In an effort to save the troubled Andersen accounting firm, former Federal Reserve Chairman Paul Volcker on Friday offered to take the reins of the Chicago-based accounting giant and install a new independent management team.
Volcker said his proposed blueprint “to make Andersen a model for the highest ethical and professional standards” hinges on the Justice Department dropping a criminal indictment of Andersen for shredding documents related to its audits of failed energy trading firm Enron Corp.
The announcement came as thousands of Andersen employees from the company’s Chicago headquarters paraded through the Loop to protest the indictment. The staff members, echoing sentiments expressed by their colleagues in other cities earlier this week, accused the Justice Department of unfairly penalizing innocent people at Andersen in its zeal to prosecute the firm.
Volcker proposed a “New Andersen,” which he pledged would be responsive to the “legitimate concerns” of the Justice Department. Volcker said the plan required “the whole-hearted commitment of a critical mass” of Andersen’s partners as well as the settlement of class-action lawsuits and the Securities and Exchange Commission investigation of the firm.
“If he can get that, Andersen is saved,” said Roman Weil, a professor of accounting at the University of Chicago Graduate School of Business. Still, some observers questioned whether the Justice Department would participate in such a plan; Volcker acknowledged in an interview that he had not spoken with the department.
In a statement, Andersen said: “We hope that the Department of Justice will carefully consider Mr. Volcker’s proposal and come to a conclusion based on the best interests of our capital markets.”
In a precursor to some of the management changes likely to be outlined by Volcker for the firm, Terry Hatchett, Andersen’s managing partner for the U.S., has been replaced, according to sources at the beleaguered firm. The switch occurred earlier this week, according to one Andersen source, but it has yet to be publicly announced by Andersen.
Larry Gorrell, who is the current managing partner in charge of Andersen’s Chicago office, has assumed Hatchett’s role. Hatchett, who is thought to have left Andersen rather than be reassigned, was unavailable for comment.
Besides the Justice Department’s potential resistance to Volcker’s plan, Weil suggested that securing agreement from Andersen’s own partners could be tricky. To give themselves maximum flexibility to take their client accounts to other firms, some of Andersen’s partners are said to be considering moving to suspend the non-compete agreements that currently prevent such defections.
If partners took such a step, it likely would be fatal to Andersen, Weil said. But because such votes require two-thirds approval, Volcker’s plan could prevail if a significant number of partners prefer it to jettisoning their non-compete agreements to leave the firm.
Some prominent former Andersen managers hailed Volcker’s plan.
The proposal “may be the last, best hope that we have got,” said Richard Measelle, who served as Andersen’s chief executive from 1989 through 1997. “I believe that no matter how hard the existing team tries, something dramatic needs to be done.”
Helping Volcker run the firm under his proposal would be a board composed of a star cast of professionals from the business world and public service. They are John Bogle, founder and retired chairman of the Vanguard Group; Charles Bowsher, former comptroller general of the United States; C. Michael Cook, former chairman and chief executive of Deloitte & Touche; John Danforth, a former U.S. senator from Missouri; Russell Palmer, former managing partner of Touche Ross and past dean of the University of Pennsylvania’s Wharton School; and P. Roy Vagelos, retired chairman and chief executive of Merck & Co.
In another illustration of how faith in Andersen’ current management is evaporating, a group of top retired partners filed a lawsuit Friday against the firm in federal court in Chicago.
The partners, who include former Andersen CEO Duane Kullberg, allege Andersen “is considering or planning to release all of its current employees” from their non-compete agreements.
“If Andersen releases its employees from their non-compete agreements, the result will be the effective dissolution of Andersen’s operations and the elimination of Andersen’s current revenue that is the source of funding for [former partners’] pension benefits.” The suit estimates that retired partners’ benefits exceed $400 million.
“There is no vote scheduled to eliminate the non-compete agreements,” countered Patrick Dorton, an Andersen spokesman. The plaintiffs in the lawsuit, he said, are “a small group of former partners who have no legal basis for filing this lawsuit.”
Measelle said that while he was not party to the senior partners’ lawsuit, he is “supportive of the steps they are taking to protect the retired partners. … This team that has filed this lawsuit, I know them all and they’re all good people.”
But he said the Volcker initiative might make the lawsuit moot.
“They must not have known about this when that suit was filed,” Measelle said.
Meanwhile Friday, the client exodus continued for Andersen, with Waste Management Inc., the Chicago Mercantile Exchange, Northern Trust Corp., and Hartford Financial Services Group Inc., saying that they would dismiss the troubled accounting firm as their auditor.
At Friday’s downtown Chicago rally, Andersen employees tried to demonstrate the human impact of the Justice Department’s case against the firm.
Kenneth, the 16-month-old son of Jim and LeAnn Kercheval of Antioch, was at the Dirksen Federal Building in his stroller. Although the sleepy toddler was unable to articulate his sentiments, his parents had attached a block-lettered sign to the top of the stroller, proclaiming: “My Daddy Didn’t Do It.”
Jim Kercheval, who has worked in Andersen’s Global Technology Organization for 3 1/2 years, defended his firm’s response to the revelation that some of its employees had shredded documents.
“If there are people who have done something illegal, they should be dealt with,” he said. “But it’s really an injustice that the government can actually affect 5,800 families here in Chicago alone.”
Also this week, lawyers for Enron shareholders suing Andersen deposed Andersen lawyer Nancy Temple, who last fall sent an e-mail reminding the firm’s Houston office about its document retention and destruction policy. Temple invoked her 5th amendment rights and declined to answer substantive questions.
