Andersen Thwarts Volcker, Hires Specialist

The accounting firm Arthur Andersen said Monday that it hired a restructuring expert, while former Federal Reserve Chairman Paul A. Volcker conceded that he has been unable to take charge of the firm and launch his rescue effort because of internal conflicts.

Andersen hired Bryan Marsal as chief restructuring officer. He is a corporate reorganization specialist whose New York-based firm, Alvarez & Marsal, counts the bankrupt maker of Calvin Klein jeans among its clients.

“He was brought on at the end of March to help Andersen restructure to reduce costs and to help re-engineer the firm to fit with the Volcker plan,” said Dan Hill, an Andersen spokesman.

Though Marsal has worked extensively with insolvent companies, Hill said his hiring did not foreshadow an Andersen bankruptcy.

Others familiar with Andersen suggested that Marsal’s primary job will be to oversee the orderly dismantling of the partnership, which is disintegrating piecemeal as hundreds of clients defect and its partners look to join rival firms. It announced a layoff of 7,000 employees, or nearly 30% of its work force, earlier this month.

Volcker said his efforts to transform Andersen into a smaller, audit-oriented firm have been stymied by the company’s inability to cut deals with federal prosecutors and civil litigants, and a lack of support by the firm’s partners.

The latest round of talks with the Justice Department to settle an obstruction of justice charge--as well as talks with attorneys representing Enron Corp. investors in a massive class-action lawsuit--ended last week without agreements.

Asked whether he planned to abandon his efforts to save Andersen, Volcker said his future with Andersen hinges on clear support from the partnership and resolution of civil and criminal litigation--conditions he set down when he made his offer.

“If they tell us the conditions aren’t there, then we won’t take control,” said Volcker, chairman of Andersen’s independent oversight board. “It is not a matter of [my] resigning from anything. The partnership needs to act before my board can act.”

In February, Andersen asked Volcker to take charge of a special independent panel that would be empowered to make changes in the accounting firm’s management structure and business practices in the wake of the Enron scandal.

On March 22, Volcker offered to take control of the firm (with the help of his outside board) as it reeled from the criminal indictment for destroying documents sought in the federal probe of its accounting for Enron.

Six days later, after the resignation of Andersen Chief Executive Joseph F. Berardino, the firm’s partnership said it would adopt Volcker’s reform package.

Even so, Volcker said control of the firm still resides with U.S. managing partner Larry Gorrell and others.

Volcker proposed splitting Andersen into separate accounting and consulting companies to avoid conflicts in which auditors overlook irregularities so as not to lose lucrative consulting work. He wants the firm to focus on the auditing and tax preparation disciplines that are the traditional functions of the industry.

This action, combined with a mandatory rotation that would switch lead partners on each audit every five years, are intended to transform Andersen into what Volcker calls a “reformed accounting firm” that would become a model for the industry.

To date, Volcker has not become involved in the inner workings of the partnership or entered into the sensitive negotiations with federal prosecutors and civil litigants.

Following Andersen’s indictment and the guilty plea on an obstruction of justice charge by David Duncan, the senior partner on the Enron account, many partners decided Volcker’s plan was doomed, according to people inside the firm.

Hill, however, said Monday that the firm remains committed to the Volcker plan.

He said the transactions under negotiation, such as an agreement to sell about half of the tax practice to Deloitte & Touche, are within the spirit of the plan.

“The firm is aggressively pursuing the reforms that Mr. Volcker intended,” Hill said. “We think it is the right thing.”

Yet others, including Volcker, questioned Andersen’s commitment.

“Andersen invited Volcker in and said that it would take immediate and strong action on what he recommended, but there was little to indicate that’s what they did,” said Art Bowman, editor of Bowman’s Accounting Report, a trade publication.

Nearly every major office and practice group within the U.S. are negotiating deals to merge with rival firms, according to people involved in the negotiations. Much of the Los Angeles office and the Southern California operations are expected to land with either KPMG or Deloitte & Touche.

Andersen faces billions of dollars in claims for a series of audits, including its work for troubled energy trader Enron, the Global Crossing telecommunications concern and the Baptist Foundation of Arizona investor fund.

Bowman believes any money Andersen raises from the sale of offices and practices will go to pay litigants’ claims.