The future of the Big Four: Will Ernst & Young be next to fall?

It wouldn't be so hard to think, except that Accountancy Age is asking.

The always interesting and provocative news source wonders, in an op-ed piece by two marketing strategists: So does E&Y have the right strategy and leadership to withstand the market forces?

In the light of the firm's current strategy, the answer is that, in the long term, it probably won't survive. Their current strategy perpetuates the mistakes made in early 2000 when the firm sold its management consultancy arm to CapGemini. At the time, they pushed hard to recover the fees gone with the consulting arm, by focusing on growing its global accounts. The strategy flopped to a large extent though, as it lacked a key motivational ingredient - profit sharing.

E&Y's recently announced EMEIA merger will not resolve the above pr oblems. Although operational savings may be achieved, real growth will only arise when the right financial incentives and global client profit/loss sharing processes are put in place.

The firm will only withstand the economic climate and the dictates of the Rule of Three if it pursues an external merger campaign that will give it access to the audit client base it needs to regain market share.

What's "the Rule of Three?"

This rule postulates that for a market to reach equilibrium point, the point at which customers get the best value for their money and where competition flows at levels that encourage innovation, a certain balance of power needs to be in place. The balance is achieved when three top players control around 70% of the market, sharing the rest with smaller firms...

If you apply the rule based on revenues then the answer is simple ­ number four, E&Y, is the weakest link and therefore the one to go.

You don't need to look far to can see the Rule of Three at work. Think: Big Three auto makers. Wireless carriers. or, tax and accounting software vendors.

To be sure, the authors add...

The rule is not linear and needs to be applied in the light of the two factors - strategy and leadership.

The questions swirl and the answers, of course, remain murky.

Could two Big Four firms become one? Could the mid market, especially Grant Thornton and BDO, step up by assimilation as opposed to organically? Could we see a Big Four firm merging with a mid market firm to create a two stream operation, where the mid market ‘arm’ would use the processes and innovation applied to larger companies, in order to help build strong UK mid market companies that would eventually become either large corporates, or part of existing large corporates?

The worst scenario is where one of the Big Four is taken apart and sold to a range of firms interested in different specialisms.

There is no question that changes are brewing in the accountancy sector and that the dominance of the Big Four as we have known it for the past few years will come to an end.

Finally, the authors suggest, "The question is whether one person or one team is capable of captivating the imagination of their staff to lead them into a new era; whether one firm will have the vision to write history and its own chapter in it."

But the situation of any firm as big as any of the Big Four could well exceed the capability of one person or one team.

11 Responses to “The future of the Big Four: Will Ernst & Young be next to fall?”

  1. Employee from Dubai office

    I work with EY Dubai office & all the replies I read don’t make any sense to me. It seems like I am working in different firm!! For those who don’t know, we are number 1 in the Middle East (clients wise & revenue wise).
    We have clear vision communicated to us through several channels. The firm helped us to succeed professionally and personally through our global career development framework – providing us with the right challenging and rewarding experiences, learning and ongoing coaching we need.
    Although the firm didn’t distribute any bonus this year except for few staff whose performance was quit exceptional, however, during the booming period, the partners shared with us the benefits by giving us good bonuses & increase in salaries which was he highest among the other big 4 (in UAE at least).
    Our Middle East chairman Ahmed Al Aiban is resigning next year and a Saudi national partner was selected to take over his position. X (another partner) was expecting to take this position & he was disappointed when he was not selected. Therefore, he left EY to PwC and took with him some staff and frankly speaking, many of the replies I read seem to be bias because of the possibility that those people wrote them or the low performance staff who was laid off. Furthermore, we hired new graduates this year (about 20 staff) to cover our needs.
    To conclude, EY is operating and will operate very well under the leadership of our office managing partner Edward Quinlan and our Chairman and Chief Executive Officer Jim Turley. And the political war which is raised against EY Middle East by its formal partner X won’t affect us.

  2. Anonymous

    Reading this article reassures me that the fall is certainly gonna begin from the middle east as E&Y Middle East whether agrees or not the client base it has developed through advisory and the unrealistic targets it has achieved was mostly made possible by the Andersen legacy. The enormous profits E&Y partners enjoyed over the past few years was mainly a contribution of Advisory business.

    The other major factor which has also contributed to the fall of EY middle east is the bitter treatment of EY leadership on people willing to join the Andersen legacy now PwC Middle East. The continous harassment in Jeddah and Al-Khobar office of employees, employees being blamed of stealing and police being involved,EY not accepting resignations, continous threats to people who would leave, mass terminations for people having relationships with the now PwC people.

    It would be in the benefit of EY Middle East Management for once to look deeply into its current leadership and get rid of those who are damaging or jeopardising the name and prestige of the firm, if it wants to survive in this market. We sincerely pray that the middle east leadership will wake up one day and see what the problem is and finding a true solution.

  3. Anonymous

    What hurts most is the way we see Ernst & Young reacting and treating those who chose to leave the firm and carry on with their careers elsewhere. A case in one of the Middle East offices show that Ernst & Young is taking it too personal with its employees to a level of sending letters indicating taking legal action against its employees whom decided to resign and move on. This is ofcourse not the whole story as other unprofessional measures have also been taken. Too sad. Vey sad. Those people who resigned were our friends and gave it 110% at all times. This is how we repay them. More to come….

  4. Anonymous

    Mass resignations in Jeddah Office.

  5. P

    The scheduler is useless in Boston office. Managers pick only people they want to work with. Many people get stuck and have no work. They have two groups from Arthur Anderson and originally from EY

  6. 5 Signs of why Ernst & Young is a Losing Firm

    What does it take to build real a professional service organization? It is articulating business strategy, or building the right methodologies or acquisition and retention of the right talent or even remaining financially sound or all of the above? Is it about building sustainability for the work being done by firm or revamping those services in light of the dynamics of the market? There is no answer fit all.

    If we were talking about building and sustaining a house instead of an organization, we would instantly know the answer. To sustain a house for the long term, we would need strong infrastructure – a strong foundation, roof and bearing walls, etc.

    However, no matter how strong that infrastructure might be, if the house is to remain strong over time, it will also need people to take care of it.

    The same holds true for building and sustaining strong, engaged professional service firms. It will require that we create strong infrastructure for such a firm – infrastructure that is meant to stay standing for as long as that firm is benefiting the business agenda. It will require that we build systems for engaging people who care, to keep that firm strong.

    It is therefore not surprising that E&Y struggling towards the goal of financial strength never feel secure. More typically, whether times are good or bad, E&Y leadership spend considerable time and emotion each year trying to fill in the gaps in yet another budget with no avail.

    1. Unclear Vision:

    Ernst & Young has not been able to clearly inspire people with a compelling story of how and why its going to manage it business in such a fierce environment; more importantly, the lack of strategic alignment amongst Ernst & Young network of entities and its people has resulted in complete confusion and people don’t know where the firm is going and what it is trying to achieve in the future.

    Every model Ernst & Young has promoted so far as a path to organizational effectiveness focused on building financial strength through generation of more revenues. This revenue generation strategy led to focusing on the lagging indicators rather looking ahead for leading indicators that would transform the firm from the strong-hold audit culture into a more business oriented and entrepreneurial culture. Looking back at the example of a sustainable house, we know that all the money in the world will not sustain that house if the foundation is crumbling or there is no one who cares about the house. In Ernst & Young case the comprehensive business strategy and linking Skills keeps missing.

    It is therefore not surprising that while Ernst & Young is focusing on market leadership (financial growth) still feels vulnerable and is witnessing a severe internal turmoil as result of its poor business strategy. Ironically, in good and bad times, Ernst & Young leadership spends considerable time and emotions each year trying to fill in the gaps in yet another budget, not realizing that budgets -driven approach may apply to far less complex firm and does not really help in a matrix organization striving to build and sustain its practice. The view that Ernst & Young keeps missing is the real reason why it exists: if we assume that the reason is to add value to business by identifying issues before they turn to be problems, it then so obvious that a business-driven approach to sustainability should aim to create entrepreneurial, strong and engaged practice. But again practice with a sound infrastructure, and with hoards of people who care.
    Aiming first at business is not semantics. Where we aim our ultimate results changes everything about the way we conduct ourselves and the way we do our work.

    2. Lack of linking Skills:

    it so amazing that the gust if Ernst & Young service offering is geared to promote the premise that business environment without any form of changes would not only be monotonous but also inconceivable! Still Ernst & Young is known for fear of change; and Ernst & Young leaders lack entrepreneurial spirit. The leadership style on the part of management is either too directive or too hands-off; managers do not lead and don’t manage change, they just administrate and micromanage.

    To the credit of Ernst & Young, it has many wonderful ingredient of linking skills; least is its shared values. However, the lack of one firm approach, lack of trust; blame culture; focus on problems, not opportunities; internal politics that result in people not having fun at work and failures are not tolerated; bureaucratic structures with too many layers; high boundaries between management layers; poor decision making; too close monitoring of things and subordinates; etc result in one thing: people lose confidence in their leaders and systems.

    3. Poor Communication:

    People have no clue of the big picture and do not feel that their contributions are important; too much uncertainty; people don’t know what top-managers are thinking and planning. Although, a great deal of electronic emails are being sent to staff telling the news of what happing, often, these electronic communications are focused on E&Y own needs and wants, maintaining thin relationships with staff only to the extent those relationships will benefit the firm’s immediate agenda. Now, when times got tough for E&Y, they are on there own with nothing but money and possessions to comfort them for a while. They have lost credibility in the Middle East market and more importantly lost the engaging spirits of its employees.

    Ernst & Young has not been conscious of others, and was only focused on it own self perspective, however, when we consider a person who is always thinking of others, we know that when times get tough, that person will always have much to sustain him – friends, family, faith, and all the other non-material things that make our lives rich. Even with recent event of massive leadership changes in E&Y, recent communication was so poorly written labeling old and new teams and trying disparately to gain credit for business that has already been secured by the departing team to PwC.

    The same holds true for any professional organizations. When the focus is on sustaining the organization, and engaging in the outside world, business becomes a competitive advantage. It is not a struggle against all the other organizations in the marketplace; it is a struggle between the call to the organization’s mission, and the call for financial strength – the struggle of means against ends.

    4. Poor Cross-functional Collaboration:

    E&Y’S most remarkable weakness it is silo structures within its business divisions. These divisions operate independently and without the common functional mindset. Because of the office-based model each office leader is emperor in his own geography and they often lack cross-functional goals and cross-functional collaboration spirits to work tighter. They even fail to share business and resources to support each other. This to the extent that hiring subject matter experts on contractual basis is more feasible than having cross office resources due to office-based model which literally allows high charge out rates between offices.

    Nevertheless, extraordinary efforts are being exerted to create an enterprise-wide business process management; but without a cross-functional management committees; E&Y continues to suffer from powerless cross-functional teams. This has resulted in Poor Teamwork. The lack of shared and worthwhile goals; weak team leaders; team members who don’t want to play as part of a team are tolerated as part of the silo setup.

    5. Poor Knowledge sharing culture:

    This is probably the best manifestation of cross-pollination of ideas that is not facilitated across E&Y. The organizational setup defeats creativity, and does not smooth the progress of idea and knowledge management strategies and systems; the leadership approach of “know-it-all” attitude; “not invented here” syndrome is so overwhelming that any critical idea is crucified at the outset.

    Sadly, E&Y repeatedly prove to be naïve in managing its own crises and neither it is learning from own mistakes nor from others in market. E&Y work hard to provide significant improvement in the quality of services to the business community, but it is not building strong, sustainable, resilient Firm and, unfortunately, the evidence in this case is overwhelmingly seen by the market.

    I guess, E&Y’s next challenge is to realize that doing the wrong things well does not create success; it creates frustration and self-destruction.

  7. Martin LeAnce

    Shadow of Arthur Andersen

  8. K

    This is a very interesting and startling article. I worked in the Boston office for 2 & 1/2 years. I worked as a CPA for some large firms in an international capacity before coming to the Boston office. The lack of support and guidance from the management in Boston was mind boggling. People worked against each other to make themselves look good with no consideration to the concept of team work and support each other to improve the organization. I was glad to be laid off when the economy began it’s downturn be cause it encouraged me to move on. Personnel i spoke to during training in other EY locations always mentioned the problems in the Boston office yet no one in management in the Boston office ever concerned themselves with employee morale and teamwork. I firmly believe that EY will not exist as it is known today even if it is able to survive it’s own destruction from within. I just feel sorry for those left behind who try so hard yet are not appreciated. The best of luck to my friends at EY.

  9. NN

    As a result of the unjustified and unexplained laying-off of 30 of the best E&Y office professionals, an environment of skepticism has been created for the existing professionals to whether grow a professional career in E&Y or to jump over to the other big 3 firms or seeking positions in different types of insutries and companies. Meanwhile, professionals are unfocused on their jobs due to the consequences that may occur after the request of the two Senior Partners to dissolve the Ernst & Young Practice in Saudi Arabia. Leaving ambiguity to lead the destiny of the rest of the professionals that remain in the firm.

  10. EY Jeddah Office Executive

    And the sad story continues on July 21st 2009, by laying-off 30 of the best E&Y Jeddah office professionals, mainly from Andersen guys, which proves the total lack of intelligence. As a result, Two Senior Partners out of the Seven Ernst & Young Partners in Saudi Arabia, have legally requested to dissolve Ernst & Young Practice in Saudi Arabia. Such legal action would definitely ruin what is left of the Firm’s reputation, not only in Saudi Arabia, but in the whole region. All the doors are widely open for the other Big 3 Firms!

  11. Sgarry Allen

    Again, it seems that E&Y internal politics might sink the company growth boat. The five year aftermath of Anderson integration with E&Y has ended up dramatically when the top three Anderson legacy leaders have been reassigned. E&Y has taken an unprecedented and perhaps uncalculated action by reassigning the responsibilities of the its Middle East Managing Partner & Market Leader, the Advisory Leader in the Middle East, and the Jeddah Managing Partner & Team Management member.

    When E&Y took over Anderson consulting in the ME in 2002, the firm was confined to Audit Services with fragile consulting practice. Despite the fact that integration has brought E&Y into new heights, it has also triggered bitter internal feud between audit legacy and the Anderson consulting legacy that came from a completely sophisticated environment. The chairman of E&Y, who had sided with fellow audit legacy in the battle, knew he would have to make peace with the Anderson guys and create a culture based on teamwork if the firm wanted to compete in a new era of integrated advisory services.

    Although, this action is intended to resolve the conflict, the internal pulse indicates that people are splitting into factions, pulling the Firm apart, making gaps to charge through, and generally acting in ways that shows a total lack of emotional intelligence.

    Equally, the chairman was faced with far more complexities than he could anticipate. The legendary success that E&Y has achieved as a result of the integration, with roots of two different cultures combined, required him to put in the best of his leadership skills to pull the two teams together. It seems that given his uncommunicative and reserved attitude, he could not put up with pressure he is having from his fellow auditors. The kind of team building necessary to meet the complex needs of major growth that E&Y has undergone was of little value in considering a more thorough solution with two conflicting cultures in E&Y to the extent that such a dramatic action surfaces all of a sudden to everyone’s machine early morning of 28th June 2009.

    “The early E&Y days were a great, not any more a compelling example of how to manage conflicts,” one senior partner said. “It was all about us, our job, our people …” Today, a stellar performance by one person is not enough to make a difference. “No one individual can deliver the whole firm to any given client.”

    “The strong business mentality in E&Y that was inherited from Anderson legacy partners steered the firm through the market upturn during the last three years, however the economic downturn seems to be “masterful” at pitting E&Y leadership against one another. As a result, audit legacy and Anderson legacy partners rarely shared ideas or helped build relationships that might benefit the firm as a whole. “They got people to work hard, but it consumed the glory out of the partnership, “says an Executive Manager.

    The failure to work as a team led to this demise and it seems that the two parties could not agree on a future direction. I guess that both are as guilty as the other. E&Y couldn’t reach over to embrace the one firm ethos.”

    Finally, the desire to end politics and instead to be excellent in teaming is a keystone that E&Y has missed. No relationship: raising children, marriage, friendship, or work can truly succeed where the effort is to gain the upper hand rather than promote the relationship, in this case of E&Y working together and accepting others as they are has failed.

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