EY staff could reasonably ask: who is flying this ship?
After falling from high altitudes, the Everest Project » – a plan to break the business in two, which collapsed after internal disagreements – bosses Ernst & Young (EY) asks questions about his future.
“At around the next year, we will inevitably conduct a strategic review,” says Hywel Ball, chairman of EY UK and a partner for over 25 years.
“One of the things they will be looking at is the dynamics that got us thinking about this deal [the Everest project], about what is right and what is wrong and what lessons we need to learn… because we, obviously learned a lot.”
Soul quest should be suspended for now. The Big Four consultant has been forced to struggle with private equity interest and must contend with a global downturn when fees dwindled just as his costly breakup plan was due to be billed.
It happened. triggered a new round of belt-tightening: This week, British staff reported that some jobs were at risk. Those who stay will see their bonuses dwindle.
The bleak outlook is only natural as the weak global economy has a negative impact on industry fees. But the situation at EY is even more complicated, given that its unfortunate split has left it rudderless in the storm.
Carmine Di Cibio, EY's global chairman who unsuccessfully led the Everest project, is preparing to retire next year, creating a powerful company. vacuum and protracted succession battle.
Carmine Di Cibio is about to leave the firm after he planned to split its consulting and hands bookkeeping collapsed. Credit: News Scan
At the same time, EY is now facing a bill reportedly in the hundreds of millions of dollars for work done on the canceled deal.
Insiders are wondering where the business should go next, and how it should tackle everything from artificial intelligence (AI) to more mundane regulatory issues.
Project Everest was a plan to separate the consulting business from the audit business. activities. The main goal was to unleash the full potential of EY consulting and other non-audit services, which are the most profitable and fastest growing parts of the business.
The firm's rapid growth in the firm's consulting business has helped lift the average paying UK partner to a record £803,000 in 2022.
However, conflict of interest rules in many countries prevent EY from providing both audit and non-audit services to the same client.
This means that a multinational company engaged in a global IT project may want to work with the firm's consultants worldwide, but may not do so in certain jurisdictions if it already employs EY auditors there.
There are rules for removing the incentive for auditors to “take it easy” with clients to whom the firm wants to sell additional non-audit services.
EY's complex global structure—a network of affiliated partnerships rather than a single unified corporate structure—also makes working on international projects more difficult than desired to the authorities.
To address these issues, Project Everest has completely unbundled operations into a separate audit business and a new publicly traded consulting business, with a potential value of over $100 billion (£79 billion).
Newco consulting could would boast annual sales of $25 billion and 7,000 partners, while the audit side would represent $20 billion and 6,000 partners.
Their separation would clear the way for consultants to take on more work unencumbered worries about conflicts.
The partners also had to make big profits. Under the scheme, partners remaining in the audit business will receive payouts for their stakes in the consulting business up to four times their annual salary.
At the same time, the newly spin-off consulting business will be listed on the stock market , and the partners transferred shares worth nine times their wages.
But this proposal met with stiff resistance from the American office of EY, headed by Julie Boland, who accounts for 40% of the firm's global revenue. ” /> In April, Julia Boland abruptly announced that she was postponing the Everest project due to opposition from other US partners. Credit: LinkedIn
Americans were worried that a split would leave one side or the other with less internal expertise on a vital (and highly lucrative) topic: taxation.
In April, Boland suddenly announced that she was postponing work on the separation, after opposition from other American partners. The move stunned international peers and ultimately forced Di Cibio to follow suit, derailing the deal.
But by abandoning the split plans, EY still faces the same dilemmas.
“ You've challenged the status quo, you can't stay the same, so what's your plan B?” one partner told Financial News earlier this year.
Somewhat understated, Ball says: “After the election of the global chairman, they need to rethink the global strategy.”
The debate continues about whether to seek separation in other ways. Proponents say the deal still makes sense.
Private equity firm TPG recently offered to buy a stake in a separate consulting business, the Financial Times reported last week. EY bosses have turned down the offer so far.
The most pressing question now is who will take charge and set the tone for the rising giant.
Dealing a death blow to the Everest project — a move that reportedly infuriated some colleagues — Boland is not expected to put herself forward as Di Cibio's replacement, though she could play a kingmaker role.
It can prove. a challenge for Andy Baldwin, EY's Global Managing Partner and Brit, who is seen as a leading candidate for Global Chairman but may be considered tarnished by his prominent role in pushing the unbundling plan forward.
EY Canadian Chairman Jad Shimali is seen as a potential candidate for unity. Marie-Laure Delarue, head of the global audit practice, was also nominated.
Other names considered as potential candidates include Janet Truncale, Head of EY's US Financial Services, Ryan Burke, Head of Private Clients, and Julie Teigland, Head of Europe, Middle East, India and Africa. according to reports.
Ball, chairman of EY UK, excludes himself but says potential candidates “are all great alternatives and very talented people.”
For now, the most pressing question is who will take charge and set the tone for the sprawling giant. Photo: Simon Dawson/Bloomberg
Whoever comes out victorious, the process will take time. Ball says: “Partnerships are based on collaboration… We don't just appoint leaders. We need to go through the process to make sure there's broad support.”
The structure of the EY network also means that a new leader won't be able to forcefully push through big changes without first building broad support, which eluded DiCibio for his account.
For UK Chairman Ball, the immediate issue is that the global chief will have to decide what to do with round-robin private equity funds.
San Francisco-based TPG's recent approach, which did not evaluate EY's advisory business, could be overruled, but this is unlikely . to dampen wider interest in the sector.
Ball says his rivals “will be taking similar approaches to some of their businesses, and as you know, private equity can be quite a disruptor to the sector if they decide there is an opportunity.”
“ Now we need to come to a consensus – what will this private equity mean?”
KPMG and Deloitte have sold their restructuring ventures to private equity, while PwC has divested its global mobile business.
p>Remaining in the background is the question of what to do about conflicts between auditing and the much more lucrative consulting work.
“In a way, what we were trying to do with [Project Everest] was to answer some of these issues in advance to control your destiny,” Ball says.
“They really need to be addressed in one form or another. I think everyone agrees that it is not necessary now.
“But at some point it will have to be resolved. And this is likely a challenge not just for EY, but for the entire profession.”
However, with Di Cipio's successor not due until November, partners at EY offices face several more months of uncertainty.
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