ANDERSEN COMPANY DEVELOPMENT

•       1947: Death of Arthur Andersen. Leonard Spacey, a senior partner at the accounting firm, took over as CEO

•       1954: Introduced the firm to consulting work

•       1970s: Auditing firms came under pressure to cut costs and started to search for alternative revenue sources

The area most accounting firms turned to for alternative revenue sources was business and systems consulting.

•       1970s: Consulting business exploded as the demand for IT services increased

•       1978: Andersen consulting became the industry leader with consulting practice accounting for 21% of firm’s revenues

•       1979: Almost a half of the firm’s worldwide fees came from the consulting work

•       1980s: Surpassed 1000 partners and became the world’s biggest business services firm

•       1984: Consulting practice more profitable per partner than traditional accounting and tax business

•       1989: Company formed a separate consulting practice

•       ANDERSEN WORLDWIDE: Arthur Andersen and Andersen Consulting

•       2000: AC became independent and renamed itself as Accenture

•       2002: AA had 85000 employees, 2300 clients and $9.3 billion annual revenues

Factors leading to Separation of firms

•       DECLINE IN AUDIT FEES

Firms began to outbid one another aggressively for audit engagements, eventually leading to decreased industry standards as firms became unwilling to upset clients.

•       PERCEPTION TOWARDS AUDIT WORK

Audit work began to be viewed as a loss leader as the Big Five Firms used audit engagements as a springboard to sign up clients for more lucrative consulting engagements.

•       DISSIMILARITY BETWEEN CONSULTING AND ACCOUNTING MARKETS

       The two markets, consulting and accounting, were very dissimilar. The clients had different                needs and strategies, resources and operating models required to meet these needs differed.

 As a result of this dissimilarity, the consulting partners in 1989 created Anderson Consulting as a separate legal commercial enterprise devoted to business and technology consulting. According to Jon Conahan, a global managing partner responsible for Andersen consulting’s market strategy since its formation, “We needed to draw a clear distinction in the market place between a traditional Big Eight accounting and tax firm and a firm capable of challenging IBM or EDS.”

Establishing a new operating unit posed a serious financial risk for the original partners of Andersen Consulting. They set out to create a new organization and there was no guarantee of success. Moreover the consulting partners had to give up their ownership interest in Arthur Andersen and join new Andersen Consulting partnerships established as separate legal entities.

The switch paid off. Andersen Consulting’s annual revenues grew from just over $1 billion in 1989 to $8.3 billion in 1998. In addition, the firm also served more than 85 of the Fortune 100 largest global public companies and many of the world’s leading governments.  

•       NO COMPLETE INDEPENDENCE TO EITHER FIRM

The auditing and consulting units remained under the Andersen Worldwide SC umbrella. As part of the agreement, the units had a revenue sharing model. Although Andersen had been divided into two companies- AA and AC- the split did not provide the complete independence that the consulting side sought.

•       INITIATION OF ARBITRATION PROCESS AND FURTHER DISCUSSIONS (AUGUST 2000)

As the tension between the two sides of the firm increased, an arbitration process was initiated to decide upon the firm’s future. In AUGUST 2000, after a three-year confrontation between the two sides, the arbitration court separated Andersen Consulting from Arthur Andersen. The International Chamber of Commerce arbitrator found the parent, Andersen Worldwide, to be failing in its contractual obligation of assuring cooperation, coordination and compatibility.

During the arbitration discussions, Arthur Andersen asked for $14 billion to let Andersen Consulting break away. However, it was eventually awarded only $1 billion, resulting in further pressure on Arthur Andersen to boost the firm’s revenue. Overnight the accounting firm’s partners went from having an equity stake in annual revenues of $16.3 billion to $ 7.3 billion.

After the two firms split, Andersen Consulting, which fought unsuccessfully to keep the rights to the prestigious Andersen name, renamed itself ACCENTURE; Arthur Andersen launched a new brand campaign, calling itself Andersen.

As a part of its new initiative to increase consulting revenues, the newly named Andersen, formerly known as Arthur Andersen, reinforced its business strategies and aggressively sought new consulting engagements to help drive revenue growth. As such, it adopted a new version:

“To be the partner for success in the new economy”.