The following tidbit of information about the aftermath of the Project Everest failure is going in Footnotes later today however we felt it important to call it out for those who skip the weekly linkwrap. Apologies for doubling down on EY news today.
WSJ published an exclusive about the post-Everest mess at the crack of dawn yesterday and honestly the whole thing is worth a read, especially so if you have an EY.com email address. The short of it is they spent a lot of money to make Everest happen and now they have to figure out how to patch the giant hole. The plan is to borrow money from banks and use ‘accounting maneuvers’ so that Everest’s failure does not completely destroy partner payouts. Oh and Americas Deputy Managing Principal Steve Payne apparently told staff “We need to do a much better job…in billing every hour we can get our hands on.”
Global leaders of the company sought to reassure partners that they are working to cushion the financial impact from the abandoned project. That cost mostly fell on EY’s U.S. and U.K. partnerships, which did the lion’s share of the work on the breakup.
Executives at EY’s global unit said on an internal call that they plan to use a combination of bank borrowing and accounting maneuvers to ensure that the dead-deal costs have “minimal” impact on partner earnings.
The global unit is funded by the scores of national firms that make up EY’s worldwide network. Under the plan, the global unit would borrow to repay around $300 million of costs incurred by the U.S. and U.K. firms.
“The new funding facility will provide additional flexibility to manage fund flows within our business and navigate the current market environment,” an EY spokeswoman said.
EY put about $600 million into Everest before it fell apart — half of that was internal costs — and leadership said the firm saved about $400 million along the way that would have otherwise been spent on projects that were deferred while they worked out the deal. EY also intends to reduce the impact of the costs by writing them down over several years, rather than take them as a single hit to earnings, said WSJ.
You know what, let’s throw this in too:
EY’s U.S. leaders this week emphasized the need for the firm to “stay close” to its clients, worried about the impact of the high-profile failure of the breakup project.
The appeal for unity from EY’s leaders didn’t convince some staff members. Many partners at EY’s U.S. arm remain furious that their hopes of a multimillion-dollar payout from the deal were thwarted by a handful of senior auditors, according to people familiar with the matter.
Remember on Mad Men when Lucky Strike ended its 30-year relationship with Sterling Cooper and Don had that desperate meeting with Raymond J. Beans of Heinz? Yeah. Are we going to get a full page ad in the New York Times telling us EY will never work with Carmine again?
Bill every hour?!! They do that already in the EY. I can see the in-house janitors on reduced hours though…
No, we definitely don’t. Eating hours to maintain margin is the norm.
Are $400M in deferred projects really being sold in “savings”?
Another accounting standard in the pipeline and then “shit is going to hit the ceiling if we didn’t implement a 3 phase project”.
Look at the accounting firms’ audit opinion – it’s a shame. Full of caveats ie they did nothing and reporting on nothing, all done by management .
These and the rating agencies need a massive overhaul!
Borrow to pay failed transaction expenses and viola, net income is unchanged…..
Borrowed? At what interest rate? To quote the former VC of Tax at KPMG post Tax Shelter scandal “Our Partners want to get paid” Client confidence? Let me throw a project over the wall to Parthenon when they couldn’t even engineer their own divestiture at a cost of a half billion
The amount of incompetence and sheer brass balls present in EY leadership is astounding. Why Carmine and his crew weren’t run out of town on a rail after the stark failure of this split is beyond me. Money will be borrowed. Partners will be paid. All while THOUSANDS of those with ranks of senior manager and below will be laid off. I know this because many of my former coworkers who stuck around there are telling me that the axe is going to fall on the first batch in the US sometime this coming week or the next. Everyone there is nervous as hell because evidently, nobody below partner rank is being given any information… Only hearing bits of rumors. Must be scary times for those poor souls. Hopefully the good ones will get picked up by a quality firm, because you just KNOW the chopping decisions were run by someone with a set of parameters, an Excel sheet, and directions to lop off the first x rows.