Thank you for sharing!

Your article was successfully shared with the contacts you provided.
It was, as Arthur Andersen’s chief in-house lobbyist Mark Peterson says, “a Cadillac of lobby teams.” But the lobbying prowess Peterson hired early this year — an A-list group from seven firms with a heavy emphasis on House Energy and Commerce Committee connections — faced innumerable and perhaps insurmountable hurdles in trying to cool the Hill’s fury over Andersen’s role in the collapse of the Enron Corp. Some of these obstacles were inflicted by Andersen, which was driven by competing views on how to deal with the enveloping crisis. Some were created by rival accounting firms looking to deflect a congressional attack on the industry. And, according to one theory popular among Andersen lobbyists, some were the result of a GOP-led House eager to shift the focus from Enron — with its deep, long-standing Republican ties — to the accountants who audited its books. The upshot is that Andersen’s survival is in doubt, and the industry remains under siege. Barring a last-minute settlement with the Department of Justice, the accounting firm goes on trial today in a federal courthouse in Houston, charged with illegally shredding documents after it knew the Securities and Exchange Commission had launched an investigation into Enron’s collapse. Few people following the Andersen saga believe an indictment could have been avoided, but the months following Andersen’s dramatic Jan. 10 disclosure that it had destroyed Enron documents form a case study of the competing forces at work when a corporate crisis comes to Washington, D.C. Like other full-blown congressional inquiries, tension mounted over two different strategies: the gut-driven, public-relations-oriented outlook of its lobbyists — led by Peterson and his predecessor at Andersen, Jeffrey Peck — and the trial-conscious viewpoint of its lawyers from Davis, Polk & Wardwell in New York. “The litigators want to hunker down. They don’t want you to say things that could harm you in a potential litigation situation,” notes Peterson. “They tell you to just hang in there, and in some ways they’re promoting a stiffing of Congress. ‘Who cares if this member gets what he wants?’ they say. ‘What this is about is litigation.’” “My response has been: ‘There isn’t going to be a firm to litigate if we don’t do these things,’ ” he adds. There were other complicating factors as well. For one, Andersen abruptly fired David Duncan, once the lead partner on the Enron account, on Jan. 15, five days after the shredding was disclosed. Duncan, who pleaded guilty to one count of obstruction of justice on April 9, is now the government’s star witness. From Jan. 10 onward, events unfolded at a dizzying speed. Nine weeks later, on March 14, the DOJ’s indictment against Andersen was unsealed. “It was like an airplane crash. Everything has to go wrong at once — and everything did,” says Stanley Brand, a lobbyist at Brand & Frulla who is a veteran of many congressional investigations and was part of the Andersen team. The lobby team, most of whom went off the Andersen payroll April 1, also was handicapped by a genuine lack of information. “Once the document disclosure stuff came out, it was hard to think of a cogent piece of information we could have given the Hill about why it happened – because we didn’t know why it happened,” says Michael Barrett Jr., a solo lobbyist on the Andersen team who was a staff director for the House Energy and Commerce Committee under then-Chairman John Dingell, R-Mich. Meanwhile, whatever support Andersen had from the other Big Five accounting firms all but vanished in February when Andersen brought on former Federal Reserve Chairman Paul Volcker, who proposed restructuring Andersen into an audit-only accounting firm, thereby eliminating its highly profitable tax consulting services. The industry has long rejected the reasoning that there is an inherent conflict between auditing and consulting functions and has argued that audit services are enhanced by a consulting relationship. The Volcker proposal, says one Andersen outside lobbyist, “gave every other firm an excuse to go after us.” Finally, Andersen’s lobbyists say they were dealing with a firm that was perhaps the most democratic and decentralized of the Big Five firms, turning decision-making into a slow-moving nightmare. “The business model of Arthur Andersen has great strengths,” says one outside lobbyist. “The decentralized model allows you to get close to clients. The problem is, when you hit an iceberg, it’s like being House majority leader — you have to touch base with 10 or 20 different constituencies. It’s not conducive to a rapid response.” CHANCE OF SURVIVAL The outside Andersen lobbying team, designed to deliver the firm’s message to the relevant power centers on Capitol Hill, was led by Peck, a former Senate Judiciary Committee staff director under Sen. Joseph Biden Jr., D-Del. Peck joined Andersen in 1993 as a partner and was the company’s top in-house lobbyist before moving to Griffin, Johnson, Dover & Stewart last year. Besides Peck, Barrett and Brand, Andersen’s team included Dan Meyer, former chief of staff for then-Speaker of the House Newt Gingrich, R-Ga., and veteran Democratic lobbyist and fund-raiser Michael Berman, both of the Duberstein Group; the Cormac Group’s J.D. Derderian, a former Energy and Commerce staff director brought on for his staff-level contacts; Rod Shaw of the Alpine Group, a former chief of staff for Rep. Sherrod Brown, D-Ohio, and then-Rep. Jimmy Hayes, R-La., who was hired for his Energy and Commerce contacts on both sides of the aisle and Richard White, a House Financial Services specialist who also works at the Alpine Group. Also playing a prominent role was Mark Gitenstein, a partner in Mayer, Brown, Rowe & Maw, who was Peck’s former boss on the Senate Judiciary Committee and who has worked for Andersen and the accounting industry for years. He was joined by his firm colleague Mickey Kantor, the former U.S. trade representative and secretary of commerce. Peck also was aided by Griffin Johnson colleague Leonard Swinehart, who, like Peterson, worked for House Speaker Gingrich and former Rep. John “Vin” Weber, R-Minn. Weber is now a lobbyist at Clark & Weinstock, where he represents the industry trade group, the American Institute of Certified Public Accountants. “It was a great team,” says Peck. “A lot of down-to-earth, roll-up-your-sleeves guys.” It was apparent from the start of the crisis in early January, when most of the lobby team was hired, that the view from Washington about the best way to proceed would differ radically from that of New York and Andersen’s principal outside litigation counsel, Michael Carroll of Davis Polk & Wardwell. Carroll, an experienced litigator with two sizeable victories to his credit for the accounting firm KPMG, was the principal contact with the Energy and Commerce Committee’s chief investigator, Mark Paoletta. But his Washington experience was insignificant. (In a notable difference, one of Duncan’s principal counsels is Sullivan & Cromwell partner Robert Giuffra, who, in the mid-1990s, worked side by side on the Senate Whitewater investigation with Assistant Attorney General Michael Chertoff, who now runs Justice’s Criminal Division and is ultimately in charge of the Andersen investigation. Ironically, Sullivan & Cromwell was hired by Andersen to represent Duncan before he was implicated in any wrongdoing.) After the shredding disclosures, it appeared to many on the Washington team that Andersen’s only chance of survival lay in an immediate and broad-based investigation of the document destruction led by an outsider of national prominence. “Like the Catholic Church,” says one outside Andersen lobbyist, “the only way you can get out of a situation like this is to give the public more than it expects, not less.” But if the sentiment made sense from the perspective of Capitol Hill, that argument counted for little in New York. Acutely aware that such an inquiry would carry no litigation privilege and could hurt the firm in court, Davis Polk argued strongly against such a move. Carroll did not return a phone call. “When it’s all said and done, the corporate attorney can always say: ‘I’m keeping you solvent, I’m keeping you out of jail,’” notes one Andersen lobbyist. The result was that Andersen hired former Sen. John Danforth, R-Mo., now a partner in Bryan Cave, but his charge was narrow and involved only the drafting of a new document-retention policy for Andersen. (Danforth’s report, in fact, has not been released and, given the crush of events, may never be, says one Andersen source.) There were other disagreements, including whether Andersen Chairman Joseph Berardino should have appeared on “Meet the Press” on Jan. 20, some two weeks before he testified before the House Financial Services Committee. “Washington, from Peterson on down, was telling Berardino not to go on the Sunday talk shows until you go to Congress, and we didn’t have the information yet that would allow us to go to Congress and say what we need to say,” says one member of the Washington lobby team. “But Berardino got buffeted by all the [Andersen] offices: ‘You have to get out there and say something because I have to meet with my clients next week, and they’re all pissed off.’” “We’re telling Congress, ‘Berardino can’t come up and testify yet,’ and then they see him on TV.” “Congress treats its prerogative for information gathering very seriously,” the lobbyist continues. “That was one of the biggest things that changed the tenor of dialogue between the company and Congress.” Perhaps the greatest irony in the Andersen story, say its lobbyists, is that if the company dies — crushed by litigation and a mass exodus of clients — so, too, may the chance to legislate changes in the accounting industry. “The death of Andersen would kill reform” asserts one lobbyist. “The Hill won’t go that far on its own, and the other four [accounting firms] won’t either. “The reformers may have chased the herd over the cliff,” he adds, “but in the process, they’ve run over the cliff with them.” T.R. Goldman is senior correspondant of Influence , an American Lawyer Media publication about the business of lobbying. Influence is an affiliate of Legal Times.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.