Battered Andersen Backs Volcker Split-Up Plan

Accounting firm Andersen will back away from its consulting business and focus on auditing as it fights a criminal indictment over audits that failed to flag the looming collapse of energy trader Enron Corp., former Federal Reserve Chairman Paul Volcker said Friday.

'We want to save the core auditing business,' said Volcker at a press conference in New York. The nonauditing businesses 'could be sold as a whole, pieces, individual partners (could take over). All these possibilities exist.'

About 60 percent of the firm's current partners work in divisions outside the core auditing business, including technology and management consulting, he said. He declined to say how many people may lose their jobs.

Volcker will head a seven-member board to take control of Andersen and replace management. He will also work in helping to persuade the Justice Department to drop its indictment.

Volcker said he has a 'personal interest' in negotiations with the Justice Department. 'It's one of our conditions for our board to be put in place,' he said.

Andersen agreed to support the plan Volcker proposed earlier in March to separate its consulting and auditing businesses, a move that will deprive the firm of lucrative consulting contracts.

Such consulting deals have boosted revenues at top firms in recent years, but also raised conflict-of-interest questions about whether auditors go easier on lax bookkeeping at their firm's consulting clients.

Volcker's plan to whittle down Andersen could halve the size of the 89-year old firm and put it at the forefront of reforms sought by critics after the Enron debacle.

Andersen brought in Volcker to overhaul the firm, which is losing droves of clients after the government indicted it, saying the firm obstructed justice by shredding documents related to its Enron audits.

Enron went bankrupt late last year after investors learned about a complex web of off-balance-sheet transactions -- that its auditors at Andersen approved. Last fall, the once high-flying company had to restate earnings going back to 1997, revising profits sharply downward.

Volcker had said earlier he would advise the firm in its struggle to survive after the indictment, if he had support of Andersen partners.

After a five-hour closed circuit television meeting Thursday, Andersen said it supported Volcker's's plan and it will 'address' its non-audit businesses, like the tax, business consulting and corporate finance practices. The units could be sold, merged, or spun off into a stand-alone entity, all outcomes discussed by Andersen's top U.S. partners at the meeting.

'We are committed to building the audit firm of the future under the leadership and recommendation of Mr. Volcker,' Andersen managing partner Larry Gorrell said in a statement on Thursday.

Thursday's meeting brought together Andersen's roughly 1,700 U.S. partners and comes as the Chicago-based firm, which employs 85,000 people worldwide, is reeling as a result of its role in the Enron scandal. The latest casualty was the firm's Chief Executive Joseph Berardino, who resigned on Tuesday.

Another closed-circuit meeting is set for Tuesday, when a board meeting of umbrella organization Andersen Worldwide will take place in London.

On the merger front, Andersen has been pushing for deals across the globe in a bid to salvage some of its international businesses. Talks are continuing between Andersen and KPMG on a merger of partnerships in various countries, although some have done deals with rival firms, including Russia, Australia, New Zealand, Hong Kong and China.

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