Consultants may need Consultation! Big Four Hiring Binge grinds down to Partner Layoffs

During a recent webcast call with U.S. partners and staff, a senior partner at Ernst & Young (EY) delivered a somber message typically reserved for clients: cost-cutting measures are imperative. Dave Burg, EY's Head of Americas Cybersecurity, acknowledged the challenges in the business, addressing resource constraints, slowed growth, and excess capacity during the call on Thursday.

As per Reports from Wall Street Journal, EY is implementing layoffs among its U.S. partners, a rare move extending job cuts to the upper echelons of one of the Big Four firms. This follows a similar trend at KPMG, where approximately 5% of the U.S. workforce, including partners, faced cuts earlier this summer.

While EY, KPMG, Deloitte, and PricewaterhouseCoopers have collectively laid off thousands of U.S. workers in 2023, partner layoffs are unusual in the industry. Normally, firms need to buy out a departing partner's equity and provide additional compensation based on their seniority and tenure.

The Big Four had a combined 15,700 U.S. partners in 2022, with EY and KPMG having 3,600 and 2,344 partners, respectively. However, the lower-than-expected demand for consulting and transaction services is impacting profits. The Big Four accounting firms rely on their consulting businesses for 43% to 66% of their global revenue, a shift that occurred over the last two decades.

Despite the challenges, the firms face concerns over conflicts of interest between consulting and auditing work. EY attempted to separate its audit and advisory businesses in April but had to abandon the plans.

The consulting practices of the Big Four expanded significantly during the pandemic, anticipating continued reliance on consultants for business model adaptation. However, as the economy recovered and interest rates rose, some clients deprioritized spending on business transformation projects. This shift, coupled with companies reducing spending on third-party advisory services amid economic uncertainty, has impacted the consulting sector.

EY, along with other Big Four firms, faced a decline in deal volume and sluggish private-equity transactions, impacting what was once a profitable business. In 2023, all four major firms reported slower growth in overall global revenue and advisory work.

KPMG, in particular, experienced a significant slowdown in global advisory growth, with a 2.98% increase to $15.9 billion for the year ended Sept. 30. This marked the smallest growth since a 2.3% decline in the 2020 period during the height of the pandemic.

The firms, having expanded exponentially since the 2008 recession, may now find it challenging to respond nimbly to current economic challenges, according to industry experts. KPMG, for instance, implemented layoffs over the summer, reducing headcount by 6% in the Americas, or about 4,000 people, for the year ended Sept. 30.

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