Andersen divorce looms

Andersen Consulting’s bid to break away from sister firm Arthur Andersen could hinge on a secret set of agreements dating back to 1990.

The so-called “Florida Accords”, which set out the operating spheres of the divided firm, could impose a crippling penalty-one-and-a-half-times annual earnings (ie $9bn), plus loss of brand name-on a breakaway Andersen Consulting. They could additionally require that the breakaway firm loses all rights to methodologies and products unless it is prepared to license them from the parent organisation.

This is the essence of the Arthur Andersen side of the argument: AA head Jim Wadia has not commented on the detail of the proposed break-up, but has asserted that the firm will defend its rights. In contrast, Andersen Consulting has dismissed talks of a $9bn penalty as “absurd”, arguing that the clause was designed to prevent individual national partnerships from breaking away from the new organisation. Instead, in a tersely worded release dated shortly before Christmas, Andersen Consulting argues that breaches of the original agreements by Arthur Andersen frees the consulting unit to go its own way.

In particular, it cites: “the establishment and dramatic expansion of Arthur Andersen’s business consulting practice in … areas of Andersen Consulting specialization” and “an aggressive sales and marketing campaign by Arthur Andersen that has significantly blurred the marketplace distinction bettween the two firms”. Rubbing salt into the wound is the so-called “transfer payment” of around $150m a year from AC to AA, which, Andersen Consulting asserts, “is based on the premise of inter-firm co-operation but has served to finance the continued expansion of Arthur Andersen’s consulting business”.

In retrospect this latest fracas can be seen as merely a flareup of a conflict that has been simmering ever since the split in 1989. The issue flared up again during the inconclusive battle for leadership of Andersen Worldwide which left rivals George Shaheen and Jim Wadia facing each other as worldwide heads of their respective firms under a weakened Andersen Worldwide led by an interim chairman.

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