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Auditor Andersen Loses More Clients

March 22, 2002

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CHICAGO (AP) _ Andersen’s rapid decline picked up pace Friday with a slew of new client defections and the continued splintering of its international operations, even as Paul Volcker stepped in with urgent new proposals to try to save the firm.

The toll of daily losses further complicated the accounting firm’s efforts to survive the Enron Corp. scandal and a related criminal indictment for allegedly obstructing justice.

In a desperate bid to rescue Andersen, former Federal Reserve chairman Volcker called late Friday for the removal of top Andersen management, the dismissal of federal charges against the company and a cap on liability the accounting firm would face in connection with Enron Corp.’s collapse.

Volcker insisted that Andersen executives and government officials must decide within days whether to move forward with the plan, saying the client defections illustrate the urgency of acting quickly.

Occidental Petroleum Corp., Waste Management Inc., Apache Corp., ITT Industries Inc., ChoicePoint Inc. and a pair of hometown corporations _ Northern Trust Corp. and the Chicago Mercantile Exchange _ all joined the fast-growing list of big companies to fire Andersen as their auditor. The total now stands at more than 70 since the start of the year.

Abroad, the firm’s New Zealand partners followed the lead of those in China, Hong Kong and Russia, jumping to another Big Five rival _ in this case, Ernst & Young. Andersen partners in Britain, Canada, Malaysia and elsewhere also were reportedly in talks about their own possible flights from Andersen to a competitor.

That extended a breakup of Andersen’s overseas affiliates that began a day earlier despite the efforts of Andersen Worldwide _ the umbrella body for its global entities _ to merge its non-U.S. operations with those of KPMG LLP.

``Whatever Andersen lives on as, if it lives on, it will not be the big full-service firm it is now,″ said accounting industry expert Arthur Bowman following the latest Andersen setbacks.

Talks with KPMG began Monday after similar attempts with Deloitte Touche Tohmatsu and Ernst & Young snagged on the issue of legal liability related to Andersen’s mishandled audits of Enron and all the lawsuits they prompted.

Andersen spokesman David Tabolt confirmed negotiations were progressing Friday ``on both a global and a country level,″ but with no merger announcement near.

``This is a process that’s going to take some time,″ Tabolt said. ``People have to do their homework, and obviously then you have to get agreement between the country operations and you have to get regulatory approval.″

Asked about the latest client losses, he said: ``The Department of Justice’s indictment has caused a lot of people to be concerned and it’s cost us a lot of business.″

With the long-esteemed Andersen now vanishing daily from different parts of the globe, the pressure is growing on the firm’s 1,700 U.S. partners to decide whether they, too, should or can leave without prohibitive legal or competitive repercussions.

Despite heavy recruiting by Andersen’s rivals, only a limited number of those partners are reported to have bolted so far, largely because of the noncompete clauses in their contracts. Under those clauses, if a partner leaves and takes along a client, they or their new firm would have to pay Andersen 1 1/2 times the first year’s fees, plus other costs.

Among other options, Andersen’s partners have been discussing whether to vote to nullify the clause, with approval setting the stage for a mass exodus of the heart of the firm.

Andersen partner Marc Andersen said Friday afternoon that no such vote had yet been scheduled.

The international breakup is having more of an effect on ``momentum and morale″ than a direct impact on the firm, he said, with new developments constantly changing the situation.

``It’s a daily thing,″ said Andersen, who works in the Vienna, Va., office. ``Every hour, there’s (new) information.″

Meanwhile, as it prepares for a May 6 trial, Andersen continues fighting a new offensive in the court of public opinion. The firm took out a two-page ad Friday in The Wall Street Journal, headlined ``Injustice for all.″ More than 12,000 of its 28,000 U.S. employees’ names were listed in small print.

It also staged employee rallies in Atlanta and Chicago following similar ones earlier in the week in Houston, Philadelphia, Washington and elsewhere.

About 6,000 Andersen workers and supporters marched in downtown Chicago, chanting ``We’re innocent!″ and protesting the indictment that threatens their jobs. Some waved signs reading ``I am the real Andersen.″

New Andersen employee Mike Gerdes walked with his 4- and 6-year-old daughters, each carrying a sign saying, ``My dad needs his job.″

``I came here thinking that things would be good, a new job with good benefits,″ said Gerdes, who was laid off by Motorola Inc. last year. ``But the Department of Justice has put all that in doubt.″

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