Volcker Aims to Control Auditor
Former Federal Reserve Board Chairman Paul A. Volcker offered to take charge of the troubled and rapidly diminishing Andersen accounting firm Friday in what industry experts said was a last-ditch effort to save the company.
Although the plan drew praise as perhaps the best chance for Andersen to survive, Volcker said the deal would be conditioned on the Justice Department’s agreeing to dismiss or suspend a criminal indictment of the accounting firm. He said the plan also would require the approval of a “significant number” of Andersen partners.
Justice Department officials would not discuss the offer but did not rule out the possibility of a deal.
“In any corporate criminal matter, the department takes into account all of the appropriate considerations, including not only any meaningful reforms but also cooperation and full acceptance of responsibility,” Justice Department spokesman Bryan Sierra said.
Under the takeover plan, Andersen’s senior management would be overhauled and the company would be governed by a new seven-member board, led by Volcker.
Andersen is staggering under the indictment, its liability from the financial meltdown of Houston energy trader Enron Corp. and the growing number of clients defecting to rival firms.
Andersen named Volcker in February to lead an independent oversight board to review its operations and procedures after the Enron debacle.
Volcker’s intent is to create a model accounting firm that would forsake consulting and other business to return to the industry’s roots in auditing and tax work.
“We are telling the partners that the time has come to make up their mind,” Volcker said in an interview. “Are there Andersen partners who want to spend the time and effort on rebuilding and reviving the firm? If not, the game is over.”
The retired central banker made the proposal to Andersen executives Friday. Andersen executives declined to say whether the firm’s management has signed off on the plan, instead issuing a statement that appeared supportive but fell short of a definitive answer.
“This is a positive and constructive proposal,” the statement said. “We hope that the Department of Justice will carefully consider Mr. Volcker’s proposal and come to a conclusion based on the best interests of our capital markets.”
As another condition for the takeover, Volcker said attorneys representing Enron investors and employees in class-action litigation must agree to cap the firm’s liability “to an amount consistent with sharply reduced and diminishing resources of the firm.”
Experts were skeptical that plaintiffs would agree to those terms, and the initial response from the University of California Board of Regents, the lead plaintiff in the litigation, was not positive.
“Whoever is leading Andersen in the future does not, however, alter the nature of Andersen’s past role in the Enron fraud,” said Trey Davis, spokesman for the UC regents. “Without full discovery of those activities, it would not be appropriate to comment favorably this early in the case upon a proposed limit on Andersen’s Enron liabilities.”
Volcker said the class-action litigants needed to be realistic.
“You can’t squeeze money out of a lemon, and there is not much there now,” he said.
He described Andersen as reeling from the defection of major clients and foreign offices, combined with the pressures of the federal indictment on an obstruction-of-justice charge for destroying documents sought in the probe of its Enron work.
Volcker said he needed a response in a “matter of days” or the plan would die.
His new board to govern the company would include J. Michael Cook, former chairman of accounting firm Deloitte & Touche; Russell Palmer, former dean of the Wharton School of the University of Pennsylvania; and Charles Bowsher, former comptroller general of the United States.
The other members are John Bogle, retired chairman of the Vanguard Group; P. Roy Vagelos, retired chairman of pharmaceuticals giant Merck & Co.; and former U.S. Sen. John C. Danforth of Missouri.
“As a group, we are interested in reforming the accounting profession, and we believe that Andersen can be the vehicle and model for that reform,” said Volcker, 74. “Not one person on this board is interested in running Andersen as a career.”
Although accounting experts said they liked Volcker’s plan, they noted that there are significant obstacles.
“This looks like the showdown at O.K. Corral,” said Lynn Turner, former chief accountant for the Securities and Exchange Commission and an accounting expert at Colorado State University. “Volcker has drawn a line in the sand, and the partners have to decide if they are with him or against him.”
Arthur Bowman, editor of the industry newsletter Bowman’s Accounting Report, said that even if the partners were to line up behind Volcker, it is not certain that the Justice Department would be willing to dismiss or suspend its criminal indictment or that attorneys in the class-action lawsuit would agree to a liability cap.
Andersen’s daily bleeding of major clients--which on Friday included Apache Corp., Chicago Mercantile Exchange, Northern Trust Corp., Occidental Petroleum Corp. and Waste Management Inc.--has cost the firm billings equal to nearly 10% of its $4.3 billion in U.S. revenue last year.
Its affiliates in China, Hong Kong, Russia and New Zealand have forsaken an Andersen-arranged merger with KPMG in recent days to hook up with other firms.
Volcker appealed to the Justice Department to consider what he characterized as the best interests of the financial community, which he said benefits from Andersen’s survival as an audit firm.
“Do they simply want to kill the firm, or is their purpose to see reforms?” Volcker asked.
Paul Fishman, a former Justice Department lawyer who is in private practice, said prosecutors are careful about which cases they bring, and he doubted that they would drop the indictment at this early stage.
“I wouldn’t rule it out, but I’d be surprised if they accepted” Volcker’s proposal, Fishman said. “It’s very rare for the Department of Justice to dismiss an indictment outright against a corporation.”
Andersen employees, meanwhile, continued a series of public demonstrations in support of the company against the Justice Department indictment on one charge of obstructing justice.
In downtown Los Angeles, hundreds of Andersen employees rallied with chants that could be heard from blocks away.
“This indictment affects the integrity of the firm I have been linked to for 13 years, and it’s unfair,” said Jan Miyoda, director of operations for the audit and business advisory practices division in Los Angeles.
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Times staff writers Edmund Sanders in Washington and Walter Hamilton, Jeff Leeds and Elena Gaona in Los Angeles contributed to this report.
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