Business

EY’s new global boss leaves strategic questions unresolved

Janet Truncale’s alternative to failed spin-off of consulting arm is criticised for lacking detail

Janet Truncale's alternative strategy for growth, branded “All in”, has been criticised in some quarters as being thin on detail

Tue Jul 2 2024 - 07:26

Janet Truncale presented Carmine Di Sibio with luggage tags at a joke-filled retirement party at New York’s Glasshouse venue last week, cheekily referencing how he would have to get used to travelling commercial again.

Truncale finally picked up the keys to EY’s corporate jet on Monday, seven months after being chosen to succeed Di Sibio as global chief executive of the Big Four accounting firm. Now she also has to pick up the pieces from the collapse last year of his plan to split the firm in two.

Launching her own strategy on Thursday, just hours before the retirement party, she ruled out immediately reviving the plan, called Project Everest. It would have spun off EY’s consulting business to free it from the conflict-of-interest rules that bar it from working with EY’s audit clients.

But her alternative strategy for growth, branded “All in”, was criticised in some quarters as being thin on detail while sidestepping some of the biggest questions that Everest had raised.

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Executives from rival firms are watching closely to see if Truncale can restore a sense of direction to the $50 billion-revenue organisation, or whether they will be able to pick off disillusioned partners or clients.

“They had a lot of time to prepare and we need a lot more substance,” said one person who tuned in to a webcast in which Truncale outlined the strategy for EY’s 14,000 partners.

The person said they exchanged disappointed messages with other listeners during the 75-minute call as they struggled to discern concrete plans and came away confused on Truncale’s attitude to Everest.

In recent months, rumours have circulated inside the firm that the project is back on, with people pointing to cost-saving lay-offs or other structural changes to argue that work is again under way. Truncale nixed such talk with the staff memo on Thursday, saying the firm should “recommit to working together as one organisation”.

Nevertheless, she said on the webcast that the issues that prompted Everest remained, according to several partners, reinforcing an impression that she would be open to revisiting some kind of split in the longer term.

“The idea that it is not off the table but that there is nothing on the table, it satisfies neither those who want it to come back or those who thought it was a bad idea,” said the webcast listener.

Because EY audits most of America’s largest technology companies, including Google, Amazon and Oracle, its consulting arm is at a disadvantage on big IT projects compared with rivals that can partner with those companies. Truncale on Thursday promised “differential investments” in other services to grow the consulting arm, such as business transformation, managed services and sustainability advice.

In a memo to EY’s 400,000 staff, Truncale indicated she would put more flesh on the bones in the coming months. People with knowledge of the decision-making process said that the work of knitting the global strategy together with plans for individual countries and business lines was still at an early stage. The slow pace has frustrated some senior executives below Truncale, according to the people.

In a statement, the firm said there would be “an ongoing dialogue with EY partners and people” as “All in” is rolled out. One person said thousands of staff and partners had already had input into the strategy through hundreds of hours of workshops, discussions and surveys.

Truncale’s ambiguous position on Everest has allowed some to continue hoping for a spin-off or sale of the consulting arm — and for the personal financial windfall that Everest once promised through cash payments to audit partners or equity stakes for those in a newly independent consultancy.

The landscape will certainly be different later in Truncale’s four-year term. US managing partner Julie Boland, blamed by Di Sibio for blocking Everest, has two years until the end of her own tenure. In the UK, a leadership race is already under way to succeed the retiring Hywel Ball.

At the same time, EY is in the midst of a different operational overhaul, aligning its structure around sectors. While consulting and audit work for financial services clients is already combined under one management in some geographies, there will soon be more co-ordination in other sectors, from consumer and health, to industrials and energy, to technology, media and telecoms. Over time, that could shift power dynamics within the firm.

A key test of “All in” will be whether high-performing partners remain energised and committed to the firm.

When one senior partner decided to leave recently, a colleague tried to dissuade him by insisting Truncale would deliver Everest 2.0. The pitch did not work.

“During Everest, everyone was sticking around the hoop, waiting for the payday,” the former partner said. “Now there is an enormous vacuum of leadership and I know of many partners, high-performing partners, who want out. As the market improves, the tempo of departures will increase.”

Laura Empson, a professor at the University of London’s Bayes Business School specialising in the management of professional services firms, said that Truncale’s fuzzy strategy launch could yet prove itself, if a robust decision-making process is put in place.

“The solution to intractable conflict comes from a careful process of consensus building amongst people who collectively have a lot to lose,” she said. “The act of building that consensus is not necessarily seen as an act of leadership until it is finally resolved.”

Copyright The Financial Times Limited 2024

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