How EY’s Project Everest collapsed

This is an audio transcript of the Behind the Money podcast episode: ‘How EY’s Project Everest collapsed’

Topher Forhecz
It was a move that could have reshaped the entire accounting industry. In May 2022 the FT reported EY, one of the Big Four firms, was planning to split itself in two.

Michael O’Dwyer
This was arguably the biggest accounting story in two decades, certainly in terms of the profession itself.

Topher Forhecz
That’s the FT’s accountancy correspondent Michael O’Dwyer.

Michael O’Dwyer
This would have been the biggest change in the accounting and consulting industry since the collapse of Arthur Andersen, which was the accounting firm that audited Enron.

Topher Forhecz
The plan would have divided EY’s audit and consulting businesses into two parts. It would have meant one of the companies going public, big paydays for partners and more business for everyone involved. And Michael says this move would have forced the other three big firms to seriously consider doing the same.

Michael O’Dwyer
The stakes were very high. If it had gone well, it would have been extremely difficult for the rest of the Big Four not to follow.

Topher Forhecz
It was a plan so consequential it also needed a fittingly grand name: Project Everest. Thousands of employees worked on Everest, and it took months and months of negotiations to get people on board. And then almost a year after the news broke, just when it looked like EY might reach the top of its own mountain, it all came crashing down.

Michael O’Dwyer
The impact of this falling over is going to be felt over months and possibly years. You have to imagine anyway. But they are acutely aware of the embarrassment that’s been caused.

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Topher Forhecz
I’m Topher Forhecz from the Financial Times, in for Michela Tindera. On today’s episode of Behind the Money, we tell the story of Project Everest. It was named after the tallest mountain in the world, and it was a plan that had massive implications for the accounting industry. We’re joined by two FT reporters who chronicled the project’s rise and fall. They’ll help explain why it fell apart and what happens to EY now.

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Topher Forhecz
Project Everest began with a man named Carmine Di Sibio.

Michael O’Dwyer
Carmine Di Sibio is the global chief executive and chair of EY. He’s a company man. He joined part of what is now EY in 1985, worked his way up to be a partner in 1995, made his name within the firm working for banks and financial services clients.

Topher Forhecz
That’s Michael O’Dwyer again. Di Sibio took over the top spot of EY in 2019. And when Project Everest came into the limelight, there was a bit of a surprise that Di Sibio was the man behind it.

Michael O’Dwyer
I think he was seen internally by former colleagues, by current colleagues, by rivals even, as a bit of a Steady Eddie, to use the phrase that one former colleague used to me. He was seen as a caretaker to use another word that was used a lot about him who would sort of serve one four-year term at the top and then make way for somebody else. But instead, he launched this bold plan to break up the business.

Topher Forhecz
One chief reason Di Sibio wanted to break up EY was because of conflict of interest rules. Remember EY has these two parts of their business: one is auditing and the other is consulting. EY audits about 25 per cent of the biggest companies in the world. And that means that because of these conflict of interest regulations, there’s just a ton of companies it can’t then consult with. And this problem felt even more acute during the pandemic. Here’s the FT’s US accounting editor Stephen Foley.

Stephen Foley
What you saw were big multinational companies, companies everywhere, making a huge push to change their IT. To go digital, to move their services to the cloud. Now, this has been a huge boon for the consulting industry, but EY is operating with one hand tied behind its back. EY is auditor of many large tech companies, more so than its rivals, which means it is unable to build the kind of alliances with Google and Salesforce and others. Its consultants can’t do those kind of implementation projects that it’s been especially frustrating for EY and for Carmine Di Sibio.

Topher Forhecz
So to fix these problems, Di Sibio came up with Project Everest. The plan meant that EY’s consulting side would be taken public through an initial public offering. If the IPO could deliver a big valuation and the consulting business could then perform well over the next few years, partners with shares in the new company would profit. But Project Everest could also be lucrative for the partners on the audit side.

Stephen Foley
The auditors who are effectively selling this consulting business, they’re going to be giving cash payouts as well, which would be the result of the proceeds of IPOing this business. And those could have been two to four times their annual salary.

Topher Forhecz
OK. So you’re a giant accounting firm. You see this opportunity to rake in a bunch more money and all you’ve got to do is split up the two sides of your business. Sounds great, right? Well, for EY, just because the top brass wants this to happen doesn’t mean it will. You see, EY is structured as a partnership rather than a corporation. So Di Sibio couldn’t just make a decree, and then that was it.

Michael O’Dwyer
The business is owned by the partners who are its most senior practitioners. And on big decisions like this, there will be votes.

Topher Forhecz
Michael says for a project like this to get approved, there’s a two-step process.

Michael O’Dwyer
First, the leadership of the main countries around the world that EY operates in have to agree on a path forward. And secondly, the partners in each country have to vote on it. And one point that’s important to understand is it’s not even a single vote. The partners in every individual country have to vote in accordance with their own rules, because those are all separate businesses which have chosen to align themselves under the EY brand. So it’s far, far more complicated to get consent and buy in for a plan like this than would be normally the case in a large global corporate organisation.

Topher Forhecz
Still, things overall were looking pretty good. Project Everest was on its way. Di Sibio was even given a two-year extension for his time on top to see it through. And by the fall, step one had been accomplished. The global leadership signed off, which made it time for step two: pitching Project Everest to all of EY’s 13,000 partners.

Michael O’Dwyer
The plan was to then have the votes begin before the end of 2022. The timeline began to slip, and slip and slip. And it all became quite difficult. Things really came to a head in early March.

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Topher Forhecz
March 2023 is when Di Sibio’s climb up Project Everest began to lose its footing. Like Michael said, there were a ton of offices Di Sibio had to get on board for this project. But the biggest one he had to convince was the US firm. Stephen says it holds a lot of power.

Stephen Foley
The US firm is 40 per cent of all of EY’s revenues. And it would tell you that that number understates its importance to the global network. So the US, let’s say, has a central role and knows it has a central role. For many years there’s been a lot of friction between the US firm and the global leadership.

Topher Forhecz
The other thing to know about the US firm at this time is that there’s a new leader who’s just arrived. Her name is Julie Boland.

Stephen Foley
She was appointed to lead EY’s US operations only last year as a kind of compromise candidate. She was seen as a very safe and nice pair of hands. So she took over midway through the Everest process and very quickly started pushing EY’s US businesses’ interests in these negotiations.

Topher Forhecz
So given that Boland was meant to be sort of a peacekeeper in her new role, it’s a bit surprising what happened next.

Stephen Foley
So it’s early March and there has been some behind-the-scenes tussling between the US firm and the global executive. And those talks behind the scenes are not going well. So what Julie Boland does is she calls a webcast of US partners and she announces that she is putting planning for Everest on pause.

Topher Forhecz
Boland pauses Everest. It’s a big deal.

Stephen Foley
It’s hard to overstate just how far down the line they were at this point, by the way. They have had for six, nine months, they’ve had hundreds, thousands of employees working on Project Everest. Lots of money, lots of time spent on this project. So the pause is an extraordinary moment.

Topher Forhecz
In that meeting, Boland laid out a few reasons for her pause.

Stephen Foley
So she has a number of concerns, frankly, and as she told partners in March, because this deal is so complicated, they’re all kind of interrelated. She’s very, very concerned about the strength of the new EY, the audit-focused business.

Topher Forhecz
The reason Boland feared the audit business may end up weaker had to do with tax experts. As you can guess, you’d need tax expertise in order to do audits. But if Project Everest went through, it would also split up the tax business. Some experts would go to the consulting side and some would stay with the auditing side. Michael says Boland saw this as a problem.

Michael O’Dwyer
The concern was that because most of the tax business was going to go to the consulting side, that both sides might find themselves underweight. And in particular on the audit side, it was felt that it would be at a disadvantage if it wasn’t necessarily able to attract the top tax experts who might well prefer to spend their time advising companies on their tax affairs rather than doing the comparatively less attractive work of doing the tax piece of audits.

Topher Forhecz
And Stephen says another reason Boland pressed pause was because of the IPO.

Stephen Foley
In order to make the mathematics work, in order to make sure that the IPO was a success, you have to achieve a certain level of profitability and make it attractive to investors. And that involves keeping costs under control. And one of the concerns was whether or not it would be possible to make the maths work to get a very large valuation for the consulting business. If you don’t get a very large IPO valuation for the consulting business, you don’t get a huge chunk of money that you’ve promised to the audit partners on the other side either. And eventually, come March time, the maths is starting to look very, very shaky.

Topher Forhecz
Stephen says a lot of the partners watching that webcast were shocked. They had no idea there was this much drama happening behind the scenes. And now what they’ve just witnessed is the head of EY’s US firm seemingly coming out of nowhere to put the brakes on a monumental project being pushed by EY’s leadership.

Stephen Foley
This is the first time that it spills out into the open and we reveal it on the FT. And this is when, shall we say, all hell breaks loose.

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Michael O’Dwyer
You had partners saying that this was chaotic. They were frustrated. They were saying that the leadership needed to be changed if they couldn’t get through this project that they had all spent so much time on.

Topher Forhecz
Over the next few days, Stephen says Boland and Di Sibio sent out very different messages about Project Everest.

Stephen Foley
We have this extraordinary period after the pause where Julie Boland is doing media interviews. She talks to us. She’s telling us that there’s no guarantee that this deal will be able to be done. And then within 24 hours, you have a message that Carmine Di Sibio is putting out to EY’s global partnership, saying that he is firmly of the belief that this deal needs to be done and frankly, the partners should get to vote on it and as soon as possible. So you have this extraordinary clash of messages, this face-off between these two leaders, over the space of 24 hours.

Topher Forhecz
This public infighting does not look great for EY.

Michael O’Dwyer
As a reporter, I’ve very rarely, if ever, seen so much anger in an organisation. We have people telling us there is huge frustration and embarrassment within the partnership. They were having to explain to clients, clients who they advised on how those clients should do their own transactions, what was going on with EY’s big project. And it was just all extremely difficult, extremely public and frankly quite embarrassing to use a word that we heard several times during our reporting in the course of that week.

Topher Forhecz
It may have been an embarrassing week for EY, but it only got worse from there. Weeks later, in April, Project Everest would go from paused to shut down.

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It’s the Tuesday after Easter, and Michael was on his way to the pub when his phone rang.

Michael O’Dwyer
I’m told that there is a message about to go out to EY partners saying that the deal is off. Everest is being scrapped effectively. As soon as I got that call, I know that this is going to be a huge, huge blow for Carmine Di Sibio, but also for EY as a whole because it’s spent so much time on this. So I immediately call Stephen and say, “Let’s get ready to write a story.” It was quite frantic, Stephen, but I think we’ve managed to get it out fast within a matter of minutes.

Stephen Foley
Yeah, I was looking . . .  I was looking back through the timestamps. I think you called me at about a quarter to, well, one. We’re writing as we’re calling people, and we have the news desk here in New York get the story out, I think at about a quarter past one. So within minutes of this message going out to partners.

Topher Forhecz
What EY partners saw when they got the message: the US voted down Project Everest.

Stephen Foley
There’s no sugarcoating it. There’s no “we have all beautifully agreed together that this is not happening.” There was a vote of the US executive committee, which we learned afterwards was a secret vote because this is such a fractious issue. And in the end there was not the two-thirds majority of the US executive committee. So this was dead. And that message goes out saying the US has stopped Project Everest.

Topher Forhecz
So now it’s May, and it’s only been a few weeks since Project Everest collapsed. But Michael says since then, things have felt uncertain at EY. Especially when it comes to Di Sibio’s future at the top.

Michael O’Dwyer
It leaves the whole business in paralysis. Who’s in charge now? What authority does Di Sibio have internally after putting so much effort behind this deal, and not managing to get it over the line? There’s a real open question left within EY then as to where a successor could possibly come from? Because so many senior people and so many of the most experienced people within EY have been in favour of this deal.

Topher Forhecz
As for Julie Boland, her four-year term isn’t up until 2026. And now she faces both partners angry with her for killing Project Everest and partners angry with her for letting it get this far in the first place. Stephen says the big question now for leadership is how they’ll patch things up internally.

Stephen Foley
The important thing is dealing with some of this anger across the partnership, making sure people don’t leave, trying to bring up morale again, bring together a sort of sense of purpose. And that’s going to be very, very tricky for the leadership, given how angry everybody is.

Michael O’Dwyer
One former EY staffer said to me,” I don’t know how they’re going to put Humpty Dumpty back together again.”

Topher Forhecz
All the while, the environment Di Sibio wanted to cash in on during the pandemic — the times when businesses really needed IT consultants — it’s just not the same now.

Stephen Foley
The consulting industry has slowed very, very sharply over the last 12 months, and you’ve seen some quite significant restructuring efforts being done by some of EY’s competitors. McKinsey is laying off people in its back office. KPMG, a Big Four rival, is also laying off staff. So whilst EY has been consumed with Everest, there’s been some housekeeping that frankly they haven’t been able to do. So the next question is how are they responding to that? And we’ve seen announcements that they are going to lay off 3,000 staff, mainly in the consulting and advisory business. There’s noises about cost cuts in other parts of EY in the UK, for example, as well. So there’s now questions about getting back to running the business as well as these longer term strategic questions which remain as in flux as ever.

Topher Forhecz
For now, Michael says the future of EY is being held in kind of a limbo.

Michael O’Dwyer
They’ve said previously that they don’t think the status quo is viable. I mean, effectively, what you have here is a business that spent nearly a year trashing its own current business model. But it’s also a bit stuck because it’s now realising just how difficult it is to win agreements to come up with any large strategic shift. So it’s going to be very, very difficult for Di Sibio or whoever succeeds him to come up with some sort of a plan that keeps people on board, but which credibly moves this business forward.

Topher Forhecz
Now that Di Sibio’s attempt to scale Project Everest looks like a thing of the past, Stephen says the name has taken on a new meaning.

Stephen Foley
Oh, I think Everest was an entirely appropriate name for this project. It’s a daunting mountain, and only about two-thirds of the people who attempt to scale it get to the summit and get back down alive and well. And that turns out to have been better odds than Project Everest.

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Topher Forhecz
Today’s episode was hosted by me, Topher Forhecz. Michela Tindera will be back next week. Saffeya Ahmed is our producer. Sound design and mixing by Sam Giovinco. Cheryl Brumley is the global head of audio. Thanks for listening.

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