states, FirstPower “regained the High Voltage Circuit Breaker and Compressor segments of the business.”
As Harley Pump had, Sunbelt Plastics also participated in the intervention. Located in West Monroe, Louisiana (then the largest blown-film plastics plant in the continental U.S.) Dr. Blue had William Duffy, the plant manager, to thank. When asked by CEO David Cattar, “Should we hire him?” Duffy replied, “Let’s hire him he’s crazy.” The assembled managements burst into laughter, as Dr. Blue gained entry.³ David Cattar and Saul Mintz founded Sunbelt in 1979, the same year that Jack Harley founded Harley Pump, and in 1999 sold Sunbelt to Tyco, in the same year that Harley Pump was sold to GE. Below, you’ll find Harley Pump and Sunbelt in the diagram of our Mid-1980s field research that tested for the intervention’s efficacy.
As noted in the diagram, Harley Pump also participated in the statistical research used by Dr. Blue to reveal the quantum condition in organizations. Sunbelt Plastics did not participate. With the Midlevel part of this quantum condition, it constitutes a virtual level that mediates the other management levels, not unlike virtual particles that mediate other subatomic particles. This explains why, being virtual, the Midlevel doesn’t show up on organization charts, just like virtual particles don’t show up in atoms.
As Surowiecki pointed out in a diverse group,²⁷ individual misconceptions cancel out, which gives groups a handle on the quantum condition at the Midlevel. As Richard Feynman showed in his dissertation, photons follow the most productive path of least action, just like a Midlevel group follows the most productive path. As the field research showed without the intervention on the right of the diagram, even behemoths like GM succumb with its former headlight-taillight pair of lamp plants simultaneously shut down in quantum entangled fashion.
As to the control group in the research, the plant manager at the Headlight Plant opted out of the intervention and the Taillight Plant wasn’t approached. Together, they controlled for the interventions at Harley and Sunbelt. Like Sunbelt, the Headlight Plant was located in West Monroe with the Taillight Plant 750 miles to the north in Anderson, Indiana. Harley and Sunbelt thrived, as the diagram shows in sharp contrast to the lamp plants. Moved up by six months, the shutdown coincided with the start of their Centennial Year.
The communities of West Monroe and Anderson were devastated by the shutdown. As a 32-veteran of the Headlight Plant commented, “[My] hope…is that businesses will someday return to our soil so that our children’s children can have the advantages and standards of living that this generation has been so fortunate to enjoy.” His son wrote a ballad about the shutdown. The refrain went like this: People they’re all the same. There’s no one to blame. If you take the refrain to heart, there really wasn’t anybody to blame. With the virtual Midlevel as the mediating level and without a group to direct it, the level mindlessly frog-marched the two plants to ever greater disorder and eventually to shutdown.³²
In sharp contrast with the intervention, Harley Pump thrived, as did Sunbelt Plastics until Sunbelt’s $85 million cash sale to Tyco. With the sale to Tyco, William Duffy got demoted to maintenance supervisor. Not long after the sale, fraud in Tyco’s executive suites ravaged the company. With Duffy demoted and the fraud at Tyco, it was as if the intervention at Sunbelt had never happened. It was much like the fate of alcoholics when they “fall off the wagon”. Alcoholism doesn’t pick up where it left off; it “takes specific pleasure in what is most painful” and picks up where it would have been had the drinking never stopped.
Outside of Greenwich, OH for example sat a Ford dealership where the owner’s parents once had a farm. There was a prayer chapel across from the owner’s office; Billy Inmon having risen through his Christian faith from an alcoholic to a success. He even had a pond dug in front of the dealership so customers could fish. Dr. Blue had saved the dealership through an audit required by Ford Motor Credit. Not long after, having closed his CPA practice, he returned around 1983 to looked over the pond at the showroom.
By the way, around that time coverups at Andersen had escalated to the 1984-1999 levels of the Ponzi scheme at the Arizona Baptist Foundation (ABF). At 139 times greater than the $1.56 million uncovered by Dr. Blue at DP&L, 30 years earlier, Andersen settled related ABF lawsuits for 217 million, not long before having to close its double doors in 2002.
Getting back to Billy Inmon Ford—as Dr. Blue looked over the fish pond, he saw three words plastered in huge letters across the showroom window: “The American Dream”. Trouble with unrelenting entropy, the building was abandoned; the dealership shut down, and the Midlevel unattended—as if Dr. Blue had never audited Billy Inmon Ford or Billy had never stopped drinking. Again, AA stands for Alcoholics Anonymous, not just Arthur Andersen. Going back even further to when Dr. Blue last stepped through Anderson’s double doors, coverups in the Columbus office took a quantum leap back to where they would have been had Dr. Blue never entered.
In stark contrast, Jack Harley emphasized the intervention’s staying power, as Harley Pump evolved:
We still do not control breaks, we do allow meetings as people think necessary, and people decide on at least some of their own training. An example of the latter is that we have a field job scheduled for September that requires man-lift certification. The two people that will be using the man-lift on the job Googled for man-lift training, signed up and took it last week.
Years later and 40 years since the intervention at Harley Pump, he wrote, “I still have my business, now FirstPower Group LLC. And working with some of the same people, which is very nice.” Now in his eighties as CEO, he had just completed his next 20-year plan—over the span of institutional creation at the CEO level.¹³ His doctor told him that with continuing medical advances he just might outlive his latest plan.
As for William Duffy, he eventually retired. When Dr. Blue called him at home, he recalled that day at Sunbelt Plastics in David Cattar’s office and commented, “We had fun back then.”