EY partners in Israel will not split their audit and consulting businesses, becoming the largest territory outside China to shun the break-up plan approved by the accounting group’s global leadership last month.
The Big Four firm is racing to thrash out more details of the complex proposal ahead of country-by-country partner votes which it expected to begin before the end of the year.
A break-up of EY’s 365,000-person business would dramatically reshape the accounting and consulting landscape and is being watched across the industry.
The firm plans to spin off its advisory business into a standalone company, which it would seek to list on the stock market. EY has said this would fuel faster growth by liberating its consultants and tax advisers from conflict of interest rules that prevent them working for audit clients.
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But EY Israel, which has about 90 partners and 2,000 staff, will retain its advisory business after assessing the merits of the break-up proposal, according to its managing partner, Doron Sharabany.
“From our point of view in the Israel business, the split will not create benefits,” he told the Financial Times.
The Israeli business is among EY’s top 30 by revenues, although it accounts for less than 1 per cent of global turnover, said a person familiar with the figures.
In any country where partners reject the deal, consultants and tax advisers would remain under the same roof as the auditors but could soon face competition from their former colleagues.
EY had planned for its top 70 to 75 countries to join the split, with the exception of greater China. It operates in 150 countries but the global leadership decided breaking up the smallest entities would not be practical.
Global bosses plan to press ahead so long as enough of the largest member firms vote in favour.
“We continue to anticipate approximately 75 countries will participate in the deal,” a spokesperson said.
The 22,000-person greater China business, which encompasses Hong Kong, Taiwan and Mongolia as well as mainland China, said last month that “differences in the market and regulatory environment” meant it would not split.
However, global executives plan to ensure the new advisory company could operate in China on “day one” after the break-up, said people briefed on the planning.
Options include hiring or acquiring local consultants. Getting Chinese regulatory approval to include EY China in the global split has not been ruled out entirely but that process is expected to take longer than elsewhere if it happens.
The new global advisory company “would have the right to operate . . . and to build up a practice” in any country that rejected the deal, EY’s global chair and chief executive Carmine Di Sibio told the FT in July.
The advisory arm could also poach consultants from the holdout partnerships immediately. “[It] certainly can go and recruit people . . . if it wanted to,” said Di Sibio.
Cornelius Grossmann, leader of EY’s global law practice, said partners in his business were unanimous in wanting to split and free themselves from conflict of interest restrictions that bar working for audit clients.
“We want everybody in law, and everybody in law wants in,” he said. “Should there anywhere be a majority against the will of the law partners, there’s no doubt they will just separate, build their own firm and come in. We will get them in.” - Copyright The Financial Times Limited 2022
