EY boss refutes Deloitte’s argument for splitting up

EY’s plan for a split of itself was in danger of unravelling on Thursday. On Thursday, Deloitte’s global boss made public a clear point-by-point refutation.

Joe Ucuzoglu posted a 20-minute video on Deloitte’s website. He said that the firm had thought about separating its consulting and audit businesses as EY wants, and even talked to bankers about it.

He said that the conclusion was not even close and that EY’s plan could serve as a ” roadmap” for the profession was wrong.

He said, “Some of us are around for a while and have seen this movie before.” History is full of examples of great aspirations around these types transactions. I’m sure they sounded amazing and had beautiful slide decks. There are many big promises. Although it’s easy for deal fever to take over, the deals have never been fulfilled as planned.”

Ucuzoglu stated that he was speaking to Deloitte partner, in response of conversations and questions since January when he assumed control of the firm.

He said that he had seen an IPO of a consulting company that ended with the BearingPoint bankruptcy and two large trade sales to consultancies that were generally not looked upon positively. This was in reference to a spinout of KPMG and sales by EY and Capgemini, as well as sales by PwC and IBM over two decades.

Carmine Di Sibio at EY, Ucuzoglu’s counterpart, said that consulting and audit would grow faster as separate entities. She is free from conflict-of interest rules that restrict the services that can be sold to clients. Supporters of the split argue that regulators are increasingly challenging multidisciplinary models.

Ucuzoglu was not in agreement. Ucuzoglu disagreed. . . Actually, regulators have asked me a lot of questions recently about the operation of the separation transaction.

EY’s Project Everest plan, which is codenamed Project Everest by the firm, would see it raise equity and debt to pay cash out to its partners on the audit side. Instead of receiving shares that they can sell over time, partners in the consulting firm would see their take-home salaries cut. Some critics have claimed that the plan is intended to enrich current senior partners.

Ucuzoglu stated that there is no “free pot of gold”, but only trade-offs people can discuss.

“Some of you closer to retirement have pointed out to me that a split could be a good idea if you are nearing the end your career. If it went well, you would see the upside. . . You’re going to be retiring anyway.”

EY was not mentioned by Ucuzoglu in the video. He said that it was up to other people to decide their strategy. He acknowledged that one of the Big Four may be subject to conflict of interest rules as they audit a large number of technology companies, a reference to EY.

He said that Deloitte’s goal was to “keep nurturing” and “not tearing down” the company.