Big changes are on the horizon for consulting firm Ernst & Young, as a senior official reported to Reuters that the firm’s 13,000 partners are expected to give their “massive approval” to a plan to split the organization into separate auditing and consultancy units.
Just over half of EY’s 145 country networks will vote on the proposed split, with networks that vote against the change remaining with EY, which will include tax, advisory, and sustainability services along with auditing. The country networks voting in favor of the split will join what is currently dubbed ‘Newco’, which will provide more lucrative consulting services accounting for $25 billion of revenue and 7,000 partners relative to the remnant of EY’s $20 billion and 6,000 partners.
EY initially denied reports that it was planning on separating out its audit and advisory units in July 2022, but in September confirmed that it would be placing the idea to a vote by its 13,000 global partners. The ‘Big Four’ firms –collectively made up of EY, Deloitte, KMPG, and PwC– have been on the receiving end of additional scrutiny by regulators, with legislators raising concerns that their vastly more lucrative consulting offerings could potentially undermine their ability to conduct independent audits of companies receiving both services. Britain is already requiring that the Big Four firms separate their auditing and consulting arms by mid-2024 to minimize conflicts of interest.
The vote is scheduled for April 2023, with the outcome to be quickly known afterwards. Should the split be approved, the goal is for ‘Newco’ to be ready for a stock market debut and issuing bonds by the end of the year. While the timing is dependent on market conditions and could potentially move into 2024, the firm’s partners stand to reap windfalls worth millions of dollars each.
The remaining Big Four have all in turn denied plans to follow EY’s lead, at least for now, though growing regulatory pressure in the U.S. and the U.K. may lead to a change in tune as time goes on. If EY’s vote is successful, the change would be the biggest shakeup in the professional services industry since the dissolution of Arthur Andersen, whose 2002 collapse led to the demise of energy firm Enron in a major national scandal.
