EY laying off US partners amid tough economic conditions

The accounting giant previously cut 3000 US workers in April, similar to moves at other professional services companies.

Ernst & Young is laying off dozens of partners across all US businesses, with a deeper round of partner cuts than usual as the big four accounting firm faces slowing demand for certain services and seeks to cut costs following its failed plan to break up the firm.

The cuts are largely concentrated on the advisory side of the US operation, affecting more than 10 per cent of partners in consulting and about 4 per cent in strategy and transactions, but they touch the audit and tax arms as well, people familiar with the matter said.

It equates to more than 100 partners in consulting and over 30 partners in strategy and transactions at both junior and senior levels.

EY began to inform affected partners last week, with notifications expected to continue this week, the people said.

Some US partners tend to be cut annually over unsatisfactory performance, but the cuts underway are larger than usual.

The cuts follow EY’s move in April to let go of 3000 US employees, or less than 5 per cent of its US workforce.

The cuts follow the failure to break up the business earlier in the year. James Gourley

Yang Shim, EY’s head of Americas technology consulting, told staff on Monday EY has chosen to make cuts in areas “where growth has notably slowed and where we have excess capacity,” according to a webcast reviewed by The Wall Street Journal.

Shim also noted the cuts in his division included partner-level lay-offs, as well as reductions in the number of rank-and-file staff.

EY and other accounting and consulting firms are dealing with slowing revenue growth, leading several of them to pare their ranks. The firms aggressively hired people during the pandemic, propelled by higher demand for consulting in areas such as corporate strategy and digital transformation. In the wake of the pandemic, attrition has been slower than firms anticipated.

The accounting firm said the US lay-offs affect a “limited number of people”. It also deferred start dates for some new hires in certain areas, a spokesman said.

“These decisions have been thoughtfully made with respect and fairness for all of our people and the future of our business,” the spokesman said. “EY will offer comprehensive support to those who are affected.”

“As part of our long-term planning, EY has been transforming our business to focus on the areas where our clients have the greatest needs,” the spokesman added.

Consulting demand tends to weaken or surge depending on the economy, whereas audit is a generally steady business line because of the reporting requirements for public companies. As consulting contributes to a growing share of these firms’ revenues compared with audit, the overall professional services industry has grown more cyclic.

KPMG laid off about 5 per cent of its US staff over the summer — including advisory, tax and back-office people — after cutting some advisory personnel or nearly 2 per cent of US staff earlier in the year.

In April, Deloitte cut 1.5 per cent of its US staff. Consulting giant McKinsey recently shrank its new partner class by about 35 per cent.

Revenue from EY’s Americas region, which includes the US unit, totalled $US23.62bn for the year ended June 30, up 12 per cent from the prior fiscal year, compared with a 19 per cent increase a year earlier. The Americas region represents the largest share — nearly 48 per cent — of the firm’s $US49.35bn in global revenue.

Globally, the consulting and transactions businesses collectively brought in $US22.17bn, about 45 per cent of the total.

EY also has been looking for areas to reduce costs and improve its structure in the US following the decision in April to scrap plans to split auditing and consulting into two firms.

Last month, the firm proposed governance reforms that would give US partners more say in voting related to strategy and oversight.

The US unit played a critical role in the split’s demise. Partners are expected to finish voting on the proposed changes later this month.

Janet Truncale, an Americas financial services executive whom EY named last month as its new global chair effective July 2024 will lead the firm’s efforts to move beyond the failed split.

The Wall Street Journal