It is a didactic case for business schools that draws on topical issues and debates reported in the FT
Project Everest: the ascent begins
In the late spring of 2022, Carmine Di Sibio, global chair and chief executive of EY, embarked on a bold plan to disrupt and reshape the large global accounting and consulting firm, and with it the auditing and advisory industries. Under “Project Everest,” the Big Four firm would be split into two entities: the traditional audit-focused partnership network and a newly formed public consulting firm (NewCo).
EY’s third core service line, tax compliance and advisory, would be split between audit and advisory businesses. The EY brand was to remain with the accounting firm. Upon approval and implementation, partners remaining with the audit firm were in line to receive multi-million dollar payouts while consultants moving into the new consultancy would receive shares in NewCo.
EY plans a global audit spinoff in a drastic reorganization of the Big Four
Inside EY’s Breakup Plan: Why It Could Dramatically Reshape the Big Four
The mountain is high
Project Everest was a complex undertaking. The big four global companies are organized as separately owned partnership networks in individual countries. Breaking up would require approved voting partners in EY’s significant territories. Additionally, the auditing industry is highly regulated worldwide and Project Everest would require approval from several independent regulators.
The network’s 390,000 partners and employees were to be assigned to the new auditing and consulting activities. In addition, NewCo would require the successful completion of a stock IPO and large bank loans to raise $30 billion to cover pension liabilities and payments to partners on the audit side. NewCo’s business case was based on high future revenue growth rates for the consulting business.
Competitors point of view
While EY leaders believed their mountaintop vision was the clear future of the auditing profession, their Big Four competitors announced that they had no plans to disband and would keep their current integrated business models.
Deloitte boss refutes EY’s thesis for separation
The mountain starts to shake
By the end of 2022, signs have emerged that the Everest project may be in trouble. The objections came from retired partners. Audit partners were uncertain about the level of technical and expert resources that would remain with the auditing firm following the split, and tax personnel were confused about where they would go.
Furthermore, global economic conditions were changing. Significant layoffs were announced in accounting and beyond, and interest rates were rising. The views of regulators on the proposed split were still publicly unknown.
The EY split stalled due to infighting between the partners over the fate of the tax experts
EY in disarray as the internal war over the breakup plan erupts into the open
The fast trip down the mountain
In early April 2023, EY dropped Project Everest, announcing that the US firm had decided not to approve and go ahead with the breakup. Consulting partners chafing at independence rules were left unhappy, employees were unsure of future strategy, and clients were left with many questions. Above all, the future of EY’s leadership globally and in the United States was highly in doubt.
EY cancels breakup plan after months of internal dissent
EY’s US firm to embark on $500 million cost savings after scuppering disruption plan
Julie Boland: EY leader in the midst of a ‘civil war’
Questions for discussion
-
Why was the Everest project not completed? Was it mainly due to one or more of the following: (a) A bad strategy? If yes, how? (b) Poor execution of plan to divide enterprise into components? What elements of the plan were executed poorly? (c) Market and/or financing conditions? Should these conditions have been better anticipated by EY leadership?
Read more about EY here.
Jeffrey Johanns is an associate professor at the McCombs School of Business, University of Texas at Austin
—————————————————-
Source link