EY’s US boss told partners she was worried about the “health” of the firm’s audit business if it splits in two, highlighting the depth of divisions that have thrown the project into turmoil.
During a webcast last week to US partners, Julie Boland also said the future strategies of the audit and consulting businesses remained unsettled and it was unclear how consulting would meet its profit targets, according to a recording reviewed by the Financial Times.
The Big Four firm announced in September that it would spin off its consulting business but Boland blindsided global leaders when she said in her webcast that the whole deal was being paused.
A faction in the US business has been fighting for more tax experts to be retained when the consulting arm is spun off but the recording of Boland’s remarks shows the US leadership’s concerns are more wide-ranging.
The objections, after extensive planning for the split — codenamed “Project Everest” — have thrown EY into turmoil, with recriminations between national member firms and within the US and no clear road map for what happens next.
The decision to pause work was taken after the US executive committee reviewed information from advisers and EY leadership around the world, Boland told partners.
“We agreed that we all remain committed that, strategically, a separation into two strong organisations is the right direction for us to succeed in the long term,” she said, adding that while many issues had been worked out those that remain “have been hardest to resolve and . . . are the most critical”.
Boland listed four significant hurdles for the deal.
They included not just the question of which partners will be allocated to which businesses but also the “alignment of the strategies of both organisations”, “the health of the global network” for the audit-dominated side of the business, and “our ability as a firm to execute and deliver [the advisory business] ebitda required for any transaction”.
“The fact that all of these are interrelated makes this additionally complex,” she said.
Boland, who would run the global audit business after the separation, is expected to announce a full set of demands from the US firm at crunch talks this week in New York with leaders from EY’s UK, EMEIA and Asia-Pacific businesses, said people with knowledge of the matter.
US leaders held meetings over the weekend to hammer out their position ahead of the international negotiations, said people at EY. Leaders elsewhere in the firm have been frustrated by the impasse, which some said was created by a dissenting faction in the US insisting on reopening questions that were mostly settled last year.
Two non-US EY partners said the rest of the world had granted significant concessions to the US arm, including over funding of pension liabilities and allowing it keep more tax experts than elsewhere in the world, but indicated further flexibility would be shown.
EY’s global chief executive Carmine Di Sibio won agreement from country leaders last year to split the $45bn-in-revenues firm, to free consultants from conflict-of-interest rules that limit them selling services to audit clients.
Veterans of the US audit practice in particular have questioned the wisdom of allocating most of the tax advisory business to the consulting arm, instead of keeping it within the accounting firm.
Meanwhile, a slowdown in parts of the consulting sector have raised questions about the potential profitability and valuation of a standalone advisory company.
Before the deal was paused, Andy Baldwin, EY’s global managing partner for client service, told the Financial Times that the firm was “confident” the consulting business could deliver the profits “that allow us to raise both the debt and the level of equity we need for the deal”. EY’s UK boss, Hywel Ball, said previously that the spin-off would enable investment to improve audit quality.
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