At the beginning of this year, the big trend among the world’s biggest accounting and consultancy firms appeared to be consolidation. For the past decade, besuited accounting and consulting partners have been gingerly shaking hands with their counterparts at rival firms as the big eight became the big seven, then the big six, five and then four. Simple names such as Arthur Young looked likely to end up as tongue-twisters such as KPMG-Ernst & Young. But at the end of February, KPMG’s plans to merge with Ernst & Young collapsed. And at Andersen Worldwide, the world’s biggest accounting and computer services firm, a formal split between the two sides of the organization – Andersen Consulting and Arthur Andersen – now looks more likely than at any time since their smoldering dispute erupted in 1996. The acrimony has now become so open that the two appear to have abandoned hope of mutual reconciliation altogether. At a meeting of some 2,700 partners in mid-1997, partners from Andersen Consulting and Arthur Andersen, which respectively focus on computer systems integration and auditing, agreed to talk things over and try to agree on a way forward during 1998. But in December, Andersen Consulting, whose 1,124 partners feel themselves to be the aggrieved parties, lost patience and filed a claim with the International Chamber of Commerce for the dispute to be settled by binding, third-party arbitration. As far as partners at Arthur Andersen were concerned, this amounted to a divorce petition. The right answer … is to go forward as two independent businesses into the marketplace, said George Shaheen, global head of Andersen Consulting. The dispute is long running and complicated, but centers on how the profits from the respective businesses are divided up. Andersen Consulting, now the world’s third largest computer services organization after IBM and EDS, was set up by Arthur Andersen in 1989 to take advantage of the growing demand for computer consultancy and systems integration, especially in the area of finance and administration. But during the decade, Andersen Consulting has grown far faster and is more profitable. That would not matter – except that Arthur Andersen has more partners in Andersen Worldwide (about 1,700 compared to Andersen Consulting’s 1,100), which makes the big corporate decisions. Worse, it takes a big slice of profits each year from Andersen Consulting and shares them out among the Arthur Andersen partners. All of this might have been settled, were it not that Arthur Andersen has been acting as if it is a rival, not a partner – according to Andersen Consulting partners who do not wish to be named. For example, both companies have Year 2000 consulting teams and both have SAP R/3 software package installation teams. At one show last year, both companies had booths almost opposite each other. There have even been allegations that Arthur Andersen is poaching staff and using Andersen’s Consulting name to acquire business. What happens next? One possibility is that the arbitration process leads to a new agreement, with more say and more profits going to the Consulting partners. But this seems unlikely. The fact is that both sides see the merit in a divorce: Andersen Consulting because it is already a giant in world terms, with $6bn in computer services revenues likely this year; Arthur Andersen because its partners believe they could easily make up for the lost revenues by attacking Andersen Consulting’s business without fear of upsetting its partners. But it is unlikely to end there. There are complex issues of cross ownership which might require outside valuations and even a capital infusion. In order to secure independence, Andersen Consulting may have to pay a multi- billion dollar sum. So a flotation of Andersen Consulting, and maybe a merger of Arthur Andersen with another auditing/consulting firm, are among the myriad of messy possibilities.
Computer Business Review.
