Following an international backlash on its plans to split its audit and consulting brands, EY has reportedly paused the project. The Big Four firm is now understood to be working to rethinking the strategy, as it looks to gain greater support amid its global partnership.
In May 2022, EY announced a historic strategic review, which aimed to spin off its consulting business into a new entity. The move came in response to years of mounting criticism aimed at the Big Four – also including Deloitte, KPMG and PwC – with critics claiming their sprawling consulting offerings constituted conflicts of interest, especially when working for clients who also availed themselves of the firms’ accounting expertise.
The proposed break-up was designed to liberate EY’s consultants, and much of its tax practice, from independence regulations that had been ramped up amid this criticism. Legislation preventing them from advising the firm’s audit clients has been seen as a drag on growth in recent months. EY’s executive team and the leaders of its 15 largest member firms – accounting for 80% of its $45 billion annual revenues – unanimously approved the strategy to split on this basis.
The project has proven a far tougher sell to EY’s global partnership, though. Throughout the last few months, EY has been polling its 13,000 partners around the world. The balloting process has been taking place on a country-by-country basis in around 75 countries, and initial estimates saw EY confident it could finalise its decision in early 2023. However, a number of landmark no-votes have seen the firm revise those estimates.
According to reports from the Financial Times, EY’s US head, Julie Boland, has informed the country’s partners that the deal needs to be reworked. Boland is due to run the audit-focused partnership after the split, but according to “people familiar with the matter”, the Financial Times while she expressed a desire to move ahead with the split, she told partners via a call that the plans were now on pause. It was not made clear how long this pause may last.
Carmine Di Sibio, current CEO of EY – and would-be head of its spun-off consulting wing, if that moves ahead – struck a similar note. Even as it became clear EY would have to go back to the drawing board on its changes, he insisted that he had a “high degree” of confidence the deal would still go ahead. As reported by the Wall Street Journal, Di Sibio told staff that the firm’s leaders will spend the following “next few weeks” trying to resolve an impasse to its planned split.
In particular, EY will have to find a way to get past strong resistance from US audit partners for the plan – with people familiar with the matter telling the US newspaper that splitting the firm’s 70,000 tax practice was one of the most heated areas of resistance to the deal. At the same time, retired US partners are concerned that the split could affect their pensions – as well as being upset that they could be excluded from the multimillion-dollar pay-outs promised to current partners, should the deal go ahead.
An email sent to retired partners in the US by EY recently attempted to address this last issue. Reports from the Financial Times noted that the Big Four firm’s US executives were mulling a request to boost pension pay-outs, or to give retirees shares in the proposed new consulting business.