Anderson vs Anderson Organizational Dispute Essay

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In a business, the most important is- how it is managed or taking correct administrating decisions in different situations at the correct time. The managerial skill of a manager helps him to deal with problems in different situations. “In today’s environment, managers are under increasing pressure to address organisational issues and manage organisational change.” (Designing organisation to create value,

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James A. Brickley, McGraw-Hill Professional, 2002, page no ix). The case Andersen Vs. Andersen is one of the business situations dealing with the dispute between the holding company and sister concern.

The firm Arthur Andersen was founded in 1913 by and Clarence DeLany. The firm changed its name to Arthur Andersen & Co. in 1918.

Andersen Worldwide is a company with many accounting firms and a consulting firm.

By the 1980s, accountancy firms struggled to balance their commitment to audit independence against the desire to grow their consultancy practices. Having established a reputation for IT consultancy in the 1980s, Andersen was no exception. The firm rapidly expanded its consultancy practice to the point where the bulk of its revenues were derived from such engagements. At the same time, audit partners were continually encouraged to seek out opportunities for consulting fees from existing audit clients.

The two businesses spent most of the 1990s in a bitter dispute. Andersen Consulting saw a huge surge in profits during the decade. However, the consultants continued to resent transfer payments they were required to make to Arthur Andersen. As a result, the consultants at Andersen Consulting felt they were being underpaid for the work they were doing. So, Andersen Consulting, with 65,000 employees, decides to get separate from its parent company, which now consists entirely of Arthur Andersen, a tax and auditing firm with 77,000 employees. In 2000 an international arbitrator granted Andersen Consulting its independence.

A bitter court battle ensued as Arthur Andersen insisted that Andersen Consulting must pay billions of dollars to leave the umbrella organization, Andersen Worldwide. As a result, in 2001, Andersen Consulting was forced to change its name to Accenture. Accenture agreed to pay $1.2 billion in past payments to the Arthur Andersen firm. The decision was seen as a big victory for Andersen Consulting.

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Guillermo Gamba, who was an international arbitrator, split up the accounting firm Arthur Andersen and its sister consulting firm, Andersen Consulting, ending a nasty battle that goes back nearly a decade. Colombian arbitrator Guillermo Gamba placed the blame for the breakup on the parent company of the two firms, Andersen Worldwide. He said the Andersen Worldwide Co. had not lived up to its obligations to run the organization. He charted the middle ground between the two warring companies and allowed them to break up as two different companies. The decision was already anticipated. The Andersen consulting firm was forced to change the name and was required to pay about $1 billion to the partners at Arthur Andersen. The arbitrator also ruled that Andersen Consulting must give back any technology jointly held by the firms. But the Andersen consultancy avoided the shocking payment of $14 billion as per the company’s contract between the two firms. An effort was made by the Andersen consultancy with the arbitrator to break up Arthur Andersen and Andersen Worldwide. Andersen Worldwide is considered the holding company of both the warring parties. But after some time the Arthur Andersen started a new consulting company competing with the Andersen consultancy. Meanwhile, the Andersen consultancy was paying millions of dollars to Arthur Andersen under the corporate arrangement. Fed up with the situation, Andersen Consulting filed for arbitration and moved for a breakup without the payment. That was a victory for the firm Andersen consultancy.

“But none of the partners on either side wanted to give up their claims on the firm’s earnings. So they set up an arrangement under which the more profitable firm paid the lesser profitable one a portion of its revenue, capped at 15% of its total revenue. But the payments, which have totaled nearly $1 billion since 1989, have nearly all gone one way, from the consultants to the accountants.”

Another part of the deal was the boundary between the two businesses. Andersen Consultancy was supposed to focus on bigger firms, whereas Arthur Andersen was allowed to consult the small firm jobs that mean a firm with less than $175 million in annual revenue. But there also Arthur Andersen violated the contract and encroached on the business of Andersen consultancy. As a result, in later years, according to the partners voting, the two firms were left connected in name only. In 2001, Andersen consultancy changed its name to Accenture.

If I were the managing partner of Andersen Worldwide in the early 1990s, I would have tried to solve the problem in starting itself when the consultants of Andersen consultancy were dissatisfied. The company’s strategy was to divide the two firms under the holding company Anderson Worldwide. I also agree with the division but with that redesigning of companies activity. The company’s financial activities would have been restructured in such a way that the liability of one company is not pushed to another company. In the meanwhile, the help of sister concern has taken. In my opinion, it will realize the weak company their position and make them work better, and Andersen consultancy will expect the liability will be paid. By this, Andersen Worldwide has earned the profit of both the companies. It has enjoyed the consultancy business and accounting business without splitting and without losing any clients of Consultancy Company.

As Guillermo Gamba, I would also have divided the business of Arthur Andersen and Andersen consultancy into two different companies and made Andersen Worldwide the holding company of both the companies. But I would have also ordered to restructure financial and administrative works of both the companies. The decisions taken should be increasing the value of the firm. Many problems in the business can be solved by redesigning the activities of the firm. Designing the firm should be in such a way that it should maximize the shareholders’ profit and interest. This would have increased the value of the company and stopped the dispute. The problem behind continuing the dispute was because the boundaries and penalties of both the companies were not fixed and not made in a rigid contract. The changes should have reflected the whole structure. But as Guillermo Gamba, my attitude towards the dispute will also be to make a compromise towards the end.

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IvyPanda. 2021. "Anderson vs Anderson Organizational Dispute." October 26, 2021. https://ivypanda.com/essays/anderson-vs-anderson-organizational-dispute/.

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