Advertisement
YOU ARE HERE: LAT HomeCollectionsAccounting

THE FALL OF ENRON

Andersen Losing Clients, CEO Says

Probe: Joseph Berardino acknowledges errors in judgment in handling of Enron documents.

January 29, 2002|JEFF LEEDS and RALPH FRAMMOLINO | TIMES STAFF WRITERS

Accounting giant Andersen said Monday that it is losing business in the wake of the Enron Corp. scandal, but the company's chief executive sought to dispel speculation that the firm would be sold or shut down.

Chief Executive Joseph F. Berardino said Andersen's destruction of Enron-related papers and alleged accounting lapses are marring the company's credibility and scaring off potential clients.

"People who know us well continue to hire us and stand by us," Berardino said Monday at a news conference at Andersen's Chicago main office. "Those who don't know us well are less anxious, frankly, to hire us, and yes, we've lost some business."

President Bush didn't help the company's image, joking over the weekend that Saddam Hussein has now agreed to weapons inspections. "The bad news is he wants Arthur Andersen to do it," Bush said.

Representatives of the company, until last year known as Arthur Andersen, declined to identify specific accounts it has lost.

But Berardino said his company committed "serious errors in judgment in destroying documents" related to its Enron audit after the energy trader announced it was the subject of a Securities and Exchange Commission inquiry.

But he added that there are 85,000 Andersen employees who "did not work on the Enron engagement" and who are unfairly suffering from the fallout.

Berardino said the 88-year-old company has no intention of selling all or part of its assets to any of the other Big Five accounting firms.

"We have absolutely no interest in going there," he said. "We feel very confident that we can get through this, difficult as it is."

Andersen representatives said Monday that the company may complete an internal investigation of its auditors' conduct in the Enron collapse by the end of the week. Berardino said his company will "make the changes needed to maintain confidence in our firm."

The remarks came as Andersen is taking heavy fire from all sides. The $9-billion-a-year auditing conglomerate is the subject of dozens of lawsuits as well as Justice Department and congressional investigations.

The accounting giant already has admitted that employees in its Houston office shredded documents and e-mails after top executives knew that the SEC was investigating Enron.

An Andersen executive also confirmed Monday that employees outside the Houston office that conducted the Enron audit deleted Enron-related e-mails after the SEC probe became public.

Critics have questioned whether Andersen's judgment as an auditor had been clouded by the huge consulting fees generated from Enron. Andersen received about $25 million from auditing Enron in 2000 and $27 million from consulting. An Andersen executive told lawmakers last week that the accounting firm gave Enron a better rating in its internal risk assessment in 2001 than in 2000 and didn't lower the rating even as the energy giant's problems mounted.

Asked if his auditors had been compromised in the Enron case, Berardino pointed to "a balance between getting to know your client [so] you understand the business and getting too close."

"So I don't know if we've crossed that line," he said. "What I do know is we will, we will, get to the bottom of what people knew and the judgments they made on the accounting, and we just aren't there yet."

Competitors, however, see an opportunity to profit from Andersen's image crisis.

"We're developing a marketing plan now to figure out which niche we want to go after," said John Knape, a senior executive at Spain, Price, Reader & Thompson, a Houston firm that provides consulting and tax services. "There's a good possibility of recruiting talent [away from Andersen] too."

Andersen is fighting back with a public relations blitz. The company is set to run advertisements in major newspapers today defending its conduct, and Berardino is expected to make a series of television appearances this week, Andersen representatives said.

But the face-saving may come too late, analysts say.

Andersen's fate rests partly on "damage control by management, and it's not clear to me that Andersen has done a good job on that so far," said Bala G. Dharan, an accounting professor at Rice University in Houston.

"I don't think they really understand the amount of reputational damage they've had," he said. "If you look at the cartoons, if you look at Jay Leno, it's much more pervasive than they might think."

The company's name suffered another blow Monday as political circles buzzed over President Bush's Andersen joke at a dinner Saturday evening.

The remark was notable because the accounting giant and its partners contributed more money to his campaign than Enron executives. Andersen was the fifth-biggest donor to Bush's White House campaign, ranking it several notches above Enron, according to the Center for Responsive Politics. Andersen's political action committee and individual executives contributed $146,000 to Bush's presidential run, according to records compiled by the Washington-based center.

D. Stephen Goddard, the managing partner of Andersen's Houston office, made the Bush campaign's list of "pioneers," individuals who raised at least $100,000 for the Texas governor's run for the White House. Goddard is one of four Andersen executives who were stripped of their managerial duties after disclosures of document shredding in Houston.

Andersen also has been a major backer of the Republican Party, donating more than $236,000 in so-called soft money contributions in the 2000 election cycle.

Nonetheless, Andersen has received a more public spanking by Congress than Enron. Andersen executives said the company plans to intensify its political efforts, in part by providing employees with information on how to contact lawmakers to voice support for the company.

*

RELATED STORY

Lay woes: Enron's ousted CEO faces a new lawsuit, and his wife says they are nearly broke. C6

Advertisement
Los Angeles Times Articles
|
|
|