Andersen Consulting calls in arbitrator

Andersen Consulting has dramatically raised the stakes in its long-running dispute with its sister organisation Arthur Andersen by calling for an arbitrator to resolve the row. Roger Trapp examines the roots of the dispute.

About 1,000 of the consulting business's partners meeting in San Francisco unanimously backed proposals that could lead to the two businesses that together make up the world's biggest and fastest-growing professional services firm going their separate ways.

A statement issued by Andersen Consulting yesterday cited "serious breaches of contract and irreconcilable differences" and said that it was seeking a declaration that it be allowed to go its own way. Vernon Ellis, European managing partner, pointed out that Andersen Consulting had paid "hundreds of millions of dollars" to effectively subsidise the setting up of a competitor and said that he believed it was "the best course for both parties" if the two firms were left free to develop on their own. He said that there was no claim for compensation.

Arthur Andersen, which sent Jim Wadia, its UK-based, newly-appointed global managing partner, to the meeting with a peace offering, was last night understood to be surprised by the development, since it is believed that Mr Wadia's proposal represented a substantial shift from its original position and proposed giving the unit greater autonomy.

Mr Wadia said that Arthur Andersen would approach the arbitration in "a professional manner" and abide by what was decided. But he warned other accounting firms, including those in the Big Six, that whatever happened it would continue to prosper. Earlier this week, "International Accounting Bulletin", reported that last year's revenues rose 19 per cent to $11.3bn, and it is expected that figures for the current year will continue the trend.

The call for the intervention of an arbitrator under the rules of the International Chamber of Commerce brings to a head a row that has been simmering, almost since the two business units were established in 1989. Arthur Andersen claims that much of Andersen Consulting's success has been achieved on the back of its name. But the consulting partners claim that - in addition to transferring money to their sister organisation - they have contributed greatly to the management of the combined operation. They also stress that they have invested heavily in their firm's name and would see no need to change it should the arbitrator back their call to go it alone.

However, it can be expected that over the months that the arbitration process is likely to take Arthur Andersen will defend its rights over such matters as the firm name.

The row came to a head during the summer, when Robert Grafton, the world- wide firm's chairman, had to step in as interim chief executive after the 2,700 partners failed to back either of the management's candidates for the post. It had been hoped to settle the difficulties internally by next spring, but this week's events mean that the Chicago-based firm's troubles are firmly out in the open.

Mr Ellis emphasised that the dispute was "not about money", but about the "inequity" of a situation where the two parts of the firm were increasingly in competition.