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Interview: EY managing partner Steve Varley

WITHOUT MISSING A BEAT, Steve Varley, UK managing partner of the erstwhile named Ernst & Young, slips into the terminology associated with the Big Four accountancy firm’s new global brand.

Speaking to Accountancy Age ahead of its adoption of EY as its new global brand name, Varley explains that the rebranding exercise, which includes a new logo and tagline, is about “changing the look and feel of it so that it feels a bit more modern, a bit more global”.

However, Varley takes umbrage at the suggestion that it is merely an exercise in appearance. He explains that although the firm is not going to make “any big structural changes to the business” EY’s new outward appearance sits alongside a “major strategic programme” that will take the firm through to 2020.

Part of that means a new purpose for the firm, summed up in its new tagline Building a better working world, though Varley doesn’t agree with the description. “This is not a tagline, it’s not a headline, its’ a purpose for the firm which we think is bold, innovative and of the moment,” he says.

The purpose, Varley explains, is about creating connections and coalitions with like-minded companies to go after some of the biggest challenges facing the UK. For instance, encouraging social entrepreneurs; which is good for the UK economy and good for the firm.

“This is the time – as we are still in a difficult, austere environment – to encourage UK business people to be entrepreneurial. If we can create more social entrepreneurs of the future maybe there’s something out there for us in terms of business services that we can offer as they scale up,” he says.

That aside, brand clearly matters. EY recently succeeded PwC as the strongest accounting and business brand in the Superbrands annual league table – the first time in its 12-year history that PwC has been knocked off top spot.

While it could be said that the success of the old brand, the name under which it had traded since the 1989 merger between Ernst & Whinney with Arthur Young, makes a strong case against changing the name to the impersonal EY, Varley says it supports the global strength of the business, which he claims outstrips that of its Big Four rivals.

“A lot of other companies in our profession are a federation of nationally-based entities and actually we think about ourselves as a globally organised business that’s integrated,” he says. “I want us to be recognised as the most global out of the Big Four. That is a set of clothes we wear extremely well.”

Global approach 

The new brand coincides with the appointment of Mark Weinberger as the firm’s global chairman and CEO. EY’s former global head of tax was elected in January but assumed the role as it changed its name and appearance. Varley says Weinberger brings a “very global outlook” to the business, which already has the biggest presence of the Big Four in India and the Middle East and is number two in both China and Brazil.

“We are really well positioned for the next decade of growth as a firm because of that network,” Varley says.

Last year, global revenues grew by 7.6% – its best performance since 2008 – with emerging markets leading the way. Brazil generated revenue growth of 17.5%, while India, Africa, China and CIS increased revenues by 19.8%, 10.2%, 11.8% and 15.6% respectively.

However, making headway in fast growth markets requires a serious investment in time and resource. In December, after China’s politburo change, Varley took all seven members of his senior management team out to China, spending ten days in Beijing, Shanghai and some other Chinese cities, meeting with government, private investors and clients.

“We wanted to take a big step forward as a business and increase our connection to China. Ten days for seven people is a pretty big time investment to spend over in an emerging market,” Varley explains.

One of the biggest parts of EY’s approach is to always lead its investment with a local presence, with the Middle East, China and India regions all headed up by locals.

“Maybe 20 years ago you could fly a load of expats in, stick them in a compound and good things will happen, but that’s not the way we do business anymore,” Varley says.

Audit wins

It’s not all about global growth however. Domestically performance has been strong. EY last year announced its highest revenue growth for six years, while all four of its service lines grew for the first time in three years. Tax enjoyed the most success, jumping 16% to £431m, followed by double-digit growth in the firm’s advisory arm, posting 12% growth to £416m. Assurance grew 8% to £478m, while the transactions service saw 10% growth, bringing it to £306m.

At the time of the result, Varley cited international tax as the main driver behind its tax growth, part of what he cited described as the firm’s “bold ambitions to beyond the UK to look for growth opportunities”.

Nevertheless, all four service lines are contributing. Consulting work is a growing force within the profession, while audit has proved to be a successful area for EY of late, with the firm picking up the audits of FTSE 100 constituents BG Group and Land Securities and, most recently, the audit of Spanish flag carrier Iberia.

Varley attributes this in part to the audit retendering market, which is “picking up in pace” as a result of the FRC’s position on comply or explain retendering. According to Varley, the Competition Commission, which is currently considering ways to break the Big Four’s control of the large-listed audit market, should let the FRC changes “play out over the next period and see where we get to”.

However, he also believes the high profile wins are down to EY’s “sustained investment into a better audit service over many years”.

“Clients are starting to understand there are differences between the Big Four. If you are a firm with a global footprint we like to think that EY fit you a bit better than the rest,” he says, though he does concede there are some areas – like oil and gas – where the firm has greater strength.

EY does not audit any of the UK’s major banks. A blessing in disguise perhaps given the scorn heaped on the auditors by the recent Parliamentary Banking Standards Commission which claimed they acted as “cheerleaders” for the sector’s questionable reporting practices; yet a situation Varley hopes to change.

“We have an opportunity in the banking sector to do more. That is a pretty live conversation within the firm,” he says.

Starting from zero

On the consulting side the firm has been making great strides since Varley joined the EY in 2005 to lead its advisory business before becoming markets leader in 2009. While Deloitte and KPMG have both made recent acquisitions to bolster their advisory business, Varley is proud that EY’s growth has been entirely organic, though he admits the firm is “open to acquisitions”.

“When I joined in 2005 we didn’t have a very strong consulting practice and it is now very important and accretive to the brand,” Varley says. “That set the benchmark of what we can do if we turn our minds to this internally.

“With everything we do first thing is go talk to clients. We went to see all our major clients and pretty much said open-palmed ‘if we were to building a consulting business for you what should it look like?'”

While EY is keen to support social entrepreneurship and inward investment into the UK, Varley is an outspoken critic about the lack of diversity of corporate boards, which he argues is holding back British business.

“Diverse organisations and diverse boardrooms make better business decisions,” he says.

Indeed, EY had made progress in this area with more female partners (18%) than any other Big Four firm. In October it announced targets for female and ethnic minority new partner admissions, though Varley is “still not happy” with the firms progress.

He hopes by taking a personal lead on the issue that EY will go some way to achieving its goal of 30% of the firm’s partners comprising women with 10% drawn from ethic minority backgrounds.

“Five years ago I made the decision to put all my mentoring effort into helping young high potential women.

“So every couple of months I sit down with up to eight women, we talk about what’s happening with the firm, what they are doing with their careers, help create a better network in their peer group, get better clarity what they need to do in the next stage of their careers,” he says, “I need to be seen to be personally committed to this. Not just by what I say, but by what I do.”

CV
1991 Andersen Consulting (later Accenture)
2005 Ernst & Young, head of advisory business.
2009 Ernst & Young, markets leader, responsible for s growth strategy across the business
2011 Ernst & Young, UK & Ireland chairman and managing partner

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