A Chance At Survival

Arthur Andersen Investigation, 020314, GD
Arthur Andersen LLP is putting its hopes for survival in the hands of former Federal Reserve chief Paul Volcker as the once-mighty accounting giant heads closer to a breakup and "inevitable" layoffs.

But the government's reluctance to endorse Volcker's proposal for drastic reforms leaves the plan in limbo. Volcker wants to take over the Chicago-based firm and head a seven-member governing board, for the auditing and consulting businesses to be separated and for other reforms to be made. Some 60 percent of the firm's partners work in the tax and consulting practice.

In New York, Volcker announced Friday that two senior Andersen partners will lead the firm's efforts to reform itself.

Named to oversee the process until a new Andersen governing board is put in place were C.E. Andrews, head of the firm's worldwide audit practice, and Larry Rieger, another senior audit partner.

Andersen's top executive, chief executive Joe Berardino, resigned Tuesday. No successor has been named.

On Thursday, Andersen's top managers threw their support behind Volcker's long-shot rescue plan following a daylong teleconference of partners to discuss their dwindling options. Volcker was hired two months ago to chair an independent oversight board to revamp Andersen's practices.

"We are committed to building the audit firm of the future under the leadership and recommendations of Mr. Volcker," said Larry Gorrell, who replaced Houston-based Terry Hatchett as managing partner earlier this month. The proposed reforms would be pursued "with speed," he said.

But even with Andersen managers and partners on board, the plan has failed to secure a government decision to scrap the obstruction-of-justice charge against Andersen for destroying tons of records of Enron Corp., its bankrupt audit client.

The Justice Department urged a judge Thursday to allow prosecutors to continue questioning employees of the Arthur Andersen accounting firm even after the auditor's criminal indictment on obstruction charges.

Andersen's lawyers have argued that federal rules prohibit the use of a grand jury in a case where the defendant already has been indicted, and they accused prosecutors of trying inappropriately to strengthen their obstruction case against Andersen.

Many U.S. partners see Volcker's involvement as Andersen's only hope for survival, along with selling off non-auditing units to create a leaner firm. Various proposals to sell off tax and consulting businesses reportedly were discussed at Thursday's private session, headed by Gorrell and broadcast to Andersen offices nationwide.

Faced by a continuing hemorrhage of clients, Andersen does plan layoffs, a spokesman confirmed. Responding to persistent reports the total could reach 6,000, Patrick Dorton said no final decision had been reached.

"Given the decision by the Justice Department to indict the entire 28,000-person firm, it is inevitable that some reductions in work force will have to be made in the coming months," he said. "As a firm, we are considering a number of options that will provide continued high-quality service to our clients and career opportunities for our people."

Employees expect the pink slips any day now.

"Everyone is upset about it but is braced for it," said Katherine Dorn, a campus recruiter at Andersen's Chicago headquarters, home to 5,300 employees.

"People are scared. But they know it's kind of a logical progression that if you lose X number of clients, you're going to lose X number of jobs."