Andersen may struggle to keep its act together

A consultancy spin-off has been rejected but the issue is unlikely to go away, writes Roger Trapp

The overwhelming decision by the more than 2,700 partners in the Andersen Worldwide Organisation to keep the professional services firm together brings to an end well over a year of management-distracting discussions. But it is unlikely that this week's rejection - by a 93 per cent vote - of a spinning-off of the highly successful consultancy practice will bury the issue entirely.

In recent days, the Chicago-based firm has been at pains to point out that the time-consuming meetings had enabled senior people, in the words of one insider, to "become much more knowledgeable about the business and much more understanding about how they work". Entrenched positions along the lines of "bean-counters" lacking creativity while management consultants "just plough in" had been replaced by more measured views.

And although it has been suggested that any rows had been "along the boundaries and the margins", there have been widely expressed tensions over matters like the level of subsidy paid by Andersen Consulting to the main accounting and business services operation known as Arthur Andersen, and encroachments on Andersen Consulting's perceived territory by its sister division's developing consultancy operation.

As the statement issued yesterday indicated, such issues will occupy the management team that will take over in August, following the retirement of Larry Weinbach as chief executive.

Much has been made as the negotiating process has continued of the irony of a firm of business advisers seemingly unable to make up its mind over its future direction. The Andersen 21 group of senior partners charged with considering the matter even missed their original target date for drawing up a plan, with Jim Wadia, UK managing partner, attributing the slip to the complexity of dealing with the first restructuring at the firm since the split into two business units in 1989.

But at least Andersen has followed the traditional management consultant's dictum that it is better to plan for the future when you are doing well rather than wait until a crisis. Both sides of the business have seen strong growth in recent years - even when rivals were struggling during the recession of the early 1990s.

The combined organisation - which includes law firms world-wide - employs more than 100,000 and is expected to net revenues of more than $11bn (pounds 6.8bn) in the current year.

The accountancy firm has grown faster than its Big Six rivals, moving up to second position in the UK rankings, partly due to the acquisition of the second-tier firm Binder Hamlyn.

But the spectacular growth has been in the consulting arm, which - unlike most big six management consulting firms - is more of an information technology systems provider than a general business adviser or even strategy house like McKinsey & Co or Bain.

As a partnership, it is not required to publish detailed financial information, but in March, the consulting practice, which claims that more than half of the Fortune Global 500 companies are clients, reported a 26 per cent rise in net revenues, to $5.3bn. The growing trend for outsourcing of IT operations has been an especially important driver of this rise in fees.

The increasing popularity of outsourcing is also boosting the accounting business, though. Yesterday, the UK firm announced that the supermarket group Asda had awarded it one of the largest internal audit contracts in the UK.

World-wide, this sort of business is worth about $200m. to the firm and employs 1,000 professional staff.