Ernst & Young plan to integrate operations 'a bold shift'

ERNST & YOUNG is to launch the biggest shake-up of the professional services industry since the collapse of Arthur Andersen by merging its European partnerships, including its Irish partnership, and integrating a further 42 countries into a single unit.

The move, to be announced today, is the boldest shift by a Big Four firm to overcome the country-level legal and regulatory restrictions that have limited the national partnerships and frustrated their efforts fully to mirror the global reach of their multinational clients.

The new unit totals 87 countries - covering Europe, the Middle East, India and Africa - and will be led by a single management team, headed by Mark Otty, the UK chairman.

The move effectively shifts control of the Irish partnership to London. In Ireland, Ernst & Young has around 45 partners based in offices in Dublin, Cork, Galway, Limerick, Waterford and Belfast. They will now be required to vote on the change in their structure.

The accountancy firm employs more than 1,200 people in Ireland across the fields of auditing, tax planning and business planning. Paul Smith is the managing partner of the Ernst & Young Ireland partnership and the company is the organiser of the high-profile Entrepreneur of the Year awards.

The firms in the new single region already work closely, but this will mark a new step by integrating them financially with a single profit-sharing scheme and region-wide investment decisions.

The Big Four networks face a perennial struggle between the desire to meet clients' worldwide needs, the strict national regulations governing audit firms and the desire to limit the risk of a catastrophic lawsuit against one partnership bringing down the entire network.

"We've looked at the risk and we don't believe we've taken on appreciably more risk by doing what we're doing," said John Ferraro, Ernst & Young's global chief operating officer. "In terms of operating across the 87 countries in a more connected and integrated way, we think there are a lot of benefits to that."

The 3,330 partners in the affected firms must agree on the changes, and votes are scheduled for May following a roadshow by senior executives. Ernst & Young plans fully to merge its 45 European partnerships into a single legal entity - a practice made possible by recent changes in European regulation, but still subject to voting by each partnership. Firms elsewhere will be formally combined where laws permit.

James Turley, global chairman and chief executive, said: "The moves reflect the increasingly global nature of our borderless business environment, which is changing the expectations of both our clients and our people - and which requires nothing less than a truly global approach."

The change will also lay down a challenge to rivals PwC, KPMG and Deloitte to step up their own integration efforts or devise alternatives. Although they are global brands, the four are, in fact, networks of largely autonomous national firms, which has sometimes led to patchy quality.

- (Financial Times Service)