Turbulence hits the corner offices.
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Partners in Peril:
For Most at Andersen,
Enron Wasn't a Client,
But Now It's a Problem
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Often Those at Top Sunk
Their Savings Into Firm;
Today, It's All in Doubt
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03/21/2002
The Wall Street Journal
Page A1
For Elana Mourtil, winning a partnership at Arthur Andersen was the
American dream. Born in Iran,
she moved with her mother and two brothers when she was 11 years old to
Forest Hills, in the New
York borough of Queens, where they lived on her mother's earnings as a
tailor. She put herself
through Queens College -- and helped her mother pay the mortgage -- by
working in a local
supermarket as a cashier and bookkeeper.
Recruited on campus by Andersen, she worked her way up the ladder over the
next 14 years. Her
climb culminated last September, when Andersen offered her the chance to
become a "participating
partner," part of a coveted circle of senior employees who own equity
stakes in the big accounting
firm.
Like most equity partners, Ms. Mourtil took out a loan from Andersen to
pay the first installment in
her mandatory annual investment in the firm. "What could go wrong?" asks
the 36-year-old tax
consultant. "The company has been here 89 years. When they offer you a
chance at partnership,
you jump at it. There's no such thing as due diligence."
With her husband in law school, she figured she would pay back the loan
with a hefty pay increase
that came with the promotion. "Now," she says, "even if Arthur Andersen
doesn't make it, I have
to work for years to pay off this loan."
Indicted by the federal government for shredding files connected with its
work for Enron Corp.,
Arthur Andersen is in crisis and may not survive. Enron shareholders --
blaming Andersen for
blessing the company's books for years -- are suing for hundreds of
millions of dollars, and clients
are fleeing.
Federal prosecutors argue that they are punishing a wrongdoer that has
admitted to shredding
documents. The firm also pledged to stay out of trouble in the wake of
another accounting-fraud
case involving Waste Management Inc. But often when prosecutors get tough,
innocent
bystanders, in this case a lot of them, get hurt.
Andersen's travails are a serious blow to all 85,000 of its employees
around the world, but they
pose an unusual trauma for its 4,700 partners, most of whom had nothing to
do with Enron. Like all
the Big Five accounting firms, Andersen requires its partners to put money
into the firm each year
-- generally between $50,000 and $250,000, depending on seniority, salary
and other factors. A
partner becomes an owner of the business, rewarded with a share of the
profits. Generally, partners
are expected to bring in $1.5 million to $2 million in new business
annually.
Normally it's a gold-plated investment that makes up a big portion of a
partner's net worth. Many
partners have been paying in for decades and have millions of dollars
invested in Arthur
Andersen. "Some people have put their life savings into the company," says
Marc Andersen, a
new partner in Washington.
Now all that money is in peril, subject to the massive claims of Enron
shareholders and regulators.
Margi Quick, 47, became a tax partner in Los Angeles in September and
still owes 99% of her loan
from the firm. "A lot of people will have to declare bankruptcy if they
don't find jobs in three
months," she says.
"There are going to be lifestyle adjustments for even the wealthiest,"
says Dan Broadhurst, 43, a
partner who runs Andersen's financial-consulting practice in Chicago. He
has five children and
"they may not be able to go to the school they want to." He is the sole
breadwinner and has cut
back his life-insurance policy to save money. "Our retirement, all of our
savings, is tied up in the
firm. If it doesn't survive, l lose 20 years of savings."
With their careers in jeopardy, Andersen employees are flooding the White
House and the Justice
Department with calls and e-mails to protest the government's prosecution
of the firm. About 500
Andersen employees cheered outside a Houston courthouse yesterday, where
the firm's legal team
officially entered its not-guilty plea and won an early trial date.
Today Andersen employees plan another rally on the Capitol steps in
Washington.
"Save our jobs," Tina Thomas, an Andersen executive assistant, said
yesterday to the Rev. Jesse
Jackson, who stood in the lobby of the firm's Chicago headquarters
expressing solidarity with the
firm's employees. A 34-year-old single parent, Ms. Thomas was teary-eyed
as she told Mr. Jackson
that "I have a new house and two kids. This is devastating."
David Swinehart, a 32-year-old assistant director of campus recruiting in
Chicago, sold his house in
expectation of buying a new one and must move his family out by April 24.
Now he fears that no
bank will finance the purchase if he loses his job. Michelle Grant, a
31-year-old global sales
manager, and her husband, who also works for Andersen, worry that their
uncertain future could
halt their plans of adopting a baby from Vietnam. Todd Richards, a
41-year-old senior manager who
says his nine-year-old son needs open-heart surgery in June, worries about
losing health coverage
for his family.
Andersen employee Fran Rossman defiantly wore an Andersen T-shirt to her
Bally's gym in
Chicago. A stranger told her, "`You are really brave to wear that
T-shirt,'" says Ms. Rossman, 41.
"On planes I hear people talking to each other saying that those Andersen
people are going to get
what they deserve. I get e-mail jokes about Andersen from colleagues at
other firms. They are all
prefaced with, `You probably won't find this funny . . . '."
Elana Mourtil's path to Arthur Andersen began in an accounting class at
Forest Hills High School.
She was riveted by the numbers. She describes herself as conservative and
wanted a life of
stability.
Arthur Andersen came on campus one day in 1987. The interview went well
and the firm invited her
for a daylong follow-up at an office on Avenue of the Americas in
Manhattan.
"I went home that day and told my mother that I'm going to work for Arthur
Andersen," she says.
"I was so impressed." At the time, it was part of the Big Eight, and
accountants were still writing
with pencil on paper spreadsheets.
After she got married to someone she met at the supermarket, she put off
having children, as she
pulled all-nighters in her bid to become a partner. In 1998, she became a
nonequity partner -- the
only surviving member of the group of 50 New York tax specialists who
joined Andersen the year
she did.
Joining the partnership at the member-firm level currently requires an
investment of between
$50,000 and $90,000. The investments are used to fund the costs of running
the businesses and
keep control of the firm in the hands of the partners. Auditing firms must
be structured as private
partnerships, because public companies cannot be audited by public
companies under government
rules.
Last year, she was at a meeting in New Jersey with 30 other partners when
the firm announced that
some employees in the Houston office were involved in a massive shredding.
Ms. Mourtil threw
her forehead into her hands. "I couldn't believe anybody would do
something so stupid," she says.
She says she didn't know Enron was even a client until recently. "I didn't
know these people. I had
never heard the name David Duncan. I don't know what he was thinking." Mr.
Duncan is the
Houston partner who was fired after the shredding incident was disclosed.
She called the Justice Department this week and left a message on a line
set up to receive Andersen
complaints: "I really wish you would withdraw the indictment. You are
hurting 85,000 people."
She says that colleagues are either gaining a lot of weight or losing it.
She has lost 10 pounds --
and at 5 foot 5 weighs only 105 pounds now.
Many partners have taken out lines of credit against their capital
accounts. After the indictment, a
California partner received a call from his bank demanding immediate
payment of a loan the partner
had taken out to care for his dying father-in-law. The partner expects to
file for personal
bankruptcy.
Some partners have talked about a lawsuit against the federal government.
Some newer partners
suggest that they may ultimately have a fraud lawsuit against senior
partners who may have known
there was a time bomb. Ms. Mourtil doesn't think she has any recourse. "We
are the end of the line,
that's the thing. When things go bad, they sue the accountants. Who do we
sue?"
Another unanswered question: Whether the firm's pension plan is at risk.
Lawyers for the firm are
studying the issue, but can't give any hard answers yet.
Adding to their travails, Andersen partners face a hard time finding jobs
elsewhere. A noncompete
clause that all partners are required to sign prohibits relationships even
with former Andersen
clients. That means that even if Andersen loses most of its clients, the
noncompete clause would
still apply, seriously handcuffing former partners.
Later this week, or early next week, partners are expected to take a vote
to decide whether to nullify
the noncompete agreements. According to firm rules, it takes 100 partners
to initiate a vote -- and
typically two-thirds to change a rule.
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