Ex-Fed Boss Has Andersen Plan

NEW YORK -- Arthur Andersen has been hit with another wave of client defections, even as former U.S. Federal Reserve chairman Paul Volcker was offering a sweeping reform plan to try to save the company.

The mounting loss of clients has further complicated the accounting firm's efforts to survive the Enron scandal and a related criminal indictment for allegedly obstructing justice.

Volcker's reform proposals, announced Friday, include replacing top management and installing an independent board that he would head. He said the plan would succeed only if the federal indictment is dismissed and if a cap is placed on the firm's financial liability from the Enron scandal.

"All that has to come together to make this initiative viable and successful," Volcker said at a news conference.

Major clients that announced they were abandoning Andersen on Friday included Occidental Petroleum Corp., Waste Management Inc. and the Chicago Mercantile Exchange. Abroad, the firm's New Zealand partners jumped to Big Five rival Ernst & Young.

Total defections now stand at more than 70 since the start of the year.

Volcker heads an oversight committee charged with making sweeping reforms at the firm. The changes he outlined Friday go much further than recommendations made by his committee earlier this month, which included a proposal to split Andersen's auditing from its consulting services.

Volcker said he would chair the new governing board he proposed. He said the board would fire top managers, but he would not comment on whether chief executive Joseph Berardino would be among those told to leave.

"There will no doubt be changes at the top," he said.

Itzhak Sharav, an accounting professor at Columbia University's business school, said the latest proposal was reasonable, but should be seen as a "Hail Mary defense."

"The problem he will have is convincing the Justice Department" to dismiss the indictment, he said. "They look at it as prosecutors who feel the company did not live up to obligations and should be punished."

Volcker suggested the Justice Department could dismiss the indictment against Andersen in a way that would allow the charge to be reinstated if prosecutors feel reforms at the firm are insufficient.

Lawyers suing Andersen for its audits of Enron would have to agree to limit damages to an amount Andersen could pay without going out of business, Volcker said. The Securities and Exchange Commission would also have to end its investigation without issuing a fine that could bankrupt the company, he said.

To prevent Andersen from collapsing, Volcker said, a significant number of senior Andersen partners must be persuaded to stay with the firm and participate in its rehabilitation.

In a statement, Andersen said Volcker's plan was a "positive and constructive proposal that works to resolve the difficult issues with the SEC, the Department of Justice and other claimants." The accounting firm said it hopes the Justice Department will consider the plan and "come to a conclusion based on the best interests of our capital markets."