More than 150 retired EY partners have written to the accounting firm’s leadership objecting to the radical plan to split its consulting and audit businesses.
In a three-page memo seen by the Financial Times, the retired US partners say the plan as envisaged threatens to weaken both halves of the firm, while also asking whether EY’s global chief executive, Carmine Di Sibio, is properly protecting the interests of the audit business.
EY’s global leadership decided in September that a spin-off of the consulting business would allow both halves of the firm to grow faster, free from conflict-of-interest regulations that prevent consultants working for audit clients.
The split has to be approved by EY’s 13,000 current partners in country-by-country votes at individual member firms, but these cannot go ahead until more details are hammered out. The hope of holding the first votes in large territories such as the US and the UK before the end of the year has faded.
EY’s managing partner in Ireland, Frank O’Keeffe, has said partners in the Republic will “most likely” vote on the plan in the spring of 2023. Some 115-120 partners here would be eligible to vote on the plan.
Retired partners do not have a vote in the process, but they have significant interests at stake. EY has about $7.5 billion (€7.2 billion) of pension obligations in the US that it must apportion to the two businesses, the bulk of which will sit with the audit firm.
The consulting arm is expected to raise about $30 billion in the debt and equity markets, and transfer some of that to the audit business to cover a substantial portion of the pension obligation, as well as to fund large cash payments for current audit partners.
After the split, the audit business “will have a significantly lower level of earnings”, the retired partners wrote, and the obligation to pay their pensions could “potentially strain” the business.
“We see no reason why the pension obligation shouldn’t be funded 100 per cent,” they wrote.
[ Partners at EY’s Irish firm set to vote on split next springOpens in new window ]
The memo was penned after a webcast for EY’s 3,000 retired partners in the US last month, which its writers said “raised more questions than it answered”. It was sent to leaders of EY’s US partnership in an email with more than 150 signatories.
The memo grouped concerns under four separate headings. In addition to the pension concerns, the email questioned the process by which decisions about the split are being made, and why the leadership of the two businesses has not yet been announced.
While Mr Di Sibio is expected to lead the consulting arm, no one has been picked to run the audit business. The audit business is called AssureCo in planning documents even though it will retain the EY brand.
The retired partners said they had “concerns surrounding who is protecting the interests of the partners and employees that will continue in AssureCo. Currently it appears that Mr Di Sibio is presiding over the decisions relating to both entities. This makes no sense.”
Another significant area of concern is how EY will split its tax practice, a majority of which will go with the consulting business while tax compliance partners stay with the audit arm.
“The bifurcation could result in neither practice having the size, scale and competence to be truly viable in the marketplace,” according to the memo.
“Whilst we understand that initial reactions to the transaction from the firm’s regulators around the globe were favourable, we doubt this will continue if questions arise as to the appropriate level of resources and expertise remaining in AssureCo,” they added.
“Likewise, we expect firm clients will be highly disappointed to learn that AssureCo resource adequacy could be an issue and we understand the firm’s competitors are already raising this matter with companies EY audits.”
EY said: “We appreciate the feedback from our retired partners. We are taking this bold step because we believe this will provide the best opportunities for growth and success and better serve EY people, clients and broader stakeholders, including retired partners.”
The retired partners who endorsed the memo hail largely from the US but they told EY’s leadership that the issues raised exist throughout the global network, adding: “We all have had conversations with current firm audit, tax, and consulting partners, and many have expressed similar concerns.”
The memo concludes by urging the leadership to consider delaying the implementation of the split and to take their criticisms “constructively”.
“Not only are we some of the firm’s largest creditors,” they wrote, “but we are also many of the firm’s biggest supporters.” – Copyright The Financial Times Limited 2022
