EY’s UK bosses have told partners to prepare for a fresh cost-cutting plan and a stream of staff departures as they admitted to embarrassment at the collapse of the firm’s long-running attempt to split its global business in two.
On a call with partners on Wednesday, Anna Anthony, UK managing partner for financial services, said: “We have inefficiencies in our business, which we can start to address now so we are already working on reducing our costs.”
Anthony said the inefficiencies were one of the “lessons learned” by EY during the failed attempt to split its audit and consulting businesses and that the cost-cutting would be part of the UK firm’s plan for its new financial year, which starts in July.
The call, an audio recording of which was shared with the Financial Times, was convened after the collapse this week of the break-up plan, code-named Project Everest.
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Anthony did not give details of what the cuts would entail. EY has already been cutting back by clamping down on training costs and travel for internal events.
The announcement of the UK cutbacks followed a decision by EY’s US leaders to launch a separate $500 million (€453 million) cost-saving programme as part of a new strategy after they rejected putting the break-up plan to a vote by rank-and-file partners.
“Now definitely feels like a low point but it is important that we dust ourselves off,” said Anthony, who admitted to feeling “disappointed and embarrassed” by the deal’s collapse.
Anthony also confirmed that the costs racked up on the deal had reached $600 million at the global level, including $300 million of internal costs for work done by EY’s own staff. That amount was offset by “a saving of $400 million” from delaying or deferring other projects, she added. The UK firm had incurred an extra £10 million of its own costs, she said.
The costs would be capitalised, meaning they would not all be booked in the current year, she said, adding that it had not been determined precisely how the bill would be allocated among EY’s countries. The costs will ultimately be borne by partners, who are paid out of EY’s profits.
Total costs had the deal gone ahead had been projected to rise to $2.5 billion plus bankers’ fees. “The fact that we’ve pulled the plug now before we’ve done huge spend is good news to a degree,” a senior UK partner told the FT.
UK chair Hywel Ball told partners on the same call that there were risks associated with the collapse of Project Everest, including “to the way our brand is going to be perceived in the short term”.
While staff retention had improved, he indicated there was likely to be an uptick in numbers heading for the exits: “There will be an inevitable backlog of people who would normally have left but have actually been waiting to see what happens with Everest.”
He told partners to prepare for “a bit of a tough period” but added that the UK firm was on course for a third consecutive year of “strong double-digit growth” in the 12 months to June.
Ball added that he had briefed the UK accounting regulator, the Financial Reporting Council, on the abandonment of its break-up plan. “They were disappointed, but supportive and understanding,” he said.
He said that for some people in the UK firm, the abandonment of Everest would be “a relief” as there were some in the UK partnership who opposed the plan. – Copyright The Financial Times Limited 2023
