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Andersen Consulting Wins Arbitration Case

Published: Tue 8 Aug 2000 03:25 PM
Andersen Consulting Wins Arbitration Case; Will Formally Separate From Arthur Andersen
New York, August 7, 2000 -- Andersen Consulting announced today that the arbitrator appointed by the International Chamber of Commerce (ICC) has ruled in favor of Andersen Consulting in its arbitration with Andersen Worldwide and Arthur Andersen.
The arbitrator concluded that Andersen Worldwide breached its material obligations under the legal documents controlling the relationship among the parties and that all obligations that Andersen Consulting had to Andersen Worldwide and Arthur Andersen are terminated effective today. Thus, Andersen Consulting has been formally separated from the Andersen Worldwide organization with no further financial obligations.
"This is a total win for Andersen Consulting" said Joe Forehand, global managing partner and CEO of Andersen Consulting. "We won. It's over. We have defeated Arthur Andersen's preposterous claim that we owe them $14.5 billion. We owe them nothing beyond our contractual transfer payments, which end today. Now it is time to move on independently, continuing to focus on our clients, our people and our ambitious reinvention agenda,” he said.
Dr. Guillermo Gamba, the ICC-appointed arbitrator, issued a 129-page decision and award in which he found that, "Claimants [Andersen Consulting ]acted in good faith, with a proper basis and in accordance with the Member Firm Interfirm Agreements in filing their Request for Arbitration and in their subsequent actions in connection with the arbitration proceedings."
Gamba further found that "AWSC [Andersen Worldwide] breached their material obligations to Claimants under the Member Firm Interfirm Agreements by failing to coordinate the practices of the ACBU member firms with those of the AABU member firms."
The arbitrator determined that, "On account of AWSC's fundamental non-performance, the MFIFAs (Member Firm InterFirm Agreements) are terminated. Consequently, claimants are released from all their obligations to AWSC and the AABU member firms under the MFIFAs as of the date the present award is notified to the parties."
Under ICC practice and the parties controlling legal agreements, the arbitrators award is final and binding. "The arbitrators award, for all intents and purposes, can not be appealed,” said Barry R. Ostrager, of Simpson Thacher and Bartlett, the attorneys for Andersen Consulting.
The arbitrator also rejected Arthur Andersen's claim that Andersen Consulting is required to share the technology Andersen Consulting developed by itself. The arbitrator does require Andersen Consulting to surrender the name Andersen Consulting to Andersen Worldwide, effective December 31, 2000, because legal title to the name Andersen Consulting is held by Arthur Andersen.
“In fact the changing environment and nature of our business has already led us to examine alternatives. If anything, this decision simply accelerates that process,” said Forehand.
The decision marks the end of a two-and-a-half year arbitration process that began when Andersen Consulting charged Arthur Andersen with violating the operating agreement that called for the two units to operate in completely separate areas. As part of a September, 1989 restructuring, Arthur Andersen and Andersen Consulting were set up as two stand-alone business units chartered with providing separate and complementary services. Under the agreement, Arthur Andersen was to continue as a tax and audit accounting firm, while Andersen Consulting would provide management and technology consulting. The mission of Andersen Worldwide was to provide coordination between the two units and ensure they continued to operate cooperatively and compatibly.
In requesting arbitration in December 1997, Andersen Consulting charged the agreements among the firms had been seriously breached by Arthur Andersen’s expansion into business consulting areas such as technology integration, strategic business planning and business transformation. All are areas in which Andersen Consulting is a recognized leader.
Another major source of contention was the annual transfer payment to Arthur Andersen from the more successful Andersen Consulting. The payment, stipulated in the firms’ operating agreement, was based on the premise the two units would cooperate. But, in effect, the payment has served to finance the continued expansion of Arthur Andersen’s consulting business in competition with Andersen Consulting. In his ruling, the arbitrator upheld Andersen Consulting’s position on these key points.
“We believe a formal separation makes the most sense for both regulatory and sound business reasons,” said Forehand. “Since the two organizations were already operating as separate and distinct businesses, this formal separation was all but inevitable,” said Forehand. “Andersen Consulting now looks forward to moving into the future as a fully independent organization that continues to provide clients with the value they have come to expect. Finally, today’s ruling will help us continue to pursue the ‘reinvention’ of our company into one better able to help clients succeed in a global economy re-shaped by e-Commerce.” Andersen Consulting is an $8.9 billion global management and technology consulting organization whose mission is to help its clients create their future. The organization works with clients from a wide range of industries to link their people, processes and technologies to their strategies. Andersen Consulting has approximately 65,000 people in 48 countries. Its home page is http://www.ac.com.
TELECONFERENCE -- Andersen Consulting will conduct a live media teleconference hosted by global CEO, Joe Forehand, at 9.30am US-EST/11.30pm Australian EST /1.30am NZ time to discuss today’s ruling. In the U.S., call 1(800) 314-7867; outside the U.S., call 1(719) 457-2661. and use access code 567875.

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