EY Eyes Giving More Power to Partners in Wake of Failed Split
Nov 7, 2023
Reforms would create three layers of oversight to run, guide firm
Effort to ‘modernize’ governance in works for two years
Ernst & Young LLP is weighing a governance overhaul that gives more power to its partners and principals through a trio of entities that would steer the $21.5 billion US firm.
The draft plan is just the latest reform the firm has rolled out since the US leadership team pulled their support for a planned spin-off of EY’s global consulting business and much of its tax practice, foiling efforts to break up the network.
EY US intends to set up a management committee tasked with setting firm strategy, an advisory group to reflect the views of partners, plus a governing board made up of 10 elected members and the managing partner, according to details of the proposal discussed with partners and principals last week and shared with Bloomberg Tax.
“Our focus on modernizing the governance of the EY U.S. firm was started more than two years ago, and is part of the firm’s practice of regularly reviewing current best practices of governance in professional services firms,” spokesperson Brendan Mullin said in a statement.
Since the April demise of EY’s break-up strategy, US managing partner Julie Boland refreshed her leadership team and tasked two of those picks with streamlining the firm’s operations. EY also eliminated about 3,000 jobs to address shifting demand for service.
Under the proposal, partners and principals would elect the governing board members, a majority of which would be CPAs. That body would be tasked with risk management, audit quality, regulatory compliance and the firm’s finance performance among other areas.
The board could opt to add independent members in the future.
A five-person nominating committee would put forward candidates for that main oversight body who would then be ratified by a vote of the partnership. Partners would have to sign off on the governance proposal before any of the reforms would take effect.
In contrast, the firm today is led by an executive committee that includes the managing partner along with leaders of the firm’s core service lines, regions and administrative functions. A council of 25 partners or principals advise that group and plays a role in nominating the managing partner and council chair.
EY seems poised to adopt a partnership-led approach built on consensus, a departure from its more corporate, management style, said Allan Koltin, who advises top accounting firms on governance and leadership matters but who is not involved in EY’s deliberations.
“They felt left out of the biggest discussion and decision in their firm’s history,” Koltin said of partners.
While the change may address partner concerns, slower decision-making could put the firm at a competitive disadvantage, he said. “Highly successful professional and financial services firms need to be ‘built for speed’ and committees and lots of partner input are rarely the answer.”
However EY expects that the changes would bolster decision-making and accountability, according to details of the proposal.
A series of blows have buffeted EY in recent years including the collapse of its audit client Wirecard and a $100 million penalty for ethics lapses in the US. Partners are set to name a new global chairman to succeed Carmine Di Sibio, the champion of the firm’s breakup strategy who has said he will retire next year.