One of the most difficult lessons to learn in becoming a wise counselor is to say “no” to a good client.

In this NY Times op-ed, Times business writer Floyd Norris observes that the demise of Arthur Andersen is attributable to its inability to say “no” to several lucrative clients who were engaging in questionable deals.

He might be right. Certainly the double whammy of damages that a still-in-business Andersen would have probably had to pay in regard to such scandals as WorldCom and Enron would have been huge financial burdens. There is no certainty that the firm could have survived those hits.

But the fact remains that the federal government’s decision to terminate Andersen through criminal prosecution was not only arbitrary and capricious, but bad public policy.

Very few of the 30,000 employees of Andersen were engaged in any wrongdoing, and Andersen was only one of several firms who provided professional advice and services on dubious transactions for WorldCom and Enron.

Nevertheless, Andersen was singled out for criminal prosecution, and the result was economic hardship for thousands of its former employees and less competition for providing audit services for big companies.

As we are now seeing in regard to American International Group Inc. and its auditor, PriceWaterhouseCoopers, the government’s prosecution of Andersen did not deter professionals from helping their clients engage in risky transactions.

That is why such deterrence should be left to the markets, which are much better than the government at efficiently sorting out the type of risk that is good from that which is not.