EY has been thrown into disarray by an internal war over its plan to split in two after its US boss said the deal would have to be paused.
The Big Four firm’s global chief executive Carmine Di Sibio sought to reassure staff that the plan to separate the firm’s audit and advisory businesses would go ahead, after US head Julie Boland caught senior leaders off guard on Wednesday when she told partners that the plan needed to be reworked before it could happen.
Her surprise intervention sparked frustration among partners and staff over the possible delay or collapse of the deal, while senior employees described “chaos”, “low morale” and “infighting” at the firm in recent days as the audit and advisory sides attempted to resolve their differences.
The firm’s plan to spin off its advisory arm, including consultants and most of its tax practice, into a listed company has run into a series of delays since it became public in May, as the two sides struggled to agree the details.
[ To split or not to split: EY confronts the questionOpens in new window ]
In a message to staff on Thursday morning, seen by the Financial Times, Mr Di Sibio said the firm’s leaders would spend the “next few weeks” trying to resolve the impasse.
He added he had a “high degree of confidence” that the plan, known as “Project Everest” and designed to liberate the consulting business from conflict of interest rules that prevent accounting firms from advising audit clients, would go ahead.
Mr Di Sibio and other senior leaders who masterminded the break-up should quit if they cannot make it happen, said some current and former EY staff.
He has led EY since 2019 and was given a two-year extension to his four-year term to see the deal through. Multiple current and former staff said he would have to leave if he failed.
But one former colleague said: “Carmine is nothing if not stubborn. He may yet see this through.”
If the split does not go ahead, there will be an orderly leadership transition, according to a person familiar with EY’s plans. Securing a stable transition would be difficult though as almost all of EY’s top bosses were involved in the planning, said former staff and a senior partner at a rival firm.
Supporters of Mr Di Sibio, who would lead the spun out consulting business if the deal goes through, blamed Ms Boland for “posturing” and causing an unnecessary public row.
Ms Boland, who is in line to run the new audit division, said on Wednesday that she did want to move forward with the split but that some of the details needed to change. Some US partners have been campaigning for more of the tax practice to be retained within the audit arm.
At rival Deloitte, recently-elected global chief executive Joe Ucuzoglu on Thursday sent a 20-minute video message to its partners, which was also posted on Deloitte’s website, ripping apart EY’s rationale for splitting up and saying his firm would not follow suit.
“History is littered with multiple examples of grand aspirations around these types of transactions that sounded great, with pretty slide decks, but this has actually never once played out as intended,” he said.
For the EY split to proceed, partners in its largest countries, particularly the US and UK, would have to agree in country-by-country votes. One person close to the negotiations said the deal now depended largely on whether the US firm could sort out disagreements in its own organisation.
The role of the US firm in potentially killing the deal would be remembered by international firms if Mr Di Sibio were forced to exit and Ms Boland sought election as his replacement as global boss, said one senior insider. A partner on the global leadership of a rival firm said none of the current top bosses could credibly lead the firm if the demerger failed.
EY’s global bosses have been clear that a split would not proceed if either the US or UK, which together account for half of global revenues, did not agree. UK boss Hywel Ball said last week that if the current plan was scrapped, EY would have to look at other options.
Mr Di Sibio said in his message on Thursday that EY had already “made significant progress on many aspects of this transaction and [is] now focused on resolving a few remaining issues so that we can move forward”.
“We have a high degree of confidence that we will accomplish this,” he added.
“Partners can be pretty awful people, especially when it comes to prestige, power and money,” said one former employee.
EY said on Wednesday: “We remain committed to the strategic rationale that underpins Project Everest and believe that a deal can and should be done.” – Copyright The Financial Times Limited 2023
