An Executive Showdown May Make or Break EY’s Separation Plans

Some of EY’s retired partners are playing a key role in efforts to thwart global consulting powerhouse EY’s plans to separate its consulting and audit practices, according to a report by The Wall Street Journal. The firm paused its preparations earlier in March after its U.S. arm demanded the deal be reworked to give auditors a larger share of the highly profitable tax practice. The unexpected move has sparked infighting and rifts within the company and has potentially put the deal in jeopardy, according to people familiar with the situation.

A planned meeting in Palo Alto, California is primed for a potential showdown between the plan’s champion, Global Leader Carmine Di Sibio, and the person most likely to bring it to a halt, EY’s U.S. Leader Julie Boland, with tensions reportedly having escalated sharply in recent weeks. Boland recently raised questions about the split’s impact on the financial strength of the two new businesses that would be created by the split, with Di Sibio responding with a direct appeal to EY’s more than 13,000 partners, advising them in an email that they had “the right to vote on whether to proceed with a transaction,” according to a copy of the message reviewed by the Journal.

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The unusual structure of EY, similar to that of the world’s other largest accounting firms, pits the two executives against one another, with Di Sibio, who serves as the head of the global network, still needing the approval of dozens of independent firms and thousands of partners to proceed with the breakup. The U.S. demands could impact the amount of money raised by the split, potentially reducing a significant financial windfall for the global partners, making the deal less attractive.

Retired EY partners, including former leaders of the firm, have also proved to be an influential contingent, though they are unable to vote on the deal. Many retain connections to the firm via friends or family, and others serve as executives or board members at major companies, controlling valuable business or potential business for the firm. With more than $7 billion in promised payouts to retired U.S. partners not backed by a specific pot of money, the retirees are concerned that a weakened audit-focused firm may not generate sufficient revenue to meet these payments in the future.

With the latest round of objections roiling the firm’s global partners, it remains to be seen whether or not Di Sibio will be able to successfully navigate the new challenges and successfully split the business, potentially unlocking billions of dollars in new revenue.