Historical Background: The CPA firm of Anderson, DeLany & Company was founded in 1913. Eventually, this company began to offer consulting services in addition to its traditional accounting services. By 1984, the consulting business was more profitable on a per-partner basis than the traditional accounting business. By 1987, consulting had growth to represent more than 36 percent of worldwide revenues for Andersen and Company. As their contributions to the company increased, Anderson's consultants began to become more vocal in their complaints and to demand more control over the company and over the direction of their business operations.
The Andersen consultants continued to complain about their employer, its business practices and the lack of influence that they had over their futures with Andersen and Company. In response, in 1989 the partners of Andersen & Company agreed to create two independent business units û one for consulting and the other in traditional accounting services under the umbrella of a new parent company, Andersen Worldwide (AW).
The consulting group received a separate identity as Andersen Consulting. Andersen Consulting reported $1.5 billion in revenues in its first year. In 1995, Andersen Consulting's revenues exceeded Andersen Accounting's revenues for the first time ever. By 1998, Andersen Consulting revenues exceeded Andersen Accounting by almost 40 percent. By 1998, Andersen was looking for an arbitrator to decide a case in which Andersen Consulting applied to sever its ties with Andersen Worldwide û its parent company claiming breach of contract.
The Current Situation: Andersen Consulting (AC) alleged in its complaint against Andersen Accounting (AA) that AA had breached an existing agreement not to compete with AC for consulting business. Andersen Worldwide's position is that if AC wanted to sever its ties, it would be required to pay $10 billion to AW as was stipulated in the partnership ...