Mitchell & Titus, the largest minority-owned accounting firm in the U.S., has decided to end its membership in the Ernst & Young Global network after more than eight years.
M&T will return to being an independent, non-network firm as of Oct. 30, 2015, giving the over four-decade-old firm new opportunities to service clients, attract prospective clients and develop its people.
“Over the last 40 years we have had a great opportunity to grow and develop our people and service our clients, and a little over eight years ago we became a member firm of EY Global,” said M&T chairman and CEO Anthony Kendall in an interview Monday. “Over that eight-year period, it has been a great relationship. We have had an opportunity to work with some wonderful individuals and build some strong and meaningful relationships. We got to see a lot of different things and learn about how a global organization works. It’s just been really good for our people and good for our firm.”
M&T regularly reassesses its strategy and made the decision to go separate ways from EY to avoid independence issues. “We decided that it was in the best interest of both firms, not just M&T but also Ernst & Young, that we transition from the membership,” said Kendall. “The primary driver and factor behind that was the constraints that we face. Both firms face constraints from an independence point of view. Even though M&T and EY were separately owned entities from the regulator’s point of view, we were viewed as one. Therefore we both had independence constraints that the other firm would have. EY would have constraints if we are doing certain things and we would have constraints if they were doing certain things. After evaluating that very carefully and after due diligence, we just believed it was in the best interest of M&T and E&Y and for the people of both firms as we go forward, for M&T to go back to an independent standalone entity, and no longer be a member firm of EYG.”
The split was a mutual decision. “This was a decision that M&T reached with the support of EY,” said Kendall. “This was not a decision that was one way or another. This was something that we both discussed. We both thought it was an appropriate time, and it was an appropriate thing to do. It really wasn’t driven by one or the other. M&T is an independent firm and we do make the decisions about our management, but we consulted with them. We made sure we understood from their perspective what they thought was best, and they understood from our perspective what we thought was best, and we agreed that this was the right way to move forward.”
M&T will continue to be a member firm of EY until October 30 and service clients. “We will continue to do the things that we need to continue to do as a member firm,” said Kendall. “We look forward to working alongside and with our colleagues at EY as we go forward. We just believe that being an independent entity is the right thing, but we will continue to maintain those relationships and continue to nurture the ones that we have developed.”
The two firms will also continue to collaborate on joint engagements even beyond October 30. “We will continue to service those joint clients,” said Kendall. “That’s one of the good things about having the relationship that we have is we work closely together, so we know each other. The clients know us, and we will continue to service those clients.”
Kendall added that the two firms are working together to ensure a smooth transition. “We want to make sure that this transition has little or no disruption to our people or our clients, so we are working together to make sure that happens,” he said. “As we go forward, we will still work on several joint clients together and we will have some subcontractor arrangements. And we will enter into arrangements as both firms feel appropriate in order to service clients independently and in order to service our joint clients. We want to make sure we do this so that all the clients we serve together or the clients we serve independently continue to receive the high quality of service that they have come to expect from both organizations. We don’t see the transition as having any real adverse impact on our ability to service the clients that we are currently servicing and we look forward to the ability to service new clients.”
Kendall believes the move will allow his firm to develop some new service areas. “We are making some large differential investments in people and technology so that we can offer additional services to our current clients, and also services that we think prospective new clients may want,” he said. “We are making investments so that we can continue to train and develop our people, so that they have an opportunity to achieve their career aspirations. We think it’s very important as we do this transition that we remain mindful that the two key elements in this are our people and our clients, and we have to make sure that we do whatever’s necessary for them to feel no pain through this transition.”
He does not expect the change to have a major financial impact on either firm or their clients. M&T earns between $25 million and $50 million in annual revenue, Kendall recently told Accounting Today (see Mitchell & Titus Marks 40th Anniversary in Bringing Diversity to the Accounting Profession). Ernst & Young reported global annual revenues of $27.4 billion in fiscal year 2014.
“This should not have any impact on how we service our clients or any of the financial arrangements that we have with our clients,” Kendall said Monday. “The financial arrangements that both firms have with their clients are independent. I want to be very clear on that. They had a financial arrangement with their clients, and we have financial arrangements with our clients, and if we have joint clients, we have independent financial arrangements. Those financial arrangements should not be impacted in any way as a result of this transition.”
The firms also won’t be saving significant fees after the split. “We will continue to utilize each other’s resources when necessary and appropriate,” said Kendall. “We will continue to do that, and obviously we will pay market [rate] for whatever that may be, but it really shouldn’t have any impact on any of the financial arrangements that we have. It should have very little impact.”
Kendall is looking forward to the firm going independent again. He has been chairman and CEO since the beginning of 2009. “We are very excited about this opportunity to move forward into being an independent firm again,” he said. “We have this rich legacy and history of 40 years. We’re an organization where people from all different backgrounds and ethnic groups can come and they can be their authentic selves and they can feel comfortable working in an environment. We love to have the opportunity to develop our people and to nurture them. We think this is going to afford us many more opportunities for our clients and for our people, and we’re looking forward. I think we will remain focused on what’s ahead of us. We won’t look behind because I think what’s ahead of us is so exciting and bright, so that’s where you will see us commit our focus and attention. It’s been a wonderful relationship between the two firms. We will continue to have that good relationship, and both firms will continue to go forward and do the things that we both have been committed to, in servicing clients and being number one in the market. That’s what I know both firms are committed to. That’s what I know both firms will continue to do.”
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