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EY Failed Split Gives Break to US Law Firms Fearing Competition

  • June 1, 2023

Ernst & Young’s scuttling of a plan to spin off its consulting business and much of its tax practice gives breathing room to US law firms who fear new competition from big accounting operations.

The spin-off would have allowed EY to more aggressively pursue the legal services side of its business, said Mark Vorsatz, chief executive officer of consulting firm Andersen.

“The split would have unleashed the capabilities of an international firm with few peers in terms of platform,” Vorsatz said. The opportunities for a slimmer legal and tax advisory group “would have been endless,” he said.

Law firms have long fretted about the scale of competition they’d face should accounting firms plunge into the US legal practice, as they have done in Asia and South America. EY collected $45.4 billion in revenue in fiscal 2022, compared with $6.5 billion by the largest law firm, Kirkland & Ellis, that calendar year.

“Think about the resources they can bring to bear,” Marcie Borgal Shunk, president of the Tilt Institute law firm consultancy, said of accounting operations. “They have a big advantage.”

EY shelved the breakup after partners, particularly in the US, disagreed on the compensation and resources needed for the audit practice left behind after the consulting and tax businesses would be split off. Firm leaders told partners they’d keep working for a possible split some future day.

Meanwhile, EY’s legal unit remains an integral, fast-growing part of the firm’s business and a “core focus,” the firm’s global law leader, Cornelius Grossmann, said in a statement.

“EY Law is committed to continue investing as we have over the past decade in hiring, acquisitions and strategic alliances,” he said. EY’s law operation has maintained a “growth trajectory” since 2020, Grossmann said, though he declined to be more specific.

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