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KPMG is the least representative of the Big 4 in terms of a proxy for drawing future conclusions of the partnership model or industry as a whole.
1) Equity partner model is a function of growth and profitability, path has been getting longer now for years but will remain. Controlling the profit pool works as an advantage (vs at the mercy of public markets) to the current shifts and dynamics.
2) Splitting audit and consulting won’t happen, closest anyone came to doing that recently was EY and it was a disaster.
3) Enron? Who knows. It’s been 25 years and there’s independence controls in place vs. how this was in the 1990s to prevent it from happening again.
The deal was flawed from the start as the assumptions were ridiculously optimistic, no one had tested the pension effect or the split of tax so that newco could have enough recurring revenue. In addition the market change so reducing the multiplier should have stopped work immediately but they proceeded to spend $800m on it without asking go the partners - then the US firm unilaterally shot it down and the auditors took back power and installed draconian cost controls. I have it on good authority that board members wanted their votes bought to say yes … Frank …. Former ceo payoff level of payoff. Totally kills the culture and I’m not sure the firm has recovered yet or ever will. No leader lost their job from it. 🤦♂️
Well I done a couple of them 🤣
The big4 consulting firms will all look very different 2 years from now. Traditional delivery models fully disrupted. Rates compressing. Best people leaving for higher pay / faster growth. Pyramid collapsing in on itself.
Slow to adapt to the new reality and slow to change their staffing / hiring models, headcount and legacy retirement costs will drag on their profitability. Mediocre partners will cling to their old ways of working. It won’t be sustainable and they’ll be forced to restructure one way or another.
The best partners have already seen the writing on the wall and have left or are leaving.
And suck all the earnings out of the system.
Ok like the feedback - a few points, I think we have all learned from EY and know what is needed now. I was there and the deal was flawed from the beginning but I do think someone will work it out. Agree on KpMG -if we were public companies the share holders would revolt! Also you can compete with the cost base in the SI market without being detrimental to the whole firm - it really is a race to the bottom
What were the issues with the EY split?
Internal turf wars over whether certain tax groups would accrue to the audit or consulting side, rifts among line Partners and the middle management and upper echelons, and the simply flawed economics of trying to IPO a consulting business at a time of rising interest rates and cratering demand.
And an addition to this I just met a SM from EY I knew from years ago and now with the same path to partner through MD like the KPMG model (is PWC and Deloitte similar?) the time to equity partner is so long, the backlog so huge and also a much smaller chance of it ever happening because of the reduction in total numbers many talented people are looking elsewhere. The extra time and lack of serious $ compensation is real!
A1 thanks - now you can go feel good about yourself or are you P1 who changed his title. Seriously 🙄and I’d listen to an Accenture MD …… why?
For those that pivoted to heavy SI and outsourcing models (and as you note KPMG pivoted heavy that way but it’s also accenture and others) they need to adjust strategy or fail.
But many of us are growing and growing at healthy pace as strategy and products around AI drive growth
Japan’s the adjustment in the model is to market, not at all unusual 90%+ unimpaired
Big 4 is a glorified pyramid scheme. The pyramid scheme works until flow doesn't get interrupted. All along people were the raw material but the moment people are replaced with agents ..the pyramid naturally breaks. I don't know what my role is some times ..working in tech I think it's time for the layers to collapse and it was well written by how Block was adopting to the new age . We will all be there one day