Andersen Chief Executive Joseph Berardino resigned Tuesday, leaving the embattled Chicago-based accounting giant with a leadership vacuum as it tries to weather a crisis that threatens the firm’s future.
Berardino, 52, stepped down just four days after former Federal Reserve Chairman Paul Volcker, recruited by Andersen to recommend changes in the way it does business, said he wanted top management to move aside so he could install an independent governing board to run the firm.
Andersen has been under siege since it acknowledged on Jan. 10 that its employees had destroyed thousands of records related to its audits of bankrupt Enron Corp. The Justice Department this month unveiled an indictment of Andersen on a single charge of obstruction of justice stemming from the destruction of the records.
“In the wake of an unprecedented criminal indictment of the U.S. firm,” Berardino told the firm’s staff in an e-mail Tuesday, “I have concluded that my continuing as Worldwide CEO could become an impediment to the efforts of Mr. Volcker and many others to save the U.S. firm.”
Berardino told employees it was in his nature to keep fighting, but the “fact is that the improper shredding of documents took place on my watch–and I believe it is now in the best interests of the firm for me to step down from the CEO position.”
On Friday, Volcker proposed replacing Andersen’s top management with a governing board that he would head. The plan hinged, he said, on the willingness of the Justice Department to drop its criminal case against Andersen; the department hasn’t said whether it would consider such a move.
Andersen made no mention Tuesday of a possible successor to Berardino, but sources close to the firm said his departure could make way for a Volcker nominee or another independent outsider to come in and run the company.
C. Michael Cook, a former chairman and chief executive of rival Deloitte & Touche, was suggested by past and present partners Tuesday as a possible successor to Berardino. Cook is on the slate of seven potential board members Volcker proposed to help run the “new Andersen” he envisions.
Clearing the air
Among other steps, Volcker has proposed separating Andersen’s consulting and accounting operations to prevent conflicts of interest by consultants eager to reap lucrative fees from companies their firm also audits.
Berardino headed Andersen for just 15 months, coming to the helm after a bitter divorce that saw the accounting firm split from Accenture Ltd., formerly Andersen Consulting.
“He feels his resignation as CEO will help clear the air and facilitate the recovery of Andersen under fresh management,” Volcker said in a statement.
The firm’s rules dictate that current Andersen Worldwide Chairman Aldo Cardoso should step in once a CEO vacancy arises. But Cardoso made no mention of taking over the role in the statement released by the firm Tuesday.
“We regret Joe’s personal choice to step down,” Cardoso said. “Like Joe, we are all committed to doing everything we can to reassure our clients and the public of Andersen’s quality and integrity.”
Senior Andersen executives have been locked in meetings for days trying to formulate a response to Volcker’s proposal but so far have failed to reach consensus, according to one partner involved in the discussions.
Partners at odds
The partners must vote on any major changes at the firm. Although the firm’s thousands of partners can vote in 24 hours or less through Andersen’s computer network, a source familiar with the matter said no vote has been taken–a sign that many partners don’t agree with Volcker’s proposal.
And while Andersen has mounted a major public relations push aimed at persuading the Justice Department to dismiss the indictment, the source said that Berardino’s departure was not part of any demand by prosecutors.
Changing a culture
Lynn Turner, former Securities and Exchange Commission chief auditor and policy adviser to the commissioner, said that unless Andersen sweeps out all its top management, Berardino’s departure will be mainly symbolic.
“There is a senior management team of close to 20 people,” Turner said. “Switching out one of those guys isn’t enough to change the culture.”
One observer, who asked not to be identified by name, said, “There is fierce battle going on inside the firm” over the leadership of the company.
Berardino is the second senior executive to depart over the past few days. Former U.S. managing partner Terry Hatchett quietly stepped down last week and was replaced by the head of the Chicago practice, Larry Gorrell.
Gorrell has been leading the talks to come up with a response to Volcker’s suggestion, according to those close to the firm.
The Andersen board first must agree on a resolution, which then would be submitted to the firm’s partners for a vote; even that initial step has proven difficult, however, because the firm’s consultants are loath to turn over control of their operations to Volcker, who plans to get out of the consulting business entirely.
Once the board has agreed on a plan–assuming that it does–that proposal will then be put to a vote, a source said.
A fallen star
Berardino, who was educated at the Jesuit-run Fairfield University in Connecticut, joined Andersen’s New York office in 1972 following his graduation and began a rapid rise up the ranks. He became a partner at age 31 and was among the firm’s top auditors, working with clients such as Colgate-Palmolive and the National Football League.
A hard-working executive, Berardino was well-liked by clients but sometimes criticized within the firm for being a straight talker not afraid to say what he felt.
The oldest of five children, Joseph Francis Berardino grew up in Garden City on Long Island, about 30 miles from midtown Manhattan.
He took the firm’s battering over its handling of bankrupt Enron Corp. personally, according to friends.
“I can hear the hurt in his voice,” said Phil Livingston, head of the Financial Executives Institute, who spoke to the beleaguered Berardino a few days ago. “It’s been very tough on him. He’s gone through six months of hell.”
