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August 20, 1997updated 03 Sep 2016 7:24pm


By CBR Staff Writer

From Computer Business Review, a sister publication.

Could the world’s third largest information technology services organization soon be called Andersen Consulting Corp, listed in New York and London? It is one way forward for a troubled organization. For the 2,700-odd senior partners of Andersen Worldwide, the global accountancy and information technology consulting partnership, the bi-annual announcement of the firm’s financial results is usually a sweet moment, a reminder to take out an extra savings plan and to open a bottle of vintage wine. For a decade, both Andersen Consulting and Arthur Andersen & Co, the two operating halves of the Swiss-registered but US- headquartered organization, have been turning in impressive figures. And with no shareholders to please, that usually means that the ‘partners incomes committee’ is in generous mood when it comes to sharing out the spoils. But for the past three years, the annual distribution of so-called ‘dividends’ has become a bitter-sweet event, with growing resentment bubbling up between the partners representing the two separate operating units of Andersen Worldwide. In recent months, this bitterness has spilled over into the public arena, with some partners in this well- disciplined organization now openly lobbying for a divorce unless their differences can be swiftly reconciled.

By Andrew Lawrence

Although nine of ten partners favored keeping Andersen together in a (non-binding) ballot last year, this was only under the proviso that a new organizational structure could be agreed. So far, that has manifestly not happened. The partners have given themselves a new deadline – to 1998 – to solve their problems. After that, a flotation of Andersen Consulting is one of several possibilities. For two organizations whose message is the smooth handling of corporate change, the wrangling is starting to generate some unwelcome publicity. But the issues are deep-seated and basic: It is all about money and control. Andersen Consulting, the world’s third largest computer services organization after IBM and EDS, is growing much faster than Arthur Andersen, the world’s leading auditing firm and, according to insiders, it is more profitable. Last year, the consulting arm surpassed the accounting arm in size for the first time. In spite of this, the power and influence in Andersen Worldwide is heavily skewed in Arthur Andersens’ favor. Under the terms of an agreement hammered out in 1989, the Arthur Andersen partners have a majority vote in terms of decision making, 1,700 partners against 1,040, and, equally galling, take a percentage of Andersen Consulting’s profits. Some of this goes into the business, but some is distributed among the partners. According to some reports, as much as $100 million flowed out of Andersen Consulting and into Arthur Andersen in 1996, more than equaling the amount that any prospective shareholders would expect in dividends from a fast-growing company. To make matters worse, Arthur Andersen is using some of this money to build up an information technology consulting business which competes directly with Andersen Consulting.

Can’t date the same girl

For example, Arthur Andersen has set up a unit to help clients implement SAP AG’s R/3 enterprise resource planning package – prompting the comment from George Shaheen, head of Andersen Consulting that two brothers can’t date the same girl. And early this year it set up a unit to advise customers how to implement electronic commerce – an Andersen Consulting speciality. Arthur Andersen partners, however, view the Consulting arm as their creation, Adam’s rib, said one, and attribute its initial success to their investment and support. Certainly, the stability of the current arrangement was always likely to come under strain as long as one side or the other turned in better figures. In fact, the creation of Andersen Consulting in 1989 was itself a troubled affair. In 1987, the consulting unit under Victor Millar was proving successful but, he believed, not successf

ul enough. He attempted to release the company from the straitjacket by seeking outside buyers. He held secret talks with several suitors, including Apple Computer Corp, and, more seriously, advertising agency Saatchi and Saatchi, which made an offer. The plan was turned down, and Millar was turned out to join Saatchi. To meet the concerns of the remaining consultants, the Andersen Consulting arm was formed in 1989. It was then that the agreement was drawn up, giving the incumbent Arthur Andersen such power over its younger sibling. But as the Consulting arm has grown, so has the unrest. One plan was to spin Andersen Consulting off into a separate company, floating it on the Nasdaq stock exchange. This idea was opposed by key partners. In its last full year to August 1996, consulting business revenues grew 26% to $5.3bn, while Arthur Andersen grew only 13% to $4.6bn. The differences between the two sides of Andersen were scarcely off the formal agenda for a few months before they surfaced again last year, with the scheduled retirement of Laurence Weinbach, chief executive of Andersen Worldwide, providing the new flash point. Andersen’s partners elect their leader democratically, on a one-partner, one-vote basis, with managing partners serving ‘terms of office.’ The built-in majority of the accountancy arm ensures that the eventual successor will be acceptable to them, but the requirement for a two-thirds majority means the consultants have a veto. Historically, the recommendation made by the Board of Partners has always been accepted. But in November 1996, the Board failed to agree, and postponed making a choice until a partners meeting this spring.

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Go it alone

There, two partners, Jim Wadia, head of Arthur Andersen UK, and George Shaheen, head of Andersen Consulting worldwide, put forward their agendas to partners, who signaled their approval or otherwise using electronic voting systems. Shaheen’s ‘manifesto’ was preferred by most partners – but then the Board of Partners promptly nominated Wadia. In two telephone voting rounds in June, both Wadia and Shaheen then failed to secure the required majority. Hurriedly, the Board of Partners agreed on two steps: that Robert Grafton, a former regional managing partner of Arthur Andersen, would be the acting chief executive while the mess is sorted out. And second, that the future structure of the organizations must be decided by the spring of 1998. By the time the partners vote next year, Arthur Andersen, the accounting firm, will be pulling in some $600m in information technology services. That is a big and promising business in its own right. If either of the Andersens were offering client advice here, they would probably be advising each division to go it alone. It remains to be seen if they dare take their own medicine.

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