Andersen Accepts Reform Plan Put Forth by Volcker
Accounting firm Andersen said Thursday that it would adopt a reform package proposed by former Federal Reserve chief Paul A. Volcker, a move that analysts described as a last-ditch effort to hold the beleaguered firm together.
Andersen said it was “aggressively proceeding” with Volcker’s recommendations to overhaul top management and sell the lucrative but conflict-ridden consulting operations. The announcement came after Andersen’s 1,700 U.S. partners emerged from a five-hour teleconference in which they hashed out various options for revamping the firm and salvaging their careers.
Volcker proposed March 22 that he take control of Andersen and implement the far-reaching reforms as perhaps the only way to ensure the firm’s survival.
Various factions within Andersen have opposed the plan because it would leave a smaller and much less profitable business. But the firm’s acquiescence shows most partners now believe it is their most viable course of action, analysts said.
“It means the partners realize they must take extreme action if they’re going to have any hope of survival,” said Arthur Bowman, editor of Bowman’s Accounting Report newsletter.
Volcker refused to comment Thursday but has scheduled a news conference in New York today.
Embracing the Volcker plan has two primary goals, analysts said. Andersen hopes to prompt an accord with the Justice Department, which is prosecuting Andersen on a criminal obstruction-of-justice charge stemming from document-shredding related to its work for Enron Corp. It also is trying to staunch the steady outflow of clients that has occurred as a result of the indictment.
Nevertheless, the day was marked by an intensifying war of words between Andersen and federal prosecutors.
In the latest volley of an aggressive public relations campaign, Andersen ran newspaper ads in which UCLA basketball coaching legend John Wooden labeled the indictment a “miscarriage of justice.” The Justice Department shot back in a legal filing claiming Andersen “has embarked on a massive campaign to flood the public record with slanted and outright false” statements about the case.
Andersen has come under growing criticism for responding too slowly to Volcker’s proposal. Larry Gorrell, the head of Andersen’s U.S. business, said Thursday that the firm will quickly address what to do with the non-audit consulting units. But the company offered no details about how or when that would be achieved despite the widespread perception that Andersen is up against a ticking clock.
The Justice Department has declined to comment on the Volcker plan, but the lack of concrete reform plans makes it much less likely that prosecutors would agree to suspend or dismiss their indictment, some analysts said.
“My issue with the news release is: Where’s the news?” said Allan Koltin, a Chicago-based accounting-industry consultant. “That’s the result of the whole day? My gosh.”
In their teleconference, partners spent a lot of time discussing various ways to dispose of the tax and business-consulting practices, including selling individual units to other firms and spinning off the units into separate companies, said a person with knowledge of the meeting.
The partners also left in place non-compete clauses that bar partners from taking clients with them if they leave for other firms, a source said. But those clauses could be lifted for partners in units that are sold.
The firm gave no details about layoffs that are expected to occur next week. The U.S. partners plan another lengthy teleconference Tuesday.
Legal experts offered opposing thoughts on the prospects for Andersen to sway the Justice Department.
“An indictment is a very big deal at the Department of Justice, particularly an indictment with this much publicity,” said Paul Coggins, a U.S. attorney in Dallas from 1993 to 2001. “Certainly, Arthur Andersen has got some good arguments to make. They are arguments Andersen did make to the government [in earlier negotiations]. Now they’re coming back and making the argument with a different voice. To get the government to come back to the table now, I think, is going to be a tough sell.”
But others suggested Andersen’s embrace of the Volcker plan--coupled with Andersen’s aggressive legal defense--could give prosecutors pause.
“Andersen’s done a fairly good job of positioning themselves for maximum leverage,” said Stephen Meagher, a former federal prosecutor now in private practice in San Francisco. “I think the combination of these things presented the Justice Department at least a reasonable cover for backing off this.”
