Andersen client exodus accelerates

Posted 9:24AM on Saturday 16th March 2002 ( 23 years ago )

CHICAGO - Arthur Andersen LLP's weakening hold on its major corporate clients got shakier Friday in the wake of its criminal indictment, with three blue-chip companies firing the troubled auditor and others indicating they may do the same. Sara Lee Corp., Northeast Utilities and Brunswick Corp. all severed decades-long relationships with Andersen as their auditor - Sara Lee since 1965, Northeast Utilities since 1977 and Brunswick since 1942. All three Fortune 500 corporations said the decision was made before Thursday's indictment of Andersen, with Sara Lee chairman and CEO C. Steven McMillan citing the fact that the company's viability as an audit firm was already ``in great jeopardy.'' But a fourth company, Abbott Laboratories Inc., specifically cited the indictment as cause for further concern. The North Chicago-based drug and medical products maker called a special meeting of its board of directors to review its 39-year auditing ties with Andersen. Sara Lee, a $5 billion consumer goods company, is the biggest of the companies to end ties with Andersen on Friday. The Chicago firm said it had made no decision on a new auditor. Northeast Utilities Systems, based in Berlin, Conn., picked Deloitte & Touche to replace Andersen. The energy supplier said it began looking to replace Andersen months ago, calling the decision difficult because it had received ``exemplary'' auditing service from Andersen but was concerned about its future. Brunswick Corp. hired Ernst & Young as its auditor. Spokesman Dan Kubera declined to comment when asked about the role of the Enron controversy in his Lake Forest, Ill.-based company's decision to drop Andersen. Andersen already had lost more than a half-dozen Fortune 500 clients this month. Petroleum refinery operator Valero Energy Corp. jointed that fast-growing list Thursday, disclosing in a filing with the Securities and Exchange Commission that it had ousted Andersen and hired Ernst & Young in a decision made two days earlier. A smaller firm, Minnesota-based Polaris Industries Inc., the world's largest snowmobile manufacturer, announced Friday that it, too, was dumping Andersen for Ernst & Young. Andersen spokesmen did not immediately return telephone calls Friday seeking a reaction to the new client announcements. The moves follow defections earlier this month by Delta Air Lines, FedEx Corp., Freddie Mac, Household International, Merck & Co. and SunTrust Banks, and others. More are considering defecting as they file proxy statements and hold annual meetings. Among others, Waste Management, American Home Products Corp. and UAL Corp., parent of United Airlines, all said their relationship with Andersen is under review. A federal grand jury indicted Andersen for shredding documents related to its auditing client Enron, which filed for bankruptcy in December. ``The indictment in itself does not mean guilty,'' said Arthur Bowman, editor of Atlanta-based Bowman's Accounting Report, an industry publication. ``But in the client's mind, it's associated with guilt. And it's difficult to imagine a CEO or chairman standing before shareholders endorsing an indicted CPA firm as auditor.'' While swapping auditors can be costly and inconvenient for major corporations, ``the risk of staying with them is they may not be there to work for you in three months or six months,'' he said. Andersen insisted Thursday there are no plans to file for federal bankruptcy protection, even though experts say that may be its best hope to stop the exodus of clients and employees and find a buyer. One after another, the options preferable to bankruptcy have failed for Andersen - riding out the scandal, lining up a buyer, avoiding criminal charges. A Chapter 11 filing would enable the Chicago-based company to convert the more than three dozen lawsuits filed against it into bankruptcy claims.

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