EY’s US boss warns it is ‘premature’ to say whether break-up plan can be salvaged

Julie Boland, the head of EY’s US business, said it was too soon to predict whether the plan to break up the Big Four firm could be salvaged, two weeks after she pitched the group into turmoil by pausing work on the deal.

The decision to halt preparations for the split of EY’s audit and consulting arms has prevented an escalation in costs tied to the deal, known as Project Everest, while important issues remained unresolved, Boland told the Financial Times.

Boland cast the split into doubt this month when she told almost 4,000 US partners that it was being put on “pause”, as she raised concerns over the “health” of the audit business and the ability of the standalone consulting arm to meet its profit targets.

The firm’s leaders have committed to a negotiation “sprint” to resolve the issues raised by Boland, but she told the FT that it was “premature” to say whether the deal could be rescued without being fundamentally redrawn.

“I think we all recognise what’s outstanding, and what needs to happen,” said Boland, who has led the US business, the largest of EY’s member firms, since last July.

The proposed break-up is designed to liberate EY’s consultants and much of its tax practice from independence regulations that restrict them from advising the firm’s audit clients.

Boland’s comments came after four of EY’s most senior former leaders, including Steve Howe, who led EY’s US business for 12 years until 2018, told retired partners of fears that the plan was fundamentally flawed and threatened audit quality, according to an email seen by the FT.

The pause meant being “very judicious about what we’re spending” on transaction costs before resolving the points of disagreement, Boland said.

The costs of the transaction were set to run to several hundred million dollars by this month and reach $2.5bn, excluding bankers’ fees, by completion, according to people familiar with the matter.

EY announced in September that its top national bosses had agreed unanimously to put the break-up to country-by-country votes among its 13,000 partners, but Boland’s comments highlight the depth of disagreement among its most senior leaders.

Carmine Di Sibio, who leads EY’s global business and has been the driving force behind the split, said in February that the deal faced “no tremendous hurdles” apart from a possible downturn in public markets delaying a stock market listing of the consulting arm. If the split goes ahead, Di Sibio would lead the spun-out consulting arm.

“I think it was probably a misnomer to say just because we came out of feasibility [planning] everything was done and dusted,” said Boland. The intention in September had been to move to a new phase to “identify all the details that we could provide to our partners in order for them to vote on any transaction”, she said.

Partner votes were intended to begin in November but were delayed repeatedly before being postponed indefinitely after Boland’s intervention.

Some EY partners have accused the US business, which accounts for 40 per cent of global revenues, of “moving the goalposts” by reopening negotiations over which parts of the business should be allocated to each side. Boland has also been accused of a conflict of interest because she has been chosen to lead the audit-dominated business globally after a split.

Some partners told the FT they believed Boland was hostage to a minority of the US executive committee, who have insisted on getting more resources for the audit business.

Boland said the committee was “asking the right questions”. It would be “impossible” for a “handful” of people to “derail the process” under the US firm’s governance rules, she said. EY needed to have two “strong, thriving businesses” after any split, she added.

The tensions over the deal were also highlighted in a statement by Howe, former global bosses Bill Kimsey and Phil Laskawy and ex-global chief operating officer John Ferraro backing the pause.

They told retired partners, who had been agitating for assurances that their pensions would be protected, that “the unresolved issues are far more significant than global leadership publicly suggests, and therefore the Project Everest transaction may be in jeopardy”.

There were still concerns that the split “would threaten the firm’s ability to continue to deliver on its fundamental commitment to audit quality”, they said.

Kimsey and Laskawy masterminded the last significant break-up of EY when it sold a consulting practice to Capgemini for $11bn in 2000.