EY’s US business will embark on a $500 million (€456 million) cost-saving programme after its opposition torpedoed plans for a historic split of the Big Four firm.
US leaders outlined a new strategy in a memo to partners sent shortly after EY’s global executive committee said on Tuesday it was abandoning ambitions to spin off its consulting and tax advisory businesses into a new company.
The collapse of the plan, which would have marked the biggest shake-up to the accounting industry in more than two decades, has pitched the global firm into a new period of recrimination and uncertainty.
The memo to US partners – signed by Julie Boland, US managing partner, and the rest of the US executive committee and seen by the Financial Times – said there was a strategic rationale for splitting the business in some way in the future.
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However, the decision to ditch the planned split, which was codenamed Project Everest and had been worked on for more than a year, would allow EY to focus on freeing up capital for investment and to pursue governance reforms that had been put on hold, it said.
In particular, the US firm would act to “accelerate decision-making, streamline accountability and reduce complexity”. Without giving details, the memo said the “US simplification agenda will start immediately...and we expect to drive savings in the US of $500 million over the next 12 months”.
EY’s US firm accounts for 40 per cent of its global revenues, which were $45 billion in the fiscal year ended June 2022. EY operates as a global network of member firms, and any split would have needed approval on a country-by-country basis.
In the memo, Ms Boland and the executives said they would seek to beat the $500 million target “substantially” by “also streamlining global infrastructure and eliminating duplication in our global operating model”, though that would require co-operation with the global leadership.
Other Big Four firms have been trying to cut costs in the US after growth in their consulting businesses slowed sharply over the past year.
KPMG has announced it is laying off close to 2 per cent of its US workforce, and Deloitte’s consulting staff have been told to expect tougher performance reviews that will lead to more people leaving than in recent years, according to people familiar with internal communications.
The EY US leadership memo promised new investments in the audit business and tax practice that was at the heart of the disputes over Project Everest. US audit leaders opposed letting a majority of tax partners go to the new consulting business, saying it would damage the quality of EY’s audit work and threatened the financial strength of the audit-focused business.
EY’s global chief executive Carmine Di Sibio had championed the plan to split as a “road map” for the rest of the profession, saying it would free both sides of the business from conflict-of-interest rules that prevent consultants from selling many services to audit clients.
On Tuesday, after weeks of last-ditch negotiations, he and other global leaders said they would abandon the plan on hearing that the US would not take part.
In a separate email to retired partners later on Tuesday, the US executive committee gave further details of why it had vetoed Project Everest.
“The analysis on the proposed strategies and perimeter for both organisations identified gaps in our ability to deliver exceptional client service, particularly to our largest global clients,” Ms Boland and the 15 other executives wrote.
“The amount of time it would take to improve business performance and achieve a viable transaction has become much longer than anticipated,” they added, and “the transaction economics have become challenged given the current economic conditions and capital markets environment”. – Copyright The Financial Times Limited 2023
