Partner Drain Crimps Future at Andersen
The New York Times
April 23, 2002
By JONATHAN D. GLATER
Arthur Andersen is considering a
range of business options including
a bankruptcy filing and the sale of
business units to smaller accounting
firms, people close to the firm said
yesterday, undermining hopes that an
audit-only version of the firm would
survive as a model for others in the
industry.
The firm is engaged in talks with Grant
Thornton about a possible business
combination involving up to 400 hundred Andersen partners, Edward E. Nusbaum,
Grant Thornton's chief executive, said yesterday. Such an arrangement would further
shrink Andersen and reduce its chances of survival, as would deals that partners at
numerous Andersen offices are trying to put together to join other rivals as clients
continue to defect and the firm's worldwide network disintegrates.
To prepare for restructuring - either in bankruptcy or out of it - Andersen has hired
Bryan Marsal, a specialist from Alvarez & Marsal, a financial advisory firm that has
worked with Warnaco Group and has advised companies including the Timex
Corporation and Winstar Communications.
A spokesman for Andersen, Dan Hill, said yesterday that Mr. Marsal was assisting the
firm only to reshape itself as outlined by Paul A. Volcker, the former Federal Reserve
chairman who heads an oversight panel charged with overhauling Andersen.
"The firm remains committed to pursuing the reforms that he
outlined," Mr. Hill said, referring to Mr. Volcker's proposal.
"The firm is not pursuing the bankruptcy option, and his
hiring was a move to help them implement Volcker and
reform the firm."
But a senior partner at Andersen said yesterday that Mr.
Volcker's plan, which calls for the firm to spin off most of its
nonaudit business as a board led by Mr. Volcker takes over
management, was essentially dead in the water.
Mr. Volcker conceded yesterday that Andersen had made no
progress in becoming such an audit-only firm. But he added,
"I don't give up quite so easily," and said he was not ready to
step aside from Andersen.
"What is amply clear is that none of the conditions we set out
for making it workable have been met," Mr. Volcker said in
an interview, noting that those conditions had included
Andersen's settling lawsuits filed by Enron shareholders and
creditors, reaching an agreement with the Securities and
Exchange Commission and finding a way to get the Justice
Department to withdraw the criminal charge it has filed
against the firm.
Andersen faces a criminal trial beginning in just two weeks
on a single charge that it tried to hinder a Justice
Department investigation of Enron's collapse by shredding
audit-related documents. Settlement talks with prosecutors
broke down last week, and discussions between the firm and
Enron shareholders are continuing, but slowly, say people
close to talks.
"The most important thing was getting a critical mass of
partners who were ready to move forward with an audit-only
firm," Mr. Volcker said, adding that he had thought such a
group was available three weeks ago, when Andersen named
officials who would supervise the firm's transition to the new
form. But now, he added, "it does not appear" that the will is
there.
Rather, partners at Andersen have been authorized by the
firm's administrative board to engage in negotiations to join
other firms, as long as they take employees with them, said
one partner. But so far, a firm spokesman said, Andersen's
board has not approved any such deals, which would also
bring in revenue.
If Andersen disintegrates, it would set back efforts to create a model accounting firm
that would avoid the potential conflicts of interest that arise when auditors sell other
services, like consulting and sophisticated finance advice, to their clients. And without
a remade Andersen as a role model for the industry, Mr. Volcker said, it would be
harder to push other firms to change their practices.
But Mr. Volcker said he would continue to push for reform in other ways. "We remain
interested in doing good," he said.
Mr. Marsal's focus is much more immediate, helping Andersen to continue to operate
as its clients defect; so far this year, nearly 200 of the firm's public company clients
have switched to other auditors. Mr. Marsal, who was hired about a month ago, has
addressed the firm's partners to advise them on reducing expenses, for example, one
partner said.
"We've got new rules on travel," said this partner, who would speak only on the
condition that he not be identified. "What they're trying to do is help us get our cash
flow under control."
Separately, Grant Thornton is exploring the possibility of acquiring partners who work
with Andersen's middle-market public company clients, said Mr. Nusbaum, Grant
Thornton's chief executive.
"We had a conference call with some of their middle-market partners throughout the
country about the possibility of an arrangement" last Tuesday, Mr. Nusbaum said in a
telephone interview yesterday. He said talks were in a very preliminary stage, but
added that he hoped to be able to make an announcement in the next several days.
"As far as I know, we're the only firm that is having discussions on a national basis
with their middle-market partners," Mr. Nusbaum said. He said that there were
several hundred partners - somewhat fewer than 25 percent of Andersen's 1,600
partners - in that group. "We have not analyzed how many people we're talking about,"
he said, "but including partners and staff, we're certainly talking hundreds and maybe
over a thousand."
Andersen has tried to negotiate various merger deals with other big accounting firms
in the last several months but each has foundered because no would-be acquirer was
willing to risk inheriting any of Andersen's liability for the Enron collapse. The firm has
already announced layoffs of 7,000 of its 26,000 employees, so a deal with Grant
Thornton would be significant.
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