EY Leaders Are Pressured to Rebuild Trust After Failure of Split
April 25, 2023
Ernst & Young’s top global and US leaders are facing intense scrutiny, a restive staff, and questions about their own future as they try to move on after the failure of the firm’s breakup plan.
The heads of both EY’s global organization and its key US affiliate, who clashed over the plan to separate the firm’s auditing and consulting businesses, remain in their posts for the moment. Carmine Di Sibio, EY’s global chairman and CEO who pushed unsuccessfully for the breakup, received a two-year extension to his tenure last fall and is slated to stay as global leader through June 2025. Julie Boland, EY’s US chair whose opposition to the terms helped to torpedo the split, is serving a term that runs through June 2026.
The ambitious plan’s abrupt failure and the infighting it caused have left hard feelings inside EY, say current and former employees and industry observers—and the firm may have to take a hard look at whether the leaders who fought for or against the plan are the best people to lead it forward.
“I think there’s going to have to be some come-to-Jesus conversations about the quality of their leadership,” a retired EY partner said. “They have a dilemma on their hands now. There’s a lot of animosity within the firm.”
It’s a matter that EY must address, for the sake of reassuring its employees and clients. The firm announced plans to lay off 3,000 people less than a week after calling off the breakup.
“There has to be so much turmoil and uncertainty. I would be worried that people are thinking ‘should I go elsewhere, what kind of firm is this going to be in several years,’” said Daniel Goelzer, a retired partner at Baker McKenzie LLP and a former acting chairman and member of the Public Company Accounting Oversight Board, the regulator for EY and other audit firms.
‘Coming to Terms’ With Failure
A global EY spokesperson said the firm remains in strong shape, with growth in double digits. Partners are “coming to terms” with the cancellation of the split, the spokesperson said, and there are “a lot of positive things happening.”
EY’s plan to separate, announced in May 2022, would have addressed longstanding concerns that having auditing and consulting under the same roof risks compromising auditors’ objectivity and independence. Dividing the firm also would have freed up EY’s consultants to better compete against giant consulting-only companies like Accenture PLC and McKinsey & Co. Inc.
A successful deal would have delivered windfall one-time payments to audit partners, while consulting partners would have received stock in the new consulting company. Di Sibio was to have transitioned to heading EY’s new consulting company after the split, while Boland would have headed the legacy audit practice.
But the plan blew up over thorny issues like how much of the firm’s tax practice would stay with the auditing side of the business, and how the breakup would affect the pensions of retired EY partners. EY said earlier this month that it would halt the plan, though the firm could still decide later to separate.
After a high-profile collapse like that, drama was inevitable, said Doug Carmichael, a Baruch College accounting professor and former chief auditor at the PCAOB. “Short-term turmoil and leadership changes are probably going to happen,” Carmichael said.
Still, he added, “then a firm goes back to work and gets back to normal.”
Whoever ends up leading EY will have to regain the confidence of rank-and-file employees in particular, said Herbert Chain, a shareholder at accounting firm Mayer Hoffman McCann PC.
“Any organization is going to have to rebuild trust,” Chain said. “Any organization is going to have to convince their people they know where they want to go, get back on track, and are not distracted anymore and are focused on what they do need to do with the rebooted organization.”
[Bloomberg Law]
