Andersen Consulting got the word in its New York Offices at about 5:00 this morning – the firm is no longer tied to Arthur Andersen in any way and can compete freely for clients without having to pay any fees to Arthur Andersen.
Terms of the 130-page arbitration document that came across a fax machine in New York this morning, while members of Andersen Consulting were cheering, include the following:
- Effective immediately, Andersen Consulting is a separate entity from Arthur Andersen and Andersen Worldwide.
- As of today, all agreements are severed and all transfer payments from Andersen Consulting to Arthur Andersen cease.
- No additional payments or penalties are required.
- Monies that have already been paid into escrow (some $530 million) will remain with Arthur Andersen.
- There will be no transfer or return of technology from Andersen Consulting to Arthur Andersen.
- Andersen Consulting must change its name by December 31.
Arbitrator Dr Guillermo Gamba ruled that Andersen Worldwide - the two firms' umbrella group - "breached its material obligations under the legal documents controlling the relationship among the parties, and that all obligations that Andersen Consulting had to Andersen Worldwide and Arthur Andersen are terminated effective today," according to Andersen Consulting's website.
Andersen Consulting maintains the arbitrator agreed with its argument that the annual payments to Andersen Worldwide served to finance the expansion of Arthur Andersen's own rival consulting service, and went against the spirit of the original operating agreement.
The name change is viewed as “a small price to pay for our independence,” according to Joe Forehand, Global Managing Partner and CEO of Andersen Consulting, who spoke in a press conference earlier this morning. “Today’s ruling underscores what we have been saying, that a clean and complete separation was prudent and inevitable.”
Just hours after the decision was communicated to the two parties, Andersen Worldwide confirmed that managing partner Jim Wadia had resigned.
Andersen Consulting now exists as a separate entity and head of marketing Jim Murphy confirmed that top level managers had already pondered the new name. He was not prepared to speculate further on the new identity. Implementing and communicating the brand change would cost around $100 million, he suggested - dismissing claims from Arthur Andersen that the brand value was worth billions of dollars.
Andersen Consulting's brand value lay in its 65,000 employees, its intellectual assets and the service it delivers to its clients, added Forehand. As part of its development plans, he said the firm was looking to recruit 16,000 more staff and would double its partner numbers to 2,500 by September first.
Forehand also said that the other Big Five accountancy firms' moves to separate their audit services from consultancy was the right route and had been evident to Andersen Consulting partners since 1989.
"If you look at what the SEC is doing with this issue today and the flexibility of transactions, it's time the consulting business and the accountancy profession were separate," he said.