Andersen Makes It Official: 7,000 Layoffs

Staggering from the damage done by its role in the collapse of Enron Corp. and a subsequent criminal indictment, accounting firm Andersen announced Monday that it will fire 7,000 workers, or 27% of its staff.

Andersen, the nation’s fifth-largest accounting firm, said the staff reduction will conserve cash as it struggles to become a smaller, audit-focused firm.

A criminal indictment last month on an obstruction-of-justice charge from the destruction of documents related to the Enron collapse has crippled Andersen. The firm is fighting the indictment and the case is set for trial May 6.

In the meantime, Andersen has lost more than 140 of the large public company clients that make up the bread and butter of its business.

The accounting firm served as both a consultant and auditor for Enron and has been linked to Enron’s strategy of hiding billions of dollars of debt and hundreds of millions of dollars in losses in a series of secretive partnerships.

“Of all the issues we have confronted recently, none compare to actions we are now forced to take with our employees,” Larry Gorrell, managing partner of U.S. operations, said in a statement Monday.

Several employees blamed the massive layoff on the Justice Department’s strategy to indict the entire firm rather than just the Andersen employees who destroyed documents.

“I am extremely upset and worried because my government betrayed me,” said Susan Casillas, a tax manager in the Los Angeles office who is waiting to learn whether she will keep her job. “My government is putting all of us out of business and won’t look at the real culprits.”

Although the firm did not provide a breakdown, the job losses were expected to be especially steep at its Chicago headquarters and elsewhere in Illinois, where the firm has more than 5,000 workers. It wasn’t known how many of the layoffs will be in the firm’s L.A.--area offices, which include Irvine, Woodland Hills and downtown Los Angeles.

“Today’s layoffs are only the first round,” said Richard Ossoff, publisher of Auditor-Trak, a service of Atlanta-based Strafford Publications. “The rapidly shrinking audit practice cannot support the remaining infrastructure and this will accelerate pressure to cut expenses even more quickly and aggressively.”

Andersen has lost 144 of its 2,300 U.S public company clients since the start of the year, Ossoff said.

“If this pace of defections is not quickly reduced, the Andersen audit practice may not be sustainable,” Ossoff said.

The firm, which has 26,000 employees in the United States, started firing workers Monday but said the full layoff will occur over the next several months.

Employees will be kept on the payroll for one week for every year of service with the firm, said Grover Wray, Andersen’s U.S. human resources chief. During that period, the staffers will have access to their offices and computers and will receive health insurance.

“Our people have been loyal professionals during this very difficult time and we want to treat them with respect,” Wray said.

The big city offices that have suffered the most client defections will have the most layoffs, he said. The job reduction also will be concentrated in its audit practice and in administrative services.

“I am not upset, I am sad,” said Brian Dyer, who works in marketing at the Los Angeles office. Dyer said he has respect for the firm, but is worried about the job market.

Many Andersen workers in Los Angeles are waiting to learn of their status. But they are not waiting to start looking for new work.

“We are sending out resumes and making calls,” said Elliott Parker, a senior consultant in Andersen’s downtown L.A. office.

The cuts don’t affect Andersen’s overseas offices, which are separate partnerships that operate independently. Those offices are arranging business combinations with rival firms.

Clerical and administrative staff who were let go Monday will have the most trouble finding work, said Allan Koltin, chief executive of Practice Development Institute, an accounting industry consulting firm in Chicago. They are walking into a job market that by most estimates is either at the end of a mild recession or at the start of a slow recovery.

Specialists--professionals who intimately know a specific industry or those who have a specialty practice such as state and federal income taxes--will have the easiest time finding a new position, Koltin said. But general auditors could face a lengthy job search unless they apply to a firm that has picked off a former Andersen client with which they have been involved.

“If you can call and say that you worked on one of their new clients, that will get your foot in the door,” Koltin said.

Andersen workers who get job offers probably will have to settle for smaller salaries. Koltin said Andersen paid more than other firms. An Andersen manager--the level just below partner--earns $75,000 to $125,000. Other firms, especially the second-tier companies, pay $60,000 to $100,000 for the same position, he said.

Even before the layoffs, Andersen was shrinking its work force. The firm has an agreement to divest about half of its tax practice--roughly $500 million to $600 million in business--to rival Deloitte & Touche. It also has a memorandum to sell some of its offices in the Pacific Northwest to KPMG. Andersen had $4.3billion in U.S. revenue last year.

Former Federal Reserve Chairman Paul A. Volcker has taken control of Andersen in an effort to bring the government to the negotiating table to find a way to rescue the firm. Talks were held Friday, but no progress was reported. And many accounting industry experts believe that the firm will be absorbed piecemeal by other Big Five firms and the larger of the second-tier accounting businesses.