Arthur Andersen Andersen Worldwide—the parent company to Arthur Andersen and Andersen Consulting—began the decade as the world's largest consulting firm. It had been the profession's largest consulting organization every year since Consulting 's publisher, Kennedy Information, began its annual consulting rankings in the early 1980s. But the rein effectively came to an end on Monday, August 7, 2000.

On that day, an arbitration report was issued allowing the then almost $10 billion Andersen Consulting (now known as Accenture) to walk away from its parent company in exchange for merely giving up the Andersen brand and releasing the approximately $1 billion in funds it had already put aside in escrow as part of the firm's annual profit sharing agreement.

Cover January/February 2004 The arbitrator's decision was not what Arthur Andersen partners had expected. Arthur Andersen had asked for $14.6 billion, which would have amounted to a payday of about $7.7 million, on average, for each of the firm's 1,900 equity partners. Instead, the roughly $1 billion payout netted the average partner less than $600,000.

Average annual partner compensation dropped by approximately $100,000 the following year, Kennedy estimated. Arthur Andersen partners interviewed at the time used words like "devastated" and "angered" to describe the firm's mood. Arthur Andersen's CEO Jim Wadia resigned within hours of the arbitrator's announcement.

While such disappointment would have been difficult for a firm's culture to absorb at any time, 2000 was a particularly bad moment for such a body blow. Many of Arthur Andersen's biggest competitors were selling large pieces of their consulting businesses for huge sums of money. Just months earlier, Cisco Systems had paid KPMG $1 billion for a 20 percent stake in what was to become BearingPoint.

And Cap Gemini had just paid $11.1 billion for most of Ernst & Young's consulting business. Instead of the 2.7 to 2.8 times revenue multiple other firms were receiving, Andersen Consulting walked away paying just 0.1 times revenue.

So, while many of the other Big Five firms had cash to re-invest in their remaining business, Arthur Andersen entered the coming downturn in poor shape. But as it would turn out, the consulting slump of late 2001 through 2003 would be the least of its problems.

In late 2001, extensive and systemic accounting fraud was unearthed at one of Arthur Andersen's largest audit clients, Enron. By mid-2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to its audit of the energy giant. In August 2002, the firm surrendered its CPA license, ending its right to audit US public companies. The firm's reputation had been so badly damaged by scandal that the non-US practices also went out of business.

Although the conviction was unanimously overturned in 2005 by the US Supreme Court (due to what it deemed to be a material flaw in the jury instructions), the firm was already dismantled. In 2002, what was then-KPMG Consulting acquired significant pieces of the firm, as did Deloitte (especially its European operations), and Hitachi Consulting.

ENRON In addition, the redistribution of thousands of staff continues to be felt across the consulting landscape. Nearly 1,400 of Andersen's consulting staff went to KPMG Consulting. A few hundred Andersen consultants from the Chicago office formed what is now known as Huron Consulting Group. The metals division of Andersen's Pittsburgh office joined Perot System, which itself was recently acquired by Dell. The senior-most ranks at firms like Protiviti, Navigant, Hitachi and True Partners also can be traced back to Andersen's implosion.

Accenture's Success

The other firm that owes much of its current success to Andersen's demise is Accenture. If Andersen Consulting CEO George Shaheen had not been successful in convincing his colleagues to push for separation when he did; or, if the arbitration process has been dragged out longer, Andersen Consulting's fate could be very different today.

At the end of its last fiscal year as part of the combined Andersen Worldwide, the firm then known as Andersen Consulting generated $9.8 billion. Since then, the firm has more than doubled in size, to $21.6 billion and 47,000 consultants.

In September, Consulting ranked Accenture as the profession's best multi-service firm to work for. The firm has maintained its training and development budget in 2009 and has taken steps to encourage flexibility—especially by making it easier for consultants to work from home. In 2010, the firm plans to invest $900 million in training, which equates to more than 13 million hours of training for its 47,000 consultants.

The Andersen Effect

One of the positives that came out of the breakup of Arthur Andersen was the impact its ex-employees have had on the profession. Many ex-Andersen employees are now running consulting firms and enjoying great success—and they never miss a chance to tell you how much they loved working at Arthur Andersen. We rounded up several and asked one very simple question: What did you learn in your time at Arthur Andersen?

Phil Parr, CEO, Hitachi ConsultingPhil Parr, CEO,
Hitachi Consulting
"My time at Andersen taught me the importance of surrounding myself with the best people possible. It was ingrained in us from the beginning that it is critical to attract and retain the best people. The reason is, at Andersen, it wasn't about the individual; it was about the team you were on and what that team could accomplish working together for our clients. We were all very proud to be part of the firm. These early lessons shaped how I work today, and the kind of environment that I try to emulate and recreate at Hitachi Consulting."

Dan Reardon, President and CEO, North HighlandDan Reardon, President
and CEO, North highland
"I learned that in this profession, there is right and wrong. You always know what the right thing to do is and it is almost always the hardest thing to do. Over the years, I have always kept that in mind. Employees and clients like to work with someone they can trust."

Gail Steinel, Owner, Executive AdvisorsGail Steinel, Owner,
Executive Advisors
"I learned how great businesses are built and destroyed. It all comes down to leadership and the resultant organizational culture. Andersen was built on a few core concepts: clients come first; think straight/talk straight; train and develop people; stewardship; one-firm concept; and, entrepreneurial spirit. I am proud to have been a partner at Arthur Andersen. The business was destroyed by external factors, but we also have to accept our own responsibility. Top leaders, distracted by the internal fight with Andersen Consulting, stopped reinforcing the culture and values. Myself and the other partners should have demanded their leadership."

Cary McMillan, CEO, True Partners ConsultingCary McMillan, CEO,
True Partners Consulting
 "We lived by several values and the best ones resonated deeply; I've carried them throughout my career and continue to integrate them today into my firm, True Partners Consulting. The first is: 'Think straight, talk straight.' We counseled clients honestly about things that while in their best interest, they didn't want to hear, which I found to be unique. The second is: 'Invest in future generations.' To me, this is about building something for the future and providing more than existed when you arrived." The third is: 'Grow organically.' "

Dean Fischer, President, CEO, West Monroe PartnersDean Fischer, President, CEO
West Monroe Partners
"I could write volumes about lessons learned during my 23 years at Arthur Andersen, but none were more significant than the importance—and power—of culture. At its very best, Arthur Andersen's key strength was its distinctive culture—one shaped by well-defined and strongly held core values. Andersen invested in and developed young people, recognizing that the organization was only as strong as its future. Despite the highly publicized actions of a few, we were schooled in and served clients with absolute integrity. I feel fortunate to have been a 'student' of this environment and have brought it to West Monroe Partners."

Karen Wilson, Director, PricewaterhouseCoopersKaren Wilson, Director,
PricewaterhouseCoopers
"The mantra at Andersen was quality. It was instilled in us—standards could not be too high. Anything with the firm's name on it had to be perfect. The term "good enough" was not part of our lexicon. I realize that still, when every time I review a product from our team at my current job, I'm running through the Andersen quality checklist in my mind… Does it address the client's pain? If we weren't truly invested in solving the client's problems, that would show. It seems trite to say that we were taught to care, but, in a way, we were… That, to me, is the legacy of Arthur Andersen."

Mark Hargis, Managing Director, The Claro GroupMark Hargis, Managing
Director, The Claro Group
"I spent 20 years as an employee and partner at Andersen. Needless to say, I learned a great many things. At Claro, we have tried to adopt and improve on the good things we learned at Andersen. We have a belief: take care of our clients' interests and take care of our people's interests and everything else takes care of itself. This belief drives the quality of our services we deliver to our clients and the commitment to stewardship for our people."

Steve Sestak, CEO, Marketshere ConsultingSteve Sestak, CEO,
MarketSphere Consulting
"The investment that Andersen made in its people was unparalleled and contributed to its strong culture and loyalty. Regardless of which market or practice you worked in, there was an Andersen way of doing things. Core behaviors around leadership, client service and quality were taught by emulating more senior people. Becoming a partner was a journey, not an event. What I learned at Andersen was that good people, with the right tools, training, culture and motivation, can do amazing things."

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