Earlier this week WSJ’s CFO Journal posted a piece entitled “Ernst & Young, After Its Failed Split, Could Find Itself Vulnerable to Staff Poaching.” They might as well have made the headline “Hey Big 4 Firms, There’s a Carcass Full of Meat Here For You to Pick Pieces Off Of” because the premise of the whole article is laying out in graphic terms just how exposed EY is right now and how easy it is to grab talent from them.
Let’s be clear: EY was always vulnerable to poaching. Months after the Project Everest news hit business rags everywhere, PwC Global Chairman and 2012 Going Concern Hottest Accounting Firm Leader winner Bob Moritz stated very clearly that his firm would be happy to take unhappy senior managers — who would not get huge payouts from Everest — and another partner told FT there was “a concerted effort” to “unseat EY partners.” Said that partner, “if we don’t unseat them then at least we disrupt them and push up their cost base.” There is no doubt other firms were lurking around in the shadows trying to lure talent away too, they just weren’t as obvious and trollish about it as PwC.
With Everest now a pile of smoldering ashes, there is a new kind of unhappiness rival firms can capitalize on: the disappointment of missing out on the promise of huge payouts. Even for senior managers who weren’t on the Everest money train, leadership believed billions in revenue would be left on the table if they didn’t cut audit off from consulting like Bugs Bunny taking a saw to the state of Florida. There’s no doubt that more than a few folks up the ladder were sticking around to see if those billions of dollars from a liberated consulting business came to fruition.
Anyway, let’s get back to WSJ:
The botched split attempt, after more than a year of work on it, has raised questions over whether rivals will more aggressively seek EY talent and if EY staff will look for an employer with a less embarrassing blemish, academics and advisers said. EY’s top executives, in firmwide calls the day after the split was halted, expressed worry that the failed split had weakened it and would encourage rival firms to poach staff.
“They may want to solicit some of the staff who they perceive were, at the very least, frustrated and unhappy about not being able to split,” said Joshua Ronen, a professor of accounting at New York University, referring to other Big Four firms.
Who is raising these questions? They are not questions, they are exclamation points. TALENT WILL GET JACKED FROM EY! For almost a year now the uncertainty of Everest has scared people away.
Some potential exits could come from employees who delayed plans to depart amid the effort to split. Last week on a call with partners, EY’s U.K. head, Hywel Ball, said he expects a wave of departures from staffers who wanted to leave but were waiting on the fate of Project Everest, as the planned split was known. He said U.K. retention levels were 85% this year, up from 81% a year earlier. Anna Anthony, a senior executive at EY’s U.K. arm, on the same call said the firm is working on reducing costs, which will be reflected in its plan for the fiscal year beginning in July.
Well at least they’re giving people a warning that they may get the axe so they can start working on that resume now.
Here’s an optimistic view: the bank run of talent will mean EY increases incentives to keep people around. You mean like those mid-year bonuses no one got last year?
The staffers most likely to leave EY are senior managers, who are approaching the level at which they typically would buy into the partnership, given the related incentives, [associate professor of accounting at the University of Washington Ed] deHaan said. The instability at the top, disagreements between the U.S. and international entities, and the financial implications over a split collectively could spur these managers to exit for another firm, he said.
Senior managers in the audit business typically serve as intermediaries between partners and the staff. “The more you hear about turnover, that creates kind of a scare from the sense of confidence elsewhere in the firm,” said Dane Dowell, an accounting and auditing consultant, adding he expects EY will work to retain people through bonuses and other incentives.
Scroll all the way down and you find the reality. Working at EY has sucked for a while now, the firm was already watching its wallet before Everest burned a half a billion dollar hole in it, and leadership is going to need to recover all those many millions lost to the pipe dream of a fully-independent consulting arm. Hell yeah they’re gonna lose people.
In addition to the prospect of infighting, the job has become more grueling for some workers. EY partners and staff have been under pressure to help maximize revenue and cut costs in a move to improve financial performance and boost the valuation ahead of the split, a U.K. partner said. Leaving the door open to a future transaction, the partner said, risks ongoing uncertainty and cost cutting when morale needs a significant boost. “It just means the uncertainty and the paralysis will continue,” the partner said.
Considering EY just fired 3,000 people due to “overcapacity,” losing talent to this mess shouldn’t be a problem for them.