Business

EY attempts to smooth path to vote on radical break-up of firm

Big Four firm is planning to split its audit and consulting units

EY Tower in downtown Toronto. The Big Four firm is planning to split its audit and consulting units globally.

Michael O’Dwyer
Stephen Foley
Sarah White
Sun Nov 27 2022 - 17:33

EY has created a new decision-making panel to resolve wrangling over who should get what following the planned split of its audit and consulting businesses.

The start of country-by-country votes among EY’s 13,000 partners on whether to back the separation has already been delayed until next year as the firm grapples with the details of which assets, liabilities and people should be retained by its audit business if the split goes ahead in late 2023.

Bosses at the Big Four firm have now agreed to form a “transaction committee” with an equal number of representatives from each business, as they face concerns from some current and former partners that the audit division could be harmed by the split.

The arrangement is intended to speed up decision-making as leaders battle to keep the timeline on track. The view within the firm was that progress on the break-up had become “very bogged down”, said one partner.

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While the headline points of the split have been agreed, the thornier details will be delegated by firm’s global executives to the new committee. It will have about 10 members and bosses are considering appointing a person independent of both businesses to adjudicate in the event of a deadlock, according to people with knowledge of the planning.

Carmine Di Sibio, global chair and chief executive, will not be on the committee, said two of the people briefed on the plans.

EY has yet to announce who will head either the audit or consulting business after the split but Di Sibio is widely expected to run the advisory arm.

His perceived closeness to the consulting business led 150 of EY’s retired US partners to question whether he was properly protecting the audit side of the firm, which will be responsible for paying their pensions after the break-up.

The new governance committee could adjudicate on matters such as the allocation of real estate and intellectual property between each side, said one of the people familiar with the plan. Certain key details of the transaction will also still need to be decided after the partner votes.

EY said the committee would “oversee the transaction and ensure balanced representation of both businesses”.

Separately, three retired partners in France are also agitating for a cut of the proceeds from the planned spin-off of the consulting arm, which they say would reflect their contribution to building the business.

Partner profits had been reduced after 2012 when EY accelerated its investment in consulting so the money raised should be shared “equitably”, lawyers for the former partners wrote earlier this month in a letter to Di Sibio seen by the Financial Times.

“The current audit partners will receive a substantial amount of money, corresponding to past investments made by the audit business to create the value of the consulting business,” they said. “It would be particularly unfair that the former EY partners who fuelled this value over the past 10 years were to be left out of this process.” – Copyright The Financial Times Limited 2022

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