Arbitrator Separates Andersen Firms
An international arbitrator Monday ended a long-standing dispute between Arthur Andersen and its sister firm Andersen Consulting, ruling that the profitable consulting arm can run its own show without any future payments to the accounting firm.
Both sides claimed victory after the ruling by a Paris-based arbitrator, but Arthur Andersen’s chief executive resigned hours after the decision came down.
The dispute between the accountants and consultants had been brewing for decades, with the consultants pressing for full independence--which they got Monday--because they felt they were not paid enough for their work.
Andersen Consulting, which contributed a big chunk of its annual profit to Arthur Andersen, will have to relinquish the Andersen brand name and forfeit about $1.2 billion in past payments to the accounting firm, according to the 130-page ruling. But Arthur Andersen, which had claimed as much as $14.5 billion in termination payments, is not entitled to any future payouts, the arbitrator said.
Andersen Consulting’s chief executive, Joe Forehand, said the decision was a “total win” for his firm. The ruling opens potential partnerships and possibly a stock offering for the consulting firm, in addition to fat payouts for its 1,300 worldwide partners, he said in a conference call.
The dispute between Arthur Andersen, which was founded in 1918 in the Midwest, and its consulting arm was over money. Arthur Andersen’s consulting business exploded in the 1970s and 1980s, thanks to corporate restructuring in the United States. The consulting business contributed about 20% of revenue at the end of the 1970s and 40% at the end of the 1980s.
In 1989 the firms created two separate entities for the groups, under the umbrella of Andersen Worldwide. But when Arthur Andersen set up its own consulting business in the 1990s, Andersen Consulting started to pursue complete separation. The consulting firm, which paid about $250 million a year to Arthur Andersen, outgrew its old parent: It became the world’s largest consulting firm with about $9 billion in revenue last year, versus $8.2 billion for the accounting firm.
Arthur Andersen’s chief executive, Jim Wadia, told Reuters on Monday that the ruling was “a high point” in his career. But Wadia, 52, later said in a statement that he will take early retirement after a three-year reign as Arthur Andersen’s worldwide managing partner, the firm’s equivalent of chief executive.
The arbitrator ruled that Andersen Worldwide had breached its contract with Andersen Consulting. It had failed to ensure cooperation between the firms, among other things, the arbitrator said.
