NEW YORK — Ending one of corporate America's bitterest family feuds, an international arbitrator cleaved the world's largest consulting firm from the world's largest accounting firm on Monday.
The ruling frees Andersen Consulting, with 65,000 employees, from its parent company, which now consists entirely of Arthur Andersen, a tax and auditing firm with 77,000 employees. In exchange, Andersen Consulting will have to give up its name and pay Arthur Andersen $1 billion.
Analysts said the decision, which ends a three-year battle that had distracted the sprawling company, was a major victory for the consultants. Hours after it was announced, the chief executive of Arthur Andersen resigned.
At the heart of dispute was the same thing that has ended hundreds of other partnerships: money. Over the past decade, as Andersen Consulting became more profitable than the firm that had founded it, the consultants began to chafe over sharing some of their profits with the accountants. The frustration exploded into an arbitration filing in 1997, with the consultants accusing the accountants of violating an internal agreement by setting up their own consulting unit and competing for the same clients.
Monday's announcement — made in Paris by the International Court of Arbitration, which appointed a Colombian lawyer to oversee the case — separates the businesses immediately. Since 1989, the partnerships have operated under one umbrella company called Andersen Worldwide, but in recent years they have had as little to do with each other as possible. As traumatic as the rift has been for the partners, clients of both firms have remained largely shielded from it, analysts said.
After the ruling, Andersen Consulting partners said they were elated, largely because they had split off their division without having to pay any of the $14.6 billion in damages that Arthur Andersen had sought. The payment of $1 billion, most of which is already in an escrow account, covers past profit-sharing fees that Andersen Consulting refused to pay while the arbitration was in process.
"There's been a morning of celebration and euphoria here," Joe Forehand, Andersen Consulting's chief executive, said at the start of a conference call with analysts and reporters Monday. The ruling could add about $200,000 to the annual pay of each of Andersen's 1,200 partners.
Arthur Andersen's chief executive, Jim Wadia, said his fellow partners were happy with the ruling and that he would resign because, having been appointed three years ago largely to oversee the dispute, his work was done. In an interview, he called the decision a "7 to 7.5" on a scale of 1 to 10.
The arbitrator, Guillermo Gamba, ruled that Arthur Andersen did not breach the 1989 agreement by setting up its own consulting unit and that Andersen.
Consulting may not use an internal computer system designed by Arthur Andersen in the 1970s and 1980s. Gamba instead blamed Andersen Worldwide, a bare-bones bureaucracy in Geneva, for not assuring cooperation between the two units, as the pact said it would.
But analysts still called the decision surprisingly favorable for the consulting unit. They said that Wadia had turned down a settlement offer a few years ago that would have given the firm more money than the ruling does, while sparing it years of acrimony. Wadia "is not going to be very popular with the Arthur Andersen partners," said Wayne Cooper, the president of Kennedy Information, which follows the consulting business.
"This is a huge win for Andersen Consulting," he added.
Even as the decision formally separated the businesses, nastiness continued between partners who had built a business together and still ride the same elevators in a midtown Manhattan building where employees of both firms work. Executives of the two firms spent hours Monday dismissing — sometimes vulgarly — the other side's analysis as misleading or simply false.
Wadia, a British citizen, said he would take particular pleasure in Andersen Consulting's having to remove a large sign displaying its logo in the British Airways terminal of Kennedy International Airport. "The way I look at it, that's mine," he said, referring to the Andersen name.
Meanwhile, Andersen Consulting's lead lawyer scoffed at the rival firm's opinion that the ruling was essentially a split decision. "These guys just spin endlessly," said Barry R. Ostrager, a partner at Simpson Thacher and Bartlett.
Though the roots of the case are internal, the ruling is the latest example of the separation of consulting units from accounting firms. Such splits have come as the Securities and Exchange Commission has proposed restricting firms from selling advice to companies they also audit. In February, Ernst & Young sold its consulting business to Cap Gemini SA, and PricewaterhouseCoopers and KPMG Peat Marwick are also moving to shed their consulting units.