Carmine Will Not Let That Split Thing Go

Posted on by Going Concern News Desk
the EY logo bandaged up

Only days ago, WSJ ran the headline “EY Breakup Plan Is Really Dead” and included a quote from EY Americas Vice Chair of Tax Kevin Flynn, lifted from a recording of a staff call: “My message to everyone about Everest is, it’s behind us. Let’s not spend time in the rearview mirror.” And days before that we found out that EY will have to borrow something like $300 million to plug the Everest-sized hole the split plan left in their wallets lest partner payouts be affected by its failure. Meanwhile, leadership is saying to stay close to clients and telling staff “we need to do a much better job…in billing every hour we can get our hands on” (that’s a direct quote from Americas Deputy Managing Principal Steve Payne). So we all pretty much assumed EY leadership would slink away to lick their wounds, throw a few people under the bus, and hope people forget about the deal gone wrong, right? Wrong.

Apparently EY Global CEO and future bus speed bump Carmine Di Sibio is not letting it go. This is a quickie published May 1 in FT:

EY’s global chief executive, Carmine Di Sibio, conceded the plan to split the firm in two was “on pause for a while”, in his first public comments since US executives last month nixed a spin-off of its consulting business.

“We are not a corporate where the CEO says something and it just gets done,” he told the Milken Institute. “We’re a series of partnerships… We couldn’t get a particular group of people to vote for it and therefore it’s on pause, and it’s really on pause for a while.”

What do we think? Denial? Optimism? A steadfast commitment to independent consulting? Or is this just his way of repackaging Everest’s failure into a small disagreement among 13,000 people?

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Inside Ernst & Young: Talking Points on Lehman Brothers

If you’ve ever worked at a Big 4 firm, you’re aware that when big news hits the MSM, A) it’s never good and B) there is typically some sort of communication from management reiterating the firm’s position on the matter, everything is cool, thanks for your hard work, etc. etc.

With last week’s revelation of the bankruptcy examiner’s report on Lehman Brothers, E&Y seems to be following this protocol as it relates to the troops on the ground. As you would expect, leadership is keeping their heads about this while in the background in-house counsel is likely engaged in all-night smoky room strategy sessions.

We checked in with a few of our Ernst & Young sources to get an idea of what people were thinking and so far, there doesn’t sound like there are any signs of panic (yet!).


From one source:

Overall reaction from what I gathered is pretty muted. We did get a call from some of the higher-ups saying that we reviewed our work and that we feel that our audit was completely adequate and that Lehman’s failure was nothing more than the same systemic failure of two of the other major banks and that we plan to defend ourselves vigorously. Presumably, the examiner’s report really didn’t give any ah-ha moments….

[I]s there a possibility of a payout at some point? It’s possible. Are we worried that we’re the next Arthur Andersen? I don’t think so.

So at least on the surface, E&Y leadership is communicating that what came out in the report wasn’t surprising and that the defense of the firm’s position will be, as usual, vigorous.

That doesn’t of course stop the speculation:

I heard from a technical guy there was some concern because they didn’t issue a going concern opinion [for the previous audit].

And as you might expect, “I heard that [the firm] helped cook the books and is deep shit,” with the book cooking being arguable but pretty hard to prove and the “deep shit” aspect being a given.

Some Ernst & Young partners are probably losing sleep just thinking about the potential liability involved here but eventually they’ll get over it (until something else comes up).

No partner worth their salt got admitted to the partnership focusing on the downside. The problem is that when people use consistently use words like “deceptive” and “misleading” to describe Lehman’s accounting this reflects poorly on the firm since they were comfortable with the treatment.

And because it’s still busy season for a lot of people, they are focused on the shitstorm that currently surrounds them, not one that will likely drag on for years after they’ve left the firm (voluntarily or otherwise).

Anyone with more insight or thoughts on the matter, get in touch with us and we’ll keep you updated on the chatter inside E&Y.

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