Andersen CEO Quits in Effort to Help Firm

The chief executive of accounting firm Andersen, which is under federal indictment and losing major clients daily, announced his resignation Tuesday in a bid to help save the firm from collapse.

Joseph F. Berardino’s decision left unanswered who would take over the firm and how his departure would affect the Justice Department’s prosecution of Andersen on obstruction of justice charges.

“While my nature is to keep fighting to protect our people and our clients, the fact is that the improper shredding of documents took place on my watch--and I believe it is now in the best interests of the firm for me to step down from the CEO position,” Berardino, 52, who also is Andersen’s worldwide managing partner, said in a statement.

Andersen is rapidly losing business and is seeing its overseas affiliates splinter under the weight of the criminal indictment for destroying documents sought in the federal probe of Enron Corp.

Berardino’s resignation came four days after former Federal Reserve Chairman Paul A. Volcker offered to take control of Andersen in return for new management and an agreement by the Justice Department to dismiss or suspend its prosecution of the firm, among other conditions.

Justice Department officials would not comment Tuesday on the resignation or whether it would have any effect on the department’s consideration of Volcker’s rescue plan.

“In any criminal matter, there are certain conditions and requirements that would have to be met before there were any sort of resolution--meaningful reforms, cooperation and full acceptance of responsibility,” Justice Department spokesman Bryan Sierra said. “That’s been our position from the start, and that hasn’t changed.”

But Berardino’s resignation may represent the first step toward Volcker assuming control of Andersen, said Allan Koltin, head of accounting industry consulting firm PDI in Chicago.

“[Volcker] said, ‘We’re taking over and putting new leadership in.’ That meant the current CEO was going to be gone,” Koltin said.

Koltin predicted that Andersen partners would vote grudgingly in the next few days to accede to Volcker’s plan. Though many partners dislike Volcker’s proposal because it would slash their incomes, Koltin said, there also is a growing consensus that they have no choice.

Early this week, Andersen sent an e-mail survey to partners, querying them about their feelings toward Volcker’s proposal and the possible elimination of a clause that prohibits partners from taking their business to other firms. The questionnaire also seeks demographic data, such as length of service and practice area.

Disorganization has hampered efforts to save the firm, said Volcker, who wants to transform it into a model accounting firm focused on the auditing and tax work that once represented the industry’s bread and butter.

“This has become a cumbersome partnership to say the least,” Volcker said in an interview.

“Joe Berardino was aware that people were asking who takes responsibility for all that has happened and he decided he would be the person to do that,” said Volcker, who was named by Andersen in February to head an independent panel charged with restructuring the firm.

“If there was dissension about him, he has now moved on,” he said.

People familiar with the inner workings of Andersen report an atmosphere of frustration and disarray, with factions pursuing different and sometimes competing agendas. Moreover, the firm’s retired partners are concerned that Andersen’s demise and its huge liabilities would threaten their pensions.

“There have been opinions voiced that it was getting to be time for him to step down,” said Nathan Matthews, an audit manager in Andersen’s Woodland Hills office.

“I can tell you quite honestly there’s been a leadership vacuum--and that’s before he resigned. It is difficult, internally, to know who’s in charge.”

The possibility of Volcker step ping in to run the accounting giant, Matthews said, “is the best solution for us now.”

Berardino notified employees of his resignation Tuesday afternoon. He will continue to lead Andersen until the firm’s board of partners chooses an interim successor.

An Andersen spokesman said a permanent CEO may not be named because of negotiations to merge the overseas partnerships with accounting firm KPMG and because some of the foreign offices are arranging combinations with other rivals.

Larry Gorrell, a veteran partner who runs Andersen’s domestic operations from its Chicago headquarters, is expected to take a prominent role in the interim, people within the company said.

“He’s probably a bit more in touch with” the feelings of the U.S. partners, accounting consultant Koltin said.

Volcker’s proposal was conditioned on persuading Justice Department officials to dismiss or suspend a criminal indictment of the firm. Volcker said the plan also would require the approval of a “significant number” of Andersen partners and the agreement of attorneys involved in class-action lawsuits against the accounting firm to cap its liability at a “realistic” level that recognized its daily bleeding of clients and revenue.

As of Tuesday, the Volcker plan had gathered plaudits but no concrete action had been taken by the interested parties.

One Andersen insider said the U.S. management team was working to figure out “the best direction for the firm” but that was taking time.

Without setting a specific deadline, Volcker said the firm has only days to signal its intention. “You can’t rescue people if they don’t want to be rescued,” he said. “It is difficult getting all these people together, and I have no idea what the Justice Department is thinking.”

Koltin noted that the partners may attach certain conditions to their acceptance, such as being allowed to keep some of their more lucrative consulting practices.

Volcker, who praised Berardino for his commitment to reform in the accounting industry, also said he hoped the resignation might shake the various parties into action.

The firm served as both the auditor and a major consultant for energy trader Enron, which overstated profits and hid billions of dollars of debt from investors.

The Chapter 11 bankruptcy filing of the Houston-based firm was the largest in U.S. history.

Andersen denies criminal wrongdoing and is scheduled to go to trial on the obstruction charge May 6.

In another blow to Andersen’s image, a Securities and Exchange Commission suit filed Tuesday against former officers of Waste Management Inc. detailed how the auditing firm allegedly conspired with Waste Management executives in the mid-1990s to hide fraudulent accounting.

The SEC said Andersen identified improper accounting practices at Waste Management, but covered them up by secretly agreeing to allow the firm to fix the “errors” in the future.

Andersen has lost about 60 major clients since December. The defections have cost the firm at least 10% of its annual U.S. revenue . Additionally, Andersen’s foreign affiliates are negotiating mergers with its rivals.

Berardino joined Andersen in 1972 and has served as its chief executive since January 2001.

Times staff writers Walter Hamilton and Jeff Leeds in Los Angeles and Eric Lichtblau in Washington contributed to this report.