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Ernst & Young (EY) is undergoing significant partner layoffs across its U.S. operations, representing a departure from their typical approach. This move comes as the renowned Big Four accounting firm confronts a decline in demand for specific services and aims to reduce expenses following the abandonment of a plan to split the firm. 

The layoffs primarily target the advisory sector in the U.S., impacting over 10% of consulting partners and about 4% in strategy and transactions. This translates to more than 100 consulting partners and over 30 strategy and transactions partners at various levels. While EY traditionally trims partners annually due to underperformance, this round of cuts is notably more extensive. 

According to insiders, affected partners have been receiving notifications in stages, a process initiated the previous week and expected to continue. Yang Shim, EY’s head of Americas technology consulting, acknowledged that the reductions in certain divisions encompass partner-level layoffs along with staff reductions. These reductions come on the heels of EY’s decision in April to lay off approximately 3,000 U.S. employees, amounting to less than 5% of its total U.S. workforce. 

Yang Shim, EY’s head of Americas technology consulting, conveyed to staff on Monday that the firm’s strategy involves making cuts in areas “where growth has notably slowed and where we have excess capacity,” as reported in a webcast reviewed by The Wall Street Journal. 

Additionally, Shim highlighted that the cutbacks within his division encompass partner-level layoffs alongside reductions in the count of rank-and-file staff. 

Industry Challenges  

EY, among other accounting and consulting firms, grapples with sluggish revenue growth, prompting several to downsize their teams. The surge in hiring during the pandemic for consulting roles, driven by increased demand in corporate strategy and digital transformation, has not been met with anticipated attrition post-pandemic. 

The accounting giant clarified that the layoffs affect a limited number of individuals and has also deferred start dates for some incoming hires in specific sectors. The firm’s spokesperson stressed that these decisions were made considerately, ensuring fairness and respect for all affected individuals while aligning with EY’s future business goals. 

The trend of fluctuating consulting demand, contrasting with the relative steadiness of audit operations, has led to a more cyclical nature in the professional services industry. This shift is apparent as consulting becomes a more significant revenue contributor compared to audit services. 

In similar moves within the industry, KPMG and Deloitte previously implemented layoffs in their U.S. offices, cutting down 5% and 1.5% of their U.S staffs respectively. McKinsey, a prominent consulting firm, also scaled back its new partner intake substantially, by about 35%. 

In the fiscal year ended June 30, revenue from EY’s Americas region, encompassing the U.S. unit, reached USD 23.62 billion, marking a 12% increase from the preceding fiscal year. This growth rate is notably lower than the 19% surge experienced in the year prior. Notably, the Americas region contributes significantly, accounting for nearly 48% of the firm’s total global revenue of USD 49.35 billion. 

On a global scale, the collective revenue from EY’s consulting and transactions businesses amounted to USD 22.17 billion, constituting approximately 45% of the total revenue. 

Strategic Restructuring And Future Leadership  

Post the decision to abandon plans for splitting auditing and consulting, EY is striving to streamline its U.S. operations. Governance reforms proposed by the firm aim to grant U.S. partners more influence in strategic decisions and oversight, following the pivotal role played by the U.S. unit in halting the split. 

Janet Truncale, appointed as EY’s new global chair from July 2024, will spearhead the firm’s efforts to move beyond the failed split and refocus its trajectory. 

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