Check the Math, Please

Check the Math, Please Andersen Valley Partner Tony Radaich says indictment doesn’t add up. By SHELLY GARCIA Senior Reporter Employees at Arthur Andersen LLP’s Woodland Hills office wear orange ribbons on their lapels. Orange is the color of the company’s corporate logo. But the employees are seeing red. So is Anthony E. Radaich, one of five partners at the local office. Radaich, along with Gil Green, opened the Woodland Hills office of Andersen in 1983 with two other staffers and built it to its current stature: a practice with more than 70 employees and about 100 clients, ranging in size from small, non-income producing startups to $800 million corporations. Radaich himself has invested 33 years in Anderson. He has been a partner for more than 20 years. He said most of the Woodland Hills staff never even heard of Enron Corp., let alone had any business dealings with the Houston-based firm, which has collapsed amidst charges of impropriety. None of that, he said, matters to the Department of Justice, which in March handed down an indictment charging Andersen, auditors for Enron out of its Houston office, with obstruction of justice for shredding documents related to the misstatement of income and other practices at the energy company. Radaich said that so far, his office has not lost any clients. But since Andersen came forward to say it was investigating the shredding of documents, it has lost more than 60 clients from its other U.S. offices, including Standard & Poor’s bellwethers like Calpine Corp., one of the largest builders of power plants, and homebuilder Centex Corp. Even if the Woodland Hills clients don’t bolt, the partners would share liability arising from lawsuits brought by Enron shareholders in the wake of the company’s collapse. If successful, those lawsuits could wipe out the capital accounts of all Andersen’s partners, whether or not they had dealings with Enron, a cache that ranges from several hundred thousand dollars to $4 million for each partner, depending on the length of time he or she has been with the company and the revenue brought in. This interview took place on March 26, the day before Andersen CEO Joseph F. Berardino resigned. Radaich said he was committed to keeping the company together as were most of the partners, although numerous reports have indicated a segment of Andersen’s partners are actively seeking to sell off pieces of the business both in the U.S. and abroad. Question: Along with many in the Andersen organization, you have been campaigning to make it clear that you are not involved with Enron and should not be punished for what may have been the misdeeds of a few. How much can you really isolate yourself from the corporation, especially when it has always touted its national and international network, implying a close connection between offices? Answer: We’re all part of Arthur Andersen so, unfortunately and especially because of the indictment, we’re all being painted with the same brush. Not one person in this office had anything to do with Enron, and I would bet the vast majority of them never even heard of Enron before all this happened. It is no different than indicting the whole Catholic Church because some priest misbehaved or all of Congress because a congressman did something illegal. Q: Have any documents been shredded here? A: No. Q: Some would argue that there is reason to indict the entire organization because there’s no way to tell whether the situation in Houston is an isolated instance or part of a corporate culture that allows this to happen. A: I disagree. This firm has been around 89 years. It’s built on integrity. Shredding documents is not something that is part of our culture. Right away, when we discovered this had happened, our chairman put out an announcement that this had been discovered and we were dealing with it. We volunteered that information, which I think is an indication that it’s not a pervasive issue. We voluntarily went to Congress and we’re the only ones who really testified and, as a result of that, we took all the heat too. Q: Where does that investigation stand? A: We did do a big internal investigation. That was not released because we were working with the Justice Department and did not want to release our report until there was some agreement reached related to the Justice Department. Q: Haven’t clients wanted to know what the investigation showed? A: The clients didn’t ask. It was more of a, it was an unfortunate thing that happened to you folks. More of a concern of, are we losing people because of this? Are we going to survive? Those types of questions. Q: If it were me, and I were running a company and you were my auditors or my financial advisors, I think the first thing I would ask you is, what have you done to make sure your shop is clean? A: These people are people that know us, they know that we’re not dishonest people. Q: Do you think the clients in Houston thought the Andersen people there were scumbuckets before this broke? A: I hope not. Probably not. Q: And you’re not surprised that your clients were willing to take you at your word? A: Again, they know us and they know that integrity is important to us. They’ve worked with us and know that we’re not dishonest people. That’s not a concern that any of our clients have here. Q: What kinds of questions have clients had? A: Prior to (the indictment) the questions they asked were, did any people on our engagement work on Enron? Have you lost any people on the engagement? Did your office have any involvement in Enron? Continuity was a big concern. Are our people bailing out on us? Q: How are you communicating with clients since the indictment? A: Right now we’re in our busiest time. All the companies with December year-ends are filing their 10Ks, so we’re in constant contact with everybody. We’re keeping them informed of what’s happening on a day-to-day basis. Q: What has their reaction been? A: A lot of our clients have said we’re sticking with you, but we are going to monitor the situation. On the whole in this particular area, they have been incredibly supportive. Just about every one of them has received calls from our competitors at the same time. Q: Do you think the reason clients here have been so supportive is because we in the Valley tend to feel isolated from the larger world and often don’t feel the same impact from some of these remote events? A: The bigger the company generally, the more outside pressure is put on them. A local company that’s not public, most of them don’t have a concern. But in the larger companies, the broader (areas of) coverage, they tend to get more concerned. It’s also stressful and difficult to change auditors. There’s a tremendous amount of knowledge and information that’s institutionalized over the years as you work with a company, and they would like to avoid that hassle if possible also. Q: Is the majority of your client base private? A: It’s probably about 50-50 from a revenue standpoint. We have more private businesses, but half the revenue is from public companies. Q: Are you anticipating having to do more explaining at shareholder meetings that will be coming up later this spring? A: Yes, I’m sure. They’re asking for information and updates. In fact, some of the proposals that are in proxies that I have seen in draft stage are a motion to approve Arthur Andersen with some type of monitoring procedures, that officers of the company have the authority to make a change if something were to change at Arthur Andersen. Q: Andersen has engaged Paul Volker to seek a resolution that might avoid a trial. Do you think Andersen would be better served if this issue were to go to trial or if Volker were able to effect some sort of reorganization plan that were agreeable to the company and the Justice Department? A: You know, I don’t care. I think the biggest thing is time. The sooner the better. The trial is set for May. I have no idea how long those things take. If it takes years, that’s no good. Whatever resolves it the quickest is most important. There’s so much uncertainty among our employees and our clients, that’s the big issue. Q: What do you say to the argument that the whole way fees are structured in your industry auditing versus consulting fees raises the specter that something like what happened in Houston can happen? A: First off, no client is large enough or significant enough to make a difference. The Enron fees were a minute percentage of our fees. If Enron was to walk away, it would not make a difference to us. We’re a $9 billion company, and I think the total fees there were $50 million-plus. Q: Isn’t that a significant amount to the Houston office? A: We share everything worldwide. My income comes from the worldwide income divided by the number of partners. It’s not the Woodland Hills income or the Houston income, so every partner has an interest in every client around the firm, that they be well-served and properly served. Q: So why would the folks in Houston be driven to do what they did? A: I don’t know. And actually we don’t know what they did. Nobody has come out with all the facts. This thing isn’t done, which is another injustice. We are tried, convicted and punished without all the facts out or a fair trial. Q: Could you go out and try and make a deal like those in the overseas offices are trying to make to fold their practices into other firms? A: I don’t know. There’s incredibly complex legal agreements in place, and I couldn’t begin to tell you the answer. And I know some of the brightest legal minds in the world are looking at that right now. Our retired partners have objected to any pieces of the firm going anyplace. Retired partners have amounts they’re going to lose. They left some of their capital in the firm, and that is now at risk. So they have more to lose than actually some of the active partners. My understanding is they’re thinking about or have hired attorneys to help them. Q: Doesn’t it make sense to look for ways to minimize your risks by exploring mergers or other ways to reorganize your piece of the practice? What is motivating you to assume such risk? A: I’m sure that some people around the firm are probably at least investigating what their other options are. (For me,) it’s 33 years. And this crisis we’re in has made me realize I have not done this for the money, that it is these people here that I work with everyday, these wonderful people. It’s the clients I serve. I love this job. If I have to make less money, that’s fine. Q: When did you first hear about the Enron situation? A: The first word I heard was a voice mail saying there was a restatement of earnings, and that we had some of our legal guys looking at it and they’d keep us updated. Then later on, we got the note from Joe Berardino saying there’d been some shredding and we were investigating it and so forth. Since then, it’s kind of been a steady down of no good news leading up to this indictment on March 14. This has all occurred within three months. Q: How much can you do to try to ease the fears of employees? A: They know their job depends on keeping the client, so they are doing everything they can to keep the clients, which means giving them outstanding and responsive service. Q: Is there some feeling that whether these clients stay may have nothing to do with how good they service them? A: Yes. And there’s a tremendous amount of concern out here of, will I still have a job? And you know the next month and a half will be very important to the people that are out here. It’s kind of a frustrating thing for all of us. We’re here. We’ve done a really good job, served our clients well, and in the final analysis that might not mean too much.