Ex-Andersen Boss Was 'sacrificial Lamb'

The resignation yesterday of Joseph Berardino, the chief executive of international accounting giant Andersen, was by his own admission an attempt to save the company by offering up a sacrificial lamb for its document-shredding involvement in the Enron scandal.

However, analysts today were unconvinced that his gesture would convince justice department officials to cancel the criminal charges facing the company after employees shred thousands of Enron documents at its Houston offices.

Andersen has admitted that its employees destroyed documents sought by federal investigators after its former client, Houston-based energy company Enron, collapsed in December. The company argued that the employees were acting on their own, not following policy from headquarters.

In the immediate aftermath of the Enron scandal, the company sacked David Duncan, an Andersen partner based in its Houston offices who the company blamed for the shredding. His head did not satisfy the justice department.

In January Mr Berardino attempted to salvage the firm's reputation by issuing reassurances that the document shredding at Enron was a one-off, not company policy.

He said: "What was done was not in keeping with the values and heritage of this firm. It was wrong. There's no other word for it. But 85,000 people did not work on the Enron engagement. 85,000 people did not destroy documents. And 85,000 people did not encourage anyone to destroy those documents."

Mr Berardino, 52, only took over as CEO in January 2001, and he said yesterday that he hoped his resignation would allow former federal reserve chairman Paul Volcker to form an independent board to take the company forward.

However, Enron was not the only client that Andersen's auditing unit stands accused of protecting with dodgy accounting practices. Under Mr Berardino's two-year watch as head of Andersen's US audit practice, the company was forced to settle serious cases of alleged auditing irregularities.

One former client, Waste Management, has been under investigation for by the SEC for four years. In court documents filed yesterday, the securities and exchange commission (SEC) alleged that Waste Management executives inflated company earnings by $1.7bn, a move that cost shareholders $6bn when Wall Street discovered the truth and share prices plummeted.

The SEC sued Andersen last June, alleging it issued false and misleading audit reports that inflated Waste Management's earnings from 1993 to 1996. Andersen agreed to pay a $7m civil fine to settle the suit, without admitting to or denying the allegations.

With or without the criminal charges, the aura of sleaze has cost the company dear. Andersen has been haemorrhaging high profile clients since December: Federal Express, Delta Airlines, pharmaceuticals company Merck, and housing finance group Freddie Mac have all switched auditors, and a total of 70 clients have defected.

Andersen maintains this is a small percentage of its 100,000-strong worldwide client base, but the fear is that as the big names jump ship, others will follow.

The Wall Street Journal reported today that the company is pressing ahead with talks to sell the non-audit parts of the US business to rivals KPMG and Delloite and Touche. The paper reckons the deal could bring in between $1bn and $5bn.

As Mr Berardino noted, in the end the company has a duty of care to the thousands of employees who had nothing to do with Enron or any other auditing irregularity. The justice department does not. There is the off chance that his resignation can stave off damaging criminal prosecution, and he owed it to those employees to try.