PracticeAccounting FirmsThe Debate: Shedding consulting arms

The Debate: Shedding consulting arms

Shedding its consultancy arm allowed E&Y to focus on its core business, writes Nick Land. But Deloitte's John Connolly argues that there is an alternative.

Separation worked for E&Y

By Nick Land

The storm clouds have been gathering for some time. Even before the corporate collapses and scandals in the US, there were increasing concerns around the level of management consultancy work being carried out by the auditors of a number of major corporations, particularly during the run up to 2000, which triggered many large IT-related consulting projects.

Arthur Levitt, then chairman of the US Securities and Exchange Commission, had auditor independence high on his agenda and a significant debate began in the US between the SEC and the Big Five firms.

In 2000, Ernst & Young sold its successful global management consulting business to Cap Gemini. It was a ground-breaking transaction that cast the company in the role of prime mover and set the whole industry’s agenda.

We, at Ernst & Young, knew that the decision was right for our business and believed it was just a question of time before others followed, and that it would be good for the auditing industry as a whole.

Looking purely at the audit independence argument, it was clear there was a misconception that could only be addressed through direct and decisive action. But there was also a compelling business argument.

While we were very proud of the success of our management consulting business, and the contribution it made to our global organisation, we believed that the synergies with the rest of our organisation were becoming less and less, as its focus increased on major IT-related consultancy.

The sale to Cap Gemini has, of course, given us a greater opportunity to focus on our core business. Along with the other firms that have spun off their consultancy divisions, we remain committed to advising our clients on a wide range of business issues.

And we believe we are still able to offer our people the breadth of experience they need, and remain attractive to new employees.

Timing is everything in business; Ernst & Young saw the market conditions were right in 2000 for such a move – it was a decision that has since been vindicated.

  • Nick Land is chairman of Ernst & Young.

Retention is best for clientsBy John Connolly

Deloitte has a different business model from its main competitors.

In the UK our firm has four major divisions: audit, including risk and other assurance-based advisory services; tax; corporate finance including reorganisation services and forensic investigation; and consulting.

Why have we chosen this model? Quite simply because having the broader and deeper skill base, which we have, is best for our clients and for our people.

It’s important not to confuse the post-Enron challenge that occurred, regarding the provision of certain non-audit services to audit clients, with the decision we have made to retain wide-ranging skills within our firm.

Even the fiercest critics acknowledged that to audit complex global companies, a wide range of skills in the audit firm was desirable.

The Deloitte approach means we have deeper industry skills within our firm than might be found in some other organisations. This is vital and enables us to utilise these competencies across a whole range of service areas including auditing.

The same applies with consulting expertise in technology, treasury, the actuarial area and several other areas of expertise that we have within consulting but that are utilised across all services areas.

We will continue to be a leading professional services firm, only if we continue to attract and retain the best people. Our chosen model helps us offer rewarding, challenging and diverse careers to the best people within the firm. Our people can expect to develop a broad range of skills from doing great work for great clients. This proposition differentiates our people and our culture.

We are open about our strategy. It is clear that in order to restore confidence in the wider profession, all firms need to be open about their structure and strategy.

We are also very clear that we will not offer restricted non-audit services to audit clients and we have strong controls to secure this.

Deloitte has a pristine reputation and we plan to keep it that way.

  • John Connolly is chief executive and senior partner at Deloitte & Touche.

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