NEW YORK — Former U.S. Federal Reserve Chairman Paul Volcker offered a plan Friday for Arthur Andersen LLP's survival that includes replacing top management and installing an independent board that he would head.
He said the plan would succeed only if the federal indictment of the firm would be dismissed and if a cap is placed on the accounting 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 hastily arranged news conference yesterday.
The changes outlined by Volcker 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.
Although considered reasonable and with the possibility of saving the accounting giant from imploding, Volcker's latest proposal should be perceived as a "Hail Mary defense" for Andersen, said Itzhak Sharav, an accounting professor at Columbia University's School of Business.
"The problem he (Volcker) will have is convincing the Justice Department" to dismiss the indictment, Sharav said. "They look at it as prosecutors who feel the company did not live up to obligations and should be punished."
Volcker, who heads an oversight committee charged with making sweeping reforms at the accounting firm, said he would chair Andersen's new governing board. Other members would include former U.S. Sen. John Danforth; C. Michael Cook, former chief executive officer of accounting firm Deloitte & Touche, a competitor of Andersen; and former U.S. Comptroller General Charles Boucher.
The new board would fire top managers, Volcker explained, although not commenting whether Andersen's Chief Executive Officer Joseph Berardino would be among those told to leave.
"There will no doubt be changes at the top," Volcker asserted yesterday.
He said the plan hinges on the Justice Department dismissing the obstruction-of-justice indictment against Andersen. He suggested it could be dismissed without prejudice, meaning the charge could be reinstated by prosecutors if they believe that reforms at Andersen would be insufficient.
Lawyers suing Andersen for its audits of Enron would have to agree to limit damages to an amount that Andersen could pay without going out of business, Volcker said.
The Securities and Exchange Commission also would have to end its investigation without issuing a fine that could bankrupt the company, he said.
Enron filed for bankruptcy in December following revelations that it used questionable accounting methods to mask billions of dollars in debt and to inflate profits.
To prevent Andersen from collapsing, Volcker told the media yesterday, a significant number of senior Andersen partners must be persuaded to stay with the firm and to participate in its rehabilitation.
"They have to decide," Volcker said. "This is a partnership; no one can compel them to do anything."
Volcker said he told company officials about his proposal approximately an hour before he announced his plan yesterday afternoon in New York City. He would not characterize the response, but said he thought company officials need time to examine his plan.
A spokesman for Andersen, which appointed Volcker in early February to help mend its tarnished reputation, did not immediately return a phone call seeking reaction yesterday.
Volcker said Andersen executives and government officials must decide within days whether to accept his recommendations because dozens of major clients continue to abandon the company and because some of Andersen's foreign partners are defecting to competitors.
He would not give odds on the chances of the plan succeeding.
"It's no use in me speculating," Volcker said. "In a week, we'll know."
