Like quarreling siblings, the consulting and accounting sides of the Arthur Andersen organization are moving to break the firm in two, just as their business rivals are forming global giants through two mega-mergers.
Andersen Consulting, the world’s largest management and technology consulting firm, said an overwhelming majority of its partners is asking for an arbitrator to hear its side of the story and then dissolve its partnership with Arthur Andersen, its accounting and auditing older sibling.
The partners cited “serious breaches of contract and irreconcilable differences” as the major reasons for wanting to break up their relationship, spurning last-minute appeals to keep the family intact.
While some analysts said the two sides could do well as independent firms, others warned that a protracted breakup could hobble the businesses particularly as multinational firms seek out accountants and consultants who can work with them around the world.
“This could be a very messy divorce that could cripple both parties for years to come,” Rick Telberg, editor of Accounting Today, said of the Andersen rupture. “Both are doing well now. But this is coming at a time when both firms need to be more competitive.”
Indicative of the strained relationship between Andersen Consulting and Arthur Andersen, the two sides and their parent company could not agree about what role an arbitrator would play.
“What the arbitrator decides will be binding on both parties,” said John Kelly, managing partner of Andersen Consulting in the Americas.
But Robert Hubbell, a spokesman for the umbrella organization of Arthur Andersen Worldwide, said it wasn’t clear what would follow a ruling by the arbitrator, who would be named by the International Chamber of Commerce in Paris, which tries to mediate disputes involving multinational firms.
“It’s still very early,” Hubbell said. “It’s no secret that we have been working through the range of issues (between the two business units) for some time and have been unable to resolve them. Our partnership agreement provides for arbitration. Now that an arbitrator has been sought, we will work through that process.”
Jim Wadia, who was elected worldwide managing partner of Arthur Andersen in September, tried to show his counterparts solutions to the dispute at Andersen Consulting’s partnership meeting in San Francisco this week but was rebuffed.
Andersen Consulting has about 5,000 employees in the Chicago area and 52,000 worldwide. The unit is expected to report total revenues of $6.1 billion this year. Arthur Andersen has about 2,000 employees here and 55,000 worldwide, and is expected to ring up revenues of $5.2 billion for 1997. Profit figures are not disclosed.
The two sides of Andersen have been feuding since 1991, but only a minority wanted to part company. Now, following the vote by Andersen Consulting’s partners late Tuesday, a breakup between the two Chicago-based entities “is becoming inevitable,” said Arthur Bowman, editor of Bowman’s Accounting Report, an industry trade publication.
But Bowman said he believes both businesses could survive on their own. “They’re both very profitable,” he said. “Both actually have been practicing separately for eight years and sharing the management facilities of Andersen Worldwide.”
The rivalry started two years after Andersen Consulting was created in 1989 to take over the consulting business which the accounting firm had built up gradually over the previous two decades.
“As Andersen Consulting became more profitable, Arthur Andersen began moving into some of the same markets,” Bowman said. “The animosity then just grew.”
Other observers predicted, though, that the two units would find it difficult to compete with other consulting and accounting firms, which have been merging to extend their reach on a global basis.
Just Wednesday, 99 percent of the U.S. partners of Ernst & Young approved a merger with KPMG Peat Marwick. Two other accounting behemoths, Price Waterhouse and Coopers & Lybrand, announced in September that they would combine to create the world’s largest accounting and consulting firm–a title that had been held by Andersen.
One major possible sticking point to a breakup could be a provision in the partnership agreement that would require Andersen Consulting to pay 1.5 times its recent annual revenues to leave the group.
There also is a question whether the unit could continue to use the valuable Andersen name if it became an independent concern.
The organization dates to 1913 when Arthur Andersen & Co. was formed in Chicago. In the 1950s, the firm began to diversify beyond accounting and auditing, offering management consulting services to some of its corporate clients.
By the 1970s, as the consulting side continued to grow and prosper, Andersen attracted the ire of established management consulting firms who objected to its infringement on their business.
In bringing its complaint to the Paris arbitration group, Andersen Consulting accused the accounting sibling of encroaching on its turf by offering business planning and other consulting services to some of the same clients and even trying to hire some Andersen Consulting employees.
The animosity increased this year with the retirement of Lawrence Weinbach as chairman and chief executive of Andersen Worldwide. In July, the partners chose W. Robert Grafton as interim CEO, with no indication when a permanent head might be picked.
