Numerous global sectors have been affected by the worldwide recession. Many reputable businesses, like Twitter, Google, Meta, Microsoft, and others, have let go of thousands of workers globally. Employers are still being allowed to go. As a cost-saving measure, many businesses still want to fire their staff.
Recently, Ernst and Young decided to let go of 3,000 workers. This represents 5% of the company’s whole workforce. One of the “Big Four” accounting firms, EY, has decided to lay off employees. After facing objections from the U.S. executive committee, the company decided against splitting up its audit and consulting units. According to sources, the economy, high rates of employee retention, and overcapacity in many business areas need layoffs. Let us view this in detail in the article.
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Overview of EY
When Ernst & Whinney and Arthur Young & Co. combined in 1989, EY started as Ernst & Young LLP. Founded in the 19th century, Ernst & Young has a long history. It is an international partnership for professional services, with its main office in London, England.
Thus, EY is one of the most extensive professional services networks globally. It is regarded as one of the “Big Four” accounting firms, together with Deloitte, KPMG, and PwC. It offers its clients services in assurance (which includes financial audit), tax, consulting, and advisory.
History of EY
In the past, fewer firms and more partners have concentrated in the accounting industry. In this sense, the establishment of Ernst & Young in 1989 was a logical progression. It flourished from earlier rounds of competition that promoted concentration and growth at Ernst & Young. But eight companies had ruled the accounting industry for over 50 years before Ernst & Young was founded. The “Big Eight” was the name given to the elite group by Fortune magazine.
EY operates as a network of affiliated businesses. They are set up in a partnership as independent legal entities. It employs 312,250 people in more than 700 offices in more than 150 nations. The current block of the company was established in 1989 due to the union of two accounting companies, Ernst & Young & Co.
EY introduced its new name and logo on July 1, 2013. In place of Ernst & Young, they now go by EY. In a news release, they claimed that the new EY logo embodies the qualities required to establish the best brand in public accounting.
In Louisville, Kentucky, USA, EY established a $4.4 million professional services facility in 2018, creating 125 new jobs. In addition, it declared that it would establish a tech hub in Nashville, Tennessee, USA, bringing 600 jobs to the area.
The seventh-largest privately owned company in the United States in 2019 was EY. EY has been consistently listed among the top 100 companies to work for over the past 25 years. This is according to Fortune magazine, as of 2023. More so than any other accounting business, it is remarkably longer.
EY services and its employees
For both public and private businesses, Ernst and Young offer assurance, tax, auditing, consulting, enterprise risk management, and technology and security risk services in a variety of industries, including:
- automobiles,
- chemicals,
- financial services,
- real estate, health, and
- entertainment
The above listed are together with an array of other sectors.
As of 2022, EY had 365,399 workers working for its member companies. By personnel count, they are the second-largest accounting business.
- The audit sector employed 112,019 people.
- The tax sector employed 71,231 people.
- Employers in consulting totaled 109,571.
- Transactions and strategies used by 24,355 people.
- In practice support, there were 48,223 workers.
In 2022, EY’s revenue will be about $45.4 billion. EY made plans to dissolve as a public company in late 2022. This is a significant upheaval for EY and the big four accounting firms.
EY’s breakup plans
On July 28, 2022, Carmine Di Sibio gave a firm-wide webcast in which he revealed the specifics of the EY breakup plan. Assureco and Newco are the two firms that will exist. The acquisition will be put to a vote between November 2022 and January 2023. The most likely time for the transaction is near the end of 2023.
Assureco is valued at $20 billion
Assureco will still use the ‘old’ EY name. The previous member firm structure that EY currently has would be maintained under Assureco. Assureco would serve as an independent auditing company. By dismantling this organization, EY intends to be able to compete for more audit jobs. According to EY internal board members, individuals could advance to the level of audit partners more quickly. Due to the lack of competition, this would be a unique chance. Assureco will employ some members of the tax team.
Newco is valued at $25 billion
Newco won’t conduct any open audits. The consulting firm that goes public will be this one. In a partnership structure, partners will continue to own the business. They will resemble Goldman Sachs in several ways. Most Newco would be owned by partners, with the remaining shares being available to the general public and employees. EY sees a significant possibility in a consulting firm with a sizable tax practice. The only consulting company with separate tax practices would be them.
The new company will invest a lot in marketing like Accenture did after it split from Arthur Andersen. Given that Accenture’s annual revenue exceeded $50 billion, it is understandable that EY would seek to separate its consulting division. After the split, many predicted that EY would face difficulties.
The CEO predicted that EY would complete this split by the end of 2023.
- The 15 most prominent locations must be gathered in the first stage to develop recommendations.
- The second stage entails EY holding partner education workshops at member firms.
- The partners would vote on the agreement in the third stage.
- EY would carry out the split’s logistics.
- Newco would list on the stock market.
According to EY, pay and promotions will improve after the purchase. After the merger, they expect double-digit growth in both businesses.
Updates from EY
EY will select the CEOs of Newco and Assureco in December 2022. Newco’s global chair and CEO will be Carmine DiSibio, while Assureco’s global chair and CEO will be Julie Boland. EY’s current US CEO is Julie Boland. The CEO of EY on a worldwide scale is Carmine DiSibio.
EY appointed Jamie Miller as the CFO of Newco on January 10, 2023. G.E. and Cargill both previously employed Jamie Miller as their CFO.
On March 10, 2023, the breakup plan at EY was put on hold due to internal strife within the company.
EY declared on April 11, 2023, that they were abandoning their Project Everest initiative. They intend to divorce eventually, but not just because of Project Everest.
EY will host a webcast in the United States on April 17, 2023, to go over the following steps. In the U.S., 3,000 individuals will lose their jobs. Audits and taxes won’t be affected. The layoffs will primarily be associated with M&A and venture capital, with a concentration on consulting.
EY layoffs Latest Update
The United States has begun seeing layoffs at financial services giant Ernst & Young (EY). According to sources, EY announced that it would eliminate over 3,000 employees in the U.S. because of “overcapacity” at the company.
According to a report from AFP, Ernst & Young’s more extensive restructuring plans also include layoffs. It continues that these layoffs at EY only account for less than 5% of the U.S. labor force. Thus indicating the company’s overcapacity.
The choice was made after the company gave up plans to split its audit and consulting divisions in response to U.S. executive committee opposition. According to reports, the layoffs are necessary due to the economy, high rates of staff retention, and overcapacity in several areas of the business. The majority of the cuts will be made in the consulting industry.
“We have decided to separate about 3,000 US employees or less than 5% of our U.S. workforce. It is done after evaluating the effects of the current economic climate, strong employee retention rates, and overcapacity in some areas of our firm.” An Ernst & Young spokesperson said this.
Ernst & Young just announced the cancellation of its “Project Everest,” and now the company is laying off employees. Due to a “conflict of interest,” a project to separate EY’s auditing and consulting departments for growth and fewer conflicts was shelved.
According to the report, the representative for Ernst & Young also said that these layoffs “are a part of the ongoing management of our company. It’s not the outcome of the recently completed strategic review.”
The “Big Four’, a British financial services behemoth renowned for its work, includes Ernst & Young as one of its members. Yet the announcement of layoffs at EY comes as the global economy is experiencing a slowdown.
Why is EY laying off employees in 2023?
The Big 4 accounting firms—Deloitte, EY, KPMG, and PwC—control most of the world’s accounting business. Amid the pandemic, these businesses hired more people.
Despite not being the first of the Big Four to join the firing spree, EY recently made the difficult choice. Due to excess capacity and the current state of the economy, its U.S. employees are receiving pink slips. The company’s consulting division is anticipated to be primarily impacted by the job layoffs. EY rejected the claim that Project Everest, a failed attempt to split up activities, was the cause of the layoffs.
Conclusion
To address “overcapacity” in some business areas, Ernst & Young is cutting 3,000 jobs in the U.S., or around 5% of its American staff. A recent split between the company’s auditing and consulting departments was abandoned. But a spokeswoman said the cuts had nothing to do with the abandoned plan. According to the press, they will be more demanding on EY’s consulting positions. As prospective clients tighten their belts and dealmaking slows, EY joins consultants like McKinsey, Accenture, and KPMG in laying off staff.
When EY last made a significant personnel decrease, it was in September 2020, when the company fired hundreds of workers to save money amid the COVID-19 pandemic’s early phases.