EY Europe overhaul worries partners about damage caused by Wirecard
The EY accounting group must centralize power in a new European management team, pooling resources across the region, but fearing that any financial impact of the Wirecard scandal will also be shared.
The redesign breaks with the Big Four’s federated business model in an attempt to cut management costs in half and will allow the core team to decide on partner compensation, according to people briefed on the plan.
Some partners fear that the new structure will result in the sharing of Wirecard-related penalties beyond the German team that handled the work. EY audited the payment group for a decade until it collapsed into a fraud scandal last year.
“The French partners are ballistic about this because they say ‘why should we pay now for the Wirecard mess?’” Said a person close to the company.
Another person familiar with the matter said there was “not a lot of transparency” on whether the financial consequences of lawsuits or regulatory actions related to Wirecard would end up being shared by partners in other places. country.
However, an EY person involved in creating the new structure said those concerns were “unfounded,” adding that separate legal entities would be kept in each country. The Big Four have traditionally shielded themselves from the spread of liability in their global operations by using separate partnerships in each country where they operate.
EY announced in February the creation of a new Western Europe region, without providing details of the implications. The regional grouping, which includes 27,000 employees and $ 4.7 billion in annual revenues, will include Germany, France, the Netherlands, Italy, Spain and 20 other countries in Western Europe and North Africa and is expected to launch on July 1. United Kingdom, Ireland or Scandinavia.
EY and its three main rivals – Deloitte, KPMG and PwC – have been hampered by their traditional business model in which profits and resources are largely confined to national member companies or small sub-regions, industry executives said. .
Within the framework of the EY plan, businesses such as advice and advice on mergers and acquisitions will be grouped together in a single income statement. The extent to which audit and taxation can be merged is limited by regulation.
Integration will go further than existing payments between regions, which reflect the work referred by partners from one country to another. Currently, partners in each country also contribute a small portion of the revenues to fund shared international investments such as technology and international executive salaries.
European management will decide the remuneration of partners in each country, although there will be some consultation with local management, people familiar with the plans said. Partners in the most profitable countries are likely to continue to retain a higher share of the profits.
A person close to suspicious partners said it was a “strange time” to align German operations with those of other countries.
The Big Four firm faces an avalanche of lawsuits in Germany and has lost a number of prestigious audit clients in Europe’s largest economy, including Deutsche Telekom and Commerzbank.
The restructuring of EY, which is part of the “NextWave” strategy initiated before the collapse of Wirecard, aims to reduce costs and improve customer service by reducing “silo behavior” and enabling teams of different country to work transparently, people familiar with the plan said.
International integration and staff sharing are particularly important in consulting.
“This is the thing that all of these companies have been trying to crack,” said a former global senior executive at another Big Four Firm. “It’s the holy grail of sorts. . . If they are able to deliver it, it is better for the customers and that is a competitive advantage. “
The new Western Europe sub-region will replace three smaller sub-regions, with the aim of cutting management costs in half, the person involved in the planning said.
EY declined to comment.