EY Netherlands to Partners: Umm, Please Give Us Some Capital

EY Netherlands partners are answering the call to help pad the Dutch firm’s coffers because business kinda sucks right now due to the Rona pandemic.

Bloomberg reported earlier this week:

EY’s Dutch unit is asking its partners in the Netherlands to stump up funding to help it confront the blow to its business from Covid-19 measures.

Partners have been requested to add varying amounts to their private company bank accounts linked to EY, people familiar with the matter said, adding that the total contribution equals tens of millions of euros. EY has about 263 partners in the Netherlands, according to its annual report.

While many public accounting firms in the U.S. and elsewhere are reducing partners’ monthly draws or deferring partners’ year-end profit distributions because of the COVID-19 crisis, issuing a capital call to partners, asking them to take cash out of their own pockets to put back into the firm, seems like a pretty drastic measure.

The only other firm that we know of that has issued a capital call to partners since the pandemic began is Grant Thornton US. In a message to employees in early April, Purple Rose of Chicago CEO Brad Preber wrote:

As an additional demonstration of stewardship and confidence in the firm, partners and principals will contribute to a capital call, in effect making an incremental investment in the firm. This will enhance the firm’s already strong balance sheet should market turmoil dramatically worsen.

He also announced that monthly draws for GT partners and principals would be reduced by 25% until the end of July and managing directors on the firm’s National Leadership Team would be taking a 20% pay cut, all to try to prevent mass layoffs during the pandemic. However, some GTers with low utilization were cut loose recently.

For the past several years, EY Netherlands partners have been living the good life, according to the website Consultancy.eu. But that streak is about to end:

The financial position of EY is backed by the reserves of partners and cash positions built up in previous years. In the past eight years EY has been on a roll, only seeing growth. As a result, the professional services giant can rely on solid financials to help it come through the crisis.

But following years of high profits for partners – average partner income was above €500,000 per partner over the eight year period – they now will have to take a financial blow, as partners are the ‘owners’ of the company and therefore first in line to absorb potential losses.

Fortunately for EY Netherlands, the first three quarters of its 2020 financial year went pretty well, according to Consultancy.eu, so “they have been able to incur much of the coronavirus blow because of the good performance.” But for EY to be putting out a capital call to partners now must mean that its Q4 has been REALLY bad and/or the firm is anticipating Q1 of its new financial year, which begins on July 1, could be pretty terrible.

EY is seeking to ensure that its cash position is strong enough to counter the impact of the Covid-19-induced crisis. The accounting and consulting firm is starting to feel the bite of the crisis, as clients pause external work (especially non-strategic projects) and others delay the launch of new projects.

The website goes on to say that “layoffs in underperforming units [are] on the table” at EY Netherlands come New Year’s Day (July 1) in the Ernstiverse.

Local Partners at EY in Netherlands Asked to Top Up Buffers [Bloomberg]
EY asks partners to beef up firm’s cash buffers with millions [Consultancy.eu]

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