A Final Accounting

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A FINAL ACCOUNTING

The fall of Andersen

In its drive to boost profits, the Chicago auditing legend diluted its lofty standards,rewarding partners who generated hefty consulting fees and forcing out its blunt

bookkeepers.

CHICAGO TRIBUNE

September 1, 2002

First of four parts This series was reported by Delroy Alexander, Greg Burns, Robert Manor, Flynn

McRoberts and E.A. Torriero. It was written by McRoberts.

Trading his customary dark suit for a pair of jeans, Mike Gagel trudged over pallet after pallet of multicolored

bricks in the central Ohio storage yard. The summer heat was stifling as he counted once, then twice.

Something was wrong.

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Arthur Andersen, the prestigious Chicago accounting firm, had sent the eager young auditor for a routine task:

to certify the inventory of a million bricks baking in the sun near Marion. But each time Gagel counted the

pallets, he came up 100,000 bricks short.

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At first, the factory owner reacted angrily when Gagel confronted him with his findings. He grabbed the phone

and asked Gagel's boss why he had sent such a rookie.

The boss told Gagel to count the bricks again. On his third pass, Gagel once again counted 900,000 bricks; only

this time, the owner checked into the discrepancy. He discovered that a plant manager had been ripping him

off, secretly selling truckloads of bricks out of the back gate at night.

Gagel's brickyard math is a classic example of the vigilance that made the name Arthur Andersen the gold

standard of the accounting profession for decades. But the incident occurred in 1969, and it, like Andersen's

reputation, is history.

On Saturday, a firm that once stood for trust and accountability ended 90 years as an auditor of publicly traded

companies under a cloud of scandal and shame. Its felony conviction for obstructing a federal investigation intoEnron Corp., its now-notorious client, cost Andersen the heart of its practice. It will continue with a tiny

fraction of the 85,000 employees it spread across the globe just months ago.

Andersen's leaders have portrayed the firm as the innocent victim of overzealous prosecutors and a dishonest

client. But a close examination of Andersen's collapse reveals a very different story.

In the 1990s, the firm embarked on a path that valued hefty fees ahead of bluntly honest bookkeeping, eroding

Andersen's good name.

Andersen shunted aside accountants who failed to adapt to the firm's new direction. In their place, Andersen

promoted a slicker breed who could turn modestly profitable auditing assignments into consulting gold mines.

Repeatedly, Andersen rewarded those involved with the firm's most troubled clients, while guardians of the

company's legacy, like Gagel, were shown the door.

In an early-90s purge, the new leaders forced out roughly one of every 10 auditing partners and neutered

Andersen's elite corps of in-house ethics watchdogs, who for decades had been the firm's final word onaccounting matters large and small. These moves drew scant public attention, but the implications reached far

beyond Andersen's headquarters at 33 W. Monroe St.

The quiet dilution of standards and the rise of auditor-salesmen at Andersen are central to the scandals that

have cost investors billions of dollars, eliminated thousands of jobs and threatened the retirement security of

millions of citizens. Most of all, they have cast suspicion over the financial reports that Americans rely on to



judge the health of companies where they work and invest.

As the firm spiraled down during the past year, its leaders contended that conflicts between its auditing and

consulting missions had no impact on the quality of its work. And they said Enron should be viewed as an

aberration, not part of a disturbing pattern.

To determine how the firm fell so far, so fast, the Tribune reviewed volumes of Andersen internal documents,

sworn testimony and congressional hearings. Tribune reporters also interviewed scores of Andersen employees-

-from senior partners to secretaries--as well as federal investigators and industry insiders across a dozen states.

Contrary to Andersen's assertions, what emerges is a cautionary tale, the story of a firm that tried to mix the

public interest of an auditing mission with a mercenary consulting culture and botched the job. Even as many of

its partners and staff continued to uphold a high standard, others compromised in the interest of generatingfees.

"It came down to doing the job as quickly as possible and making the most money. They pushed the edge of the

envelope--pushed it too far," said Dean Christensen, who ran Andersen's Columbus, Ohio, office for more than

15 years. "I just think it got out of control. What it ended up being is greed. Total greed."

Andersen's remaining leadership disputed that the firm emphasized the selling of services over audit quality,

replacing partners who were strong auditors but didn't generate enough revenue.

"Not true," said Andersen spokesman Patrick Dorton, in a written response. "Work performance and

commitment to quality have always been an essential part of our evaluation. No one has ever been dismissed

because of their commitment to quality, but personnel have been dismissed for an inadequate commitment to

quality."

Neither Dorton nor any other current Andersen official would address what caused the fall of the firm, or

whether its own actions contributed to its collapse.

Andersen and other audit firms are supposed to be guardians of the public trust, functioning like the father

confessors of the financial world. They know the rules and how to enforce them, defining right and wrong for

the corporate flock. If an accounting firm puts its name on a financial statement, it certifies to the public that

the company is playing by the rules, and that the numbers conform to minimum standards of conduct.

Consultants, by contrast, are the corporate apostles of change. Few ever got rich advising clients to remain the



same. Instead, they battle the status quo, challenging the accepted ways of doing business and offering to fix the

problems they identify. At Andersen, that involved selling everything from computer systems to management

advice.

The two roles rarely mix well--a fact Arthur Andersen himself warned about as far back as the Great

Depression. "To preserve the integrity of the reports, the accountant must insist upon absolute independence of

judgment and action," he said in a lecture on ethics at Northwestern University's School of Commerce.

In practice, that meant Andersen sought to always put consulting at the service of auditing. In recent years,

however, that principle got turned on its head.

"The culture changed where the auditor was no longer the guy people respected in the '80s and '90s," former

Andersen Chief Executive Harvey Kapnick said in an interview last month, just days before his Aug. 16 death.

Kapnick left Andersen's top job in 1979 after he unsuccessfully sought to address government concerns about

conflicts of interest by splitting the audit and consulting practices. "If you were an auditor," he observed, "you

were relegated to second-class status. If you were a consultant, you were the top of the heap."

Andersen officials disagree. "Our audit practice, until recently, was the largest component of our business and a

critical part of the firm's business strategy and its profitability," said spokesman Dorton.

Through the 1990s, though, Andersen aggressively sold lucrative consulting services to those who relied on

them for audits in what turned out to be a profitable strategy. Andersen's top partners tripled their earnings in

the '90s, a feat that put them on a par with their Andersen consulting siblings, who had split into their own

division in 1989.

But the new strategy also planted the seeds of the firm's downfall. Suddenly, partners who faced accounting

dilemmas with clients had a lot more at stake when deciding whether to reject questionable practices uncovered

in audits.

The fallout from those decisions has unfolded in the headlines about shredded documents, restated earnings,

shady loans and financial sleight of hand at Enron, WorldCom Inc., and Waste Management Inc., all Andersen

clients beset by accounting scandals.

`Think straight, talk straight'



The story of Andersen--how it went from the self-righteous preacher of the profession to the auditor who

couldn't say no--started in 1913, when the son of Norwegian immigrants set up shop on West Monroe Street in

Chicago with his partner, Clarence DeLany.

Arthur Andersen's mother had schooled him in a Scandinavian axiom--"Think straight, talk straight"-- and he

believed a firm that didn't sugarcoat its opinions could earn the respect of clients.

At the time, the accounting profession was dominated by a few big houses with London roots. Andersen wanted

to set his firm apart by making money beyond routine bookkeeping. When he sat down to craft the

announcement of his firm's opening on Dec. 1, 1913, Andersen also promised to provide "the designing and

installing of new systems of financial and cost accounting and organization."

But he insisted that without integrity, the firm would never grow to rival the London behemoths.

Andersen set the tone on a day in 1914 when a railroad executive burst into his cramped reception area,

demanding that Andersen bless his corporate ledger. In a distant foreshadowing of WorldCom, the railroad

man had inflated his profits by failing to properly record day-to-day expenses.

What followed would be recited to thousands of the firm's trainees for decades to come: Andersen shot back

that there was not enough money in the city of Chicago to make him approve the bad bookkeeping.

The small firm lost its big client, but the railroad went bankrupt a few months later, vindicating Andersen and

establishing a reputation for independent thinking that would lead to decades of prosperity. Indeed, time and

again, Andersen accountants would take bold stands on arcane accounting issues that would anger clients while

making Andersen the auditor investors could trust.

No one exemplified the Andersen brand of stern independence more than Leonard Spacek, who succeeded

Arthur Andersen after the founder's death in 1947. The firebrand Spacek honed the firm's sense of itself as the

financial world's answer to the Marine Corps.

"Everyone should make it a habit to be busy all the time and avoid any appearance of being inactive or

unoccupied," he wrote to the Chicago office in 1954. "When walking in the halls, walk briskly."

Spacek's obsession was creating a firm that spoke with a single voice, and that vision had its own iconography:

the sturdy set of mahogany doors in Andersen's Chicago headquarters. To him, they represented

"confidentiality, privacy, security and orderliness." Soon, virtually every floor of every Andersen office featured



identical doors.

Spacek took his crusade to the tight fraternity of the accounting industry as well.

William Hall, an Andersen accountant who went on to become one of its top ethics watchdogs, remembers

learning that firsthand during a 1957 train ride with Spacek in a Chicago-to-Milwaukee parlor car.

"I've got here a blockbuster that I'm going to be delivering tonight," he told Hall, waving a sheaf of papers in the

air and sitting down next to the young audit manager. Spacek let him read the speech he would soon deliver to

his accounting industry peers, and Hall was impressed by its challenging tone.

Two decades after the Depression ushered in the nation's first modern-day accounting rules, standards had

become "a fairyland" for investors, Spacek told the group of corporate controllers gathered in Milwaukee onthat winter evening. The railroad industry's bookkeeping was "so bad," and its influence over the debate so

pervasive, that no honest principles could be established, he charged.

Peering at the crowd through his thick, horn-rimmed glasses, he asked, "Is our profession so impressed with its

ivory tower position in the public mind that we are not hearing these basic criticisms of our work?" Spacek went

on to propose an accounting court that would decide once and for all the fair and accurate method for

crunching the numbers.

Spacek's tirade had broken the rules of his clubby profession, and leaders of the other major firms decided to

pay him back. First, they tried throwing him off a key oversight panel that he had accused of kowtowing to

clients. Failing that, they tried unsuccessfully to pull his license for "making comments derogatory to the

profession."

By the time he moved from managing partner to chairman in 1963, Andersen was a global enterprise with such

heavyweight clients as Walgreens and United Airlines, Occidental Petroleum and Colgate-Palmolive. It had 27

foreign offices and thousands of staffers, up from 300 when Spacek joined the firm in 1928. His

uncompromising reputation attracted clients who believed rigorous auditing would pay off in the long run.

Gagel was among hundreds of bright college graduates the fast-growing firm was recruiting each year. He went

through basic training in 1969, staying at the Allerton Hotel on North Michigan Avenue for three weeks to have

the Andersen way drilled into him.

At the time, the firm's training guru was a tall, distinguished-looking Texan named Carl Bohne Jr. Partners



from Andersen's various field offices ran the training sessions, but Bohne kept a hammerlock on what they

passed on to new employees: Each of the presentations had to be rehearsed in front of him.

No detail was left untouched in the effort to standardize how work was done from office to office and country to

country. How to do an audit. How to document it. Even what notations had to be used on the final audit

reports.

The philosophy behind the minutiae was equally consistent. "What you were selling was your opinion," Gagel

said. "And if you ever cheapened it or if you gave it away, you lost your birthright as a professional."

Gagel donned the corporate uniform. By the late 1960s, employees no longer had to wear felt hats in winter and

straw hats in summer, but conservative suits and white shirts still were expected.

Anyone who didn't hew to that look stuck out. Christensen, Gagel's boss in Columbus, was dubbed Prince

Valiant because he sported long sideburns in the 1970s. But like all other Andersen partners, Christensen

conformed to the firm's obsessive push to speak with a unified voice.

The keepers of that common culture were a small group of Andersen's most experienced and technically astute

partners, which eventually became known as the Professional Standards Group. These ethical sticklers defined

Andersen's positions on hundreds of complicated accounting issues, from leasing transactions to depreciation

rules.

By the time Gagel joined the firm, the group was headed by George Catlett, whose office was never more than

50 feet away from the head of the firm. At lunchtime, the group's handpicked partners often would assemble at

their regular table in the Midday Club atop the First National Bank Building in Chicago's Loop.

They would dig into the usual club sandwiches and iced tea as they steered Andersen through a minefield of

laws, regulations and ethical issues. They made no secret of their high opinions of themselves, but they backed

up their self-importance with the clout befitting those who wrote the rules.

`Who made you God?'

In the late 1970s, companies were snapping up the latest in computer hardware--IBM 360 mainframes. Many

were deducting the cost of the machines over a 10-year period.

Then Andersen decided that those computers were obsolete after only five years, so companies would need to



spread the cost over the shorter term, which cut into profits. Any company assuming their 360s had an

unrealistically long life would get an "adverse" opinion--a red flag to alert investors to potential problems.

Andersen's competitors couldn't believe it. Touche Ross, a rival auditor, had a number of clients with 360s who

were writing them off over the longer period. So when word of Andersen's unilateral decision reached them,

Touche Ross partners looked at each other and said, "Now what do we do?" recalled Bob Sack, a former partner

at Touche Ross who later became chief accounting officer for the SEC's enforcement division.

"They did it without talking to anybody, by themselves," said Sack, now an instructor at the University of

Virginia's Darden School of Business. "Andersen effectively set the standard for everyone else to follow.

"In my heart of hearts, I admired them for doing it, because you knew when they went to a client and made that

statement, they'd say, `Who made you God?' Well, Spacek did."

About the same time, a similar spat erupted when the banking industry sought accounting relief from bad

loans, arguing that their books needn't take a hit when troubled debtors stopped paying interest.

Art Wyatt, an accounting-principles expert at Andersen, testified to the absurdity of that idea at a tense session

of the Financial Accounting Standards Board, the industry's private rule-setting agency. Afterward, an ex-

partner from a rival firm stopped him and asked if he realized that Andersen's banking clients surely would

dump Andersen.

"We reach our conclusions," Wyatt told him, "and this is our testimony." In the end, no clients fled, and the

accounting world years later adopted Andersen's standard on bank loans.

Andersen, in those days, also would walk away from clients based on risk--a policy rooted in a lawsuit filed by

angry investors of a former Andersen client. The suit had threatened to wipe out about $80 million, a year's

worth of profits.

The firm eventually settled out of court for an undisclosed sum. But that experience in the 1980s--with an oil-and-gas investment venture, Fund of Funds, which had failed back in 1969--persuaded Andersen to take a fresh

look at auditing fast-growing businesses.

It began ranking clients according to a complex formula that determined their potential to go bankrupt. Soon,

Andersen was shedding those it decided were too likely to drag it into court.



When the savings and loan crisis started unfolding in the 1980s, Andersen partner Bob Kralovetz recognized

that "an accident was going to happen."

As head of the thrift practice for Andersen, based in Dallas, Kralovetz watched nervously as real estate prices

spiraled upward. He spotted the inherent risk in a bubble that would decimate the institutions' loan portfolios

once it burst.

Without hesitation, Kralovetz recalled, the firm's leaders decided to drop some of its hottest clients. One was

Lincoln Savings & Loan, run by Charles Keating, who was furious about the auditor's decision.

Keating's Lincoln thrift provided roughly 20 percent of the revenues at Andersen's Phoenix office. He first

turned to Arthur Young, and later Touche Ross, which bid aggressively for the business Andersen had dumped.

Three years after Andersen ditched Keating in 1986, the thrift collapsed, along with much of the S&L industry,

as Andersen had feared.

The failure of Keating's empire cost taxpayers some $2.5 billion. Although Andersen paid damages to investors

and regulators for its early role in the Keating account, Arthur Young paid much more.

A higher calling

It wasn't just technical rulings and intuition that secured Andersen's reputation. It was so-called "line partners"

like Mike Gagel in Columbus who stood up to clients day in and day out, upholding the strict standards

established by the firm's brain trust in Chicago.

During this era, Gagel's career flourished. He was a brilliant auditor, versatile enough to master the accounting

details of different industries when other partners specialized in a single client.

Gagel, 59, still sings bass in the choir at St. Brendan's Catholic Church just outside Columbus. Self-effacing and

laconic, he is not the sort of person others surround at cocktail parties. But what he lacks in pizazz, he makes upfor in integrity, say friends and colleagues.

He always saw his chosen profession as a higher calling. "You're responsible to the shareholders, not the

management," he said.

It was the way Gagel had operated since his youth in a crossroads town of western Ohio called Maria Stein,



where he kept the books at his father's hardware store.

Gagel's technical skills served him well for much of his time at Andersen as he and his wife raised three girls in

Upper Arlington, a prosperous suburb close to Columbus' downtown. He made his reputation the way Arthur

Andersen himself had, as an auditor of public utilities.

But by the time Gagel arrived at Andersen, the firm had moved well beyond simply auditing corporate books.

The business world's embrace of computers presented Andersen with a special opportunity to expand, albeit at

potential risk to the independence of its core business.

Andersen's computer-consulting experience started outside Louisville in 1954, when a fleet of delivery trucks

rolled down the driveway of General Electric Co.'s state-of-the-art appliance plant.

Their 30-ton cargo included more than 5,000 glass vacuum tubes, along with enough steel and wire to fill a

ballroom. Put it all together, and it formed a single computer. GE had paid an outlandish $1.2 million for its

Univac I and was counting on a 40-year-old engineer from Andersen to make the machine do its stuff.

Watching those trucks arrive that January day, Joseph Glickauf Jr. could hardly believe he had convinced his

cautious partners to back this venture into the unknown.

Glickauf had built his own portable version of the mysterious "counting machine," taking it on the road to win

over skeptics at Andersen's regional offices. He would ask the assembled auditors to start counting along with

the flashing lights of his "Glickiac," as it was nicknamed, then crank up the speed. At 600 calculations a second,

the computer beat the bean counters every time.

Spacek, the powerhouse successor to the firm's founder, recognized the potential. He had wooed Glickauf from

a research job in the Navy to form the firm's three-person administrative services team--the forerunner of its

mighty consulting arm. GE was one of the world's first businesses to use a computer, and Andersen became a

systems-consulting pioneer.

Even then, Spacek knew the conflict between auditing and consulting could imperil the firm's reputation. Each

month as the GE project slowly ground along, Glickauf would fly from Louisville for a private dinner with the

boss at the Chicago Athletic Club.

"Don't go overboard," Spacek would tell Glickauf over broiled pompano in the dark confines of the club along

Michigan Avenue. "Don't do anything that could possibly influence an audit."



Two decades would pass before Andersen had to confront the full force of such dilemmas. By the early 1970s,

American business was clamoring for computers to make itself more efficient. Andersen's consulting arm,

expert at computer technology, exploded.

Even smaller accounting firms were scrambling to broaden their work with clients, because audit revenue was

stagnant. But the issue held particular interest for Andersen since, by then, non-audit work provided nearly a

third of its revenues.

That was far more than any other Big Eight competitor at the time, largely because Andersen had developed its

expertise in computer systems so much earlier.

The Securities and Exchange Commission was concerned how consulting was becoming the main growth business of accounting firms, especially Andersen, said Harold M. Williams, chairman of the SEC from 1977 to

1981.

"I was uncomfortable and concerned that the level of non-audit services could compromise the independence of

the audit," Williams said.

So the SEC proposed a new requirement. When a company went to its shareholders each year to approve the

choice of auditors, it would have to disclose the amount and percentage of the auditor's fees that came from

consulting.

By 1979, 42 percent of Andersen's $645 million in worldwide fees came from consulting and tax work, as

opposed to accounting and auditing. In the U.S., the proportion was greater: More than half its income came

from non-audit services, according to Kapnick, then chairman of the firm.

Andersen's consulting division "was worth a ton of money," Kapnick said, "but it was almost too successful."

Armed with such concerns at the annual partners meeting that fall, Kapnick declared that he wanted to turn"one great firm into two great firms."

He called for spinning off the fast-growing systems-consulting practice into a separate but related firm, initially

headed by him. He sold the idea by suggesting that SEC officials soon would require such a split because of

conflict-of-interest concerns.



Like a politician certain he had the votes to win, Kapnick confidently entered the partnership meeting inside a

ballroom of the Marriott hotel on North Michigan Avenue. But when he made the proposal from the dais, other

senior partners rose to oppose it. The usually staid annual meeting erupted.

Kapnick quickly discovered that Andersen--still dominated by its audit division--wasn't about to let go of its

lucrative consulting arm.

On Oct. 14, 1979, he convened a special meeting of the board and stepped down as chairman and chief

executive. Not long after, the SEC backed away from its proposed rule requiring disclosure of the consulting

interests of auditors. Kapnick's departure sank any thought of splitting the auditing and consulting divisions--at

least for a while.

By that time, the firm had grown to more than 1,000 partners and 18,000 staffers, nearly all through hiring andtraining its own people rather than through mergers.

As Andersen expanded, so did its influence on the rest of corporate America, not just through its auditing and

consulting contracts but by becoming a breeding ground for financial executives and government officials.

The nation's comptroller general, David Walker, was an Andersen partner before he became the nation's chief

accountability officer in 1998. A former Andersen CEO runs Unisys Corp.

For nearly 30 years, Andersen employees who audited Waste Management's books could look forward to

careers at the trash hauler. Until 1997, every chief financial officer and chief accounting officer in Waste

Management's history as a public company had worked as an auditor at Andersen.

Enron, too, had long been a favorite destination for Andersen employees. Sherron Watkins, the Enron executive

who warned last August that deceptive accounting might destroy the Houston energy-trading company, came

from Andersen. Alumni from the firm also became Enron's president and chief operating officer as well as its

chief accounting officer.

As clients like Enron took more prominence at Andersen, consulting was securing its dominance. By 1994, two-

thirds of Andersen's $3.3 billion in U.S. revenue came from the consulting side. Coinciding with that shift, the

influence of the firm's in-house ethics watchdog dimmed.

Kapnick's successor as managing partner, Duane Kullberg, reorganized the firm to give more representation in

management to the consultants who were bringing in so much revenue. Before that, auditors made all the



decisions within the firm.

Among other moves, Kullberg divided leadership of the standards group's watchdog role into three parts:

accounting, auditing procedures and professional standards.

The men assigned to those jobs were top-notch, but none had the same unassailable authority as Catlett, who

retired in 1980.

When Larry Weinbach took over as managing partner in 1989, he stayed primarily in New York, while the

standards group remained in Chicago. Without face-to-face contact, the group leaders lost the opportunity for

the spontaneous, closed-door, table-pounding arguments that had served the firm well in the past.

By degrees, the leaders of the group were pushed down the corporate ladder. When Enron's problems emerged, Andersen's most respected technician in recent years--Wyatt's protege, John Stewart--had seven layers of

management between him and the top partner.

Current Andersen officials deny that the influence of the Professional Standards Group has diminished. "Since

its creation, the PSG has played an important and central role in providing accounting advice to Andersen

engagement teams," said spokesman Dorton. "In fact, until the past couple of months, the firm continued to

expand the size and expertise of the PSG."

The standards group was busier than ever throughout the 1990s, as the global ambitions and ever-more

complicated finances of Andersen's clients posed increasingly difficult questions for them to answer. At the

same time, Wall Street's focus on quarterly earnings pressured auditors to go along with "creative accounting"

aimed at boosting stock prices by ensuring predictable growth in profits.

`The game is over'

In this atmosphere, the worst fears of Andersen's ethics watchdogs finally came true.

Surrounded by Wyatt's packing boxes prior to his retirement in 1992, Wyatt and Stewart were fuming about the

group's future. For the first time in Andersen's history, top management had rejected a key ruling from the

group.

Like so much in the business of accounting, the issue in question would seem arcane to an outsider, but the

stakes were huge, and they persist today: Should companies start counting stock options as an expense on their



balance sheets?

This was the dawn of the 1990s market boom. Enron and hundreds of other corporations were paying their

executives and other workers with these paper promises--the right to buy company stock at a set price in the

future. Billions of dollars were riding on the answer.

As long as executives kept their companies' stock price rising, they could exercise their options for huge gains.

Keeping those options off the books could shroud the true cost to investors and inflate earnings.

The Professional Standards Group had determined the right way to book stock options years earlier, concluding

they had to be counted against profits like any other form of compensation.

But this time, Andersen's top management was swayed by the political heat, angry clients and the risk thatgovernment would usurp the industry's right to set its own standards.

The only thing flowing as fast as stock options were political contributions in Washington. Large corporate

contributors such as the Business Roundtable were keenly interested. If the Financial Accounting Standards

Board ruled that companies had to count stock options as an expense, some powerful politicians were prepared

to put the private standards board out of business.

Inside Andersen, the pragmatists carried the day.

"The game is over, John," Wyatt remembers telling Stewart. "You guys are never going to have the authority

within the firm that you once had."

Indeed, the standards group would continue making the same pronouncements it always did, but not everyone

at Andersen was listening.

Partners throughout the sprawling Andersen empire could see changes coming. Each office was expected to

meet higher revenue goals. If they couldn't sell enough services to new or existing clients to support the numberof partners, someone would have to go, according to interviews with several Andersen partners.

Current Andersen officials say the reality was more complicated. "Andersen has a comprehensive evaluation

process that considers many attributes," said firm spokesman Dorton. "We do not manage our business with

such arbitrary quotas."



In 1992, Andersen management was evaluating who would stay and who would go. At the firm's Ohio practice,

which included its Columbus office, the answer was there were three too many audit partners, Gagel says he

was told. He was one of them.

At a time when Andersen was pushing partners to "develop practice"--Andersen-speak for winning new clients

or new fees from existing ones--Gagel was known instead for his auditing acumen.

He was only 50 then, far younger than Andersen's mandatory retirement age of 62 and well short of his own

plans. But, like the Professional Standards Group, Gagel was an uneasy fit in the firm's new culture.

So on a dreary Monday morning the week before Thanksgiving, Ed Onderko, Andersen's managing partner in

Columbus at the time, spotted Gagel in the hallway. He asked him to come into his office.

"We need to talk," Gagel recalls Onderko telling him. Getting immediately to the point, Onderko said: "The

decision's been made that you're going to retire."

At his retirement party a few months later, Gagel's staff presented him with a framed caricature: It showed him

passing through Andersen's trademark wooden doors for the last time, briefcase in hand and a white cowboy

hat perched above his eyeglasses.

"Mike Gagel," the caption read, "One of the good guys."

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A Final Accounting