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Arthur Andersen may fire 7,000 workers

Proletarian pink slips * Andersen is expected to fire as many as 7,000 workers, or up to 25 percent of its 28,000 employees in the US and Canada. * The firm's 1,750 partners won't be affected.

Desperately trying to reshape itself, Arthur Andersen is preparing to shed as many as 7,000 employees through layoffs and thousands more through a deal announced on Thursday with the rival accounting firm Deloitte & Touche.

Deloitte would acquire the bulk of Andersen's tax business, which employs several thousand people, including about 600 partners. The terms of the transaction were not disclosed.

The sale, which Andersen said could be completed by the end of the month, is a bitter victory for the firm. It is struggling to rid itself of business lines unrelated to its audit practice without passing on liability for its role in the collapse of the Enron Corp, whose false financial statements it approved. The speediness of the announcement is a sign of the pressure on Andersen to save itself as it battles a criminal indictment, Enron shareholder lawsuits and client flight.

"This transaction is fully consistent with our commitment to move quickly on the Andersen reforms initiated by Volcker," said Larry Gorrell, Andersen's managing partner, referring to the overhaul proposed by Paul Volcker, the former Federal Reserve chairman, who heads an oversight board with broad powers.

"While our firm will retain appropriate tax expertise in a manner consistent with these reforms, Deloitte will provide a significant number of our people with continuing career opportunities and our clients with continued quality service," Gorrell said in a statement.

The announcement came after Andersen held its second videoconference call with all its partners in a week. Senior partners said they and their colleagues were in what one of them called a "community of pain."

One partner who had taken part in the call said on Thursday, Andersen could announce the layoffs of as many as 7,000 employees, or up to 25 percent of its 28,000 employees in the US and Canada. Layoffs would probably affect lower-level staff members first, rather than the firm's 1,750 partners, said another person on the call. A shakeup of Andersen's management is also imminent, said a person involved in the overhaul. A partner responsible for restructuring was named last week, but the firm plans to appoint other partners to take responsibility for other issues confronting it, like the lawsuits.

During the telephone conference, managers covered the firm's finances, explaining that with its clients switching auditors and its overseas affiliates bolting, Andersen is running low on cash even as its legal bills mount. The lack of cash will make settling the Enron shareholder lawsuits and another lawsuit in Arizona even more complicated. The sale of the tax business to Deloitte will bring in some needed money.

But the biggest obstacle to Andersen's survival remains the criminal charge filed by the Justice Department. Despite rumors of conversations between the firm and prosecutors, both sides say there has been little progress. Volcker has not talked to the Justice Department and has not been authorized to speak on Andersen's behalf, say people close to him.

Having failed to sell its foreign operations as a group, Andersen Worldwide, the network of accounting partnerships including Arthur Andersen in the US resigned itself on Thursday to a more piecemeal approach.

Andersen Worldwide announced on Thursday that Aldo Cardoso would serve as its interim chief executive. Cardoso, who will simultaneously continue to serve as chairman of Andersen Worldwide's board of partners, will succeed Joseph Berardino, who announced last week that he would step down.

Cardoso's job will focus on directing "an orderly process by which the individual member firms of Andersen Worldwide can pursue transactions that provide the best opportunities for their partners, employees and clients," according to a statement by the firm. Over the last few weeks, Andersen Worldwide's partnerships in other countries have been rushing to distance themselves from their U.S. affiliate, severing their ties to the worldwide network and announcing plans to join other big accounting firms.

But at a meeting of managing partners of Andersen Worldwide member firms on Thursday in London, several agreed to try to pursue deals in regional groups rather than partnership by partnership, said one person close to the discussions at the meeting.

"Some may go to E & Y, some may go to PWC," this person said, referring to Ernst & Young and PricewaterhouseCoopers, two other Big Five accounting firms. "They're going to work through the network."
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