Ernst & Young Financial Details Are Disclosed in Divorce Case
Every detail that the global accounting firm Ernst & Young
told its American partners about its financial performance
through late 2000 became public late yesterday, including
its profits, details of its capital structure, the hours
billed to clients and the average earnings per partner.
Many aspects of foreign operations were also disclosed.
While such information is normally closely held, the
details were disclosed as part of a divorce case involving
the firm's global chief executive, Richard S. Bobrow. The
documents were released by Judge Steven R. Nation of
Hamilton County Superior Court in Indiana, where the case
is being heard, after motions were filed by The New York
Times to obtain them.
The disclosure of the details is sure to arouse unhappiness
among the firm's 1,900 American partners, experts said.
They predicted that the information would put competitors
at an advantage in bidding on contracts, hiring employees
and settling lawsuits. The financial data will also be of
interest to spouses of Ernst & Young partners who are
planning a divorce.
As a privately held firm, Ernst & Young is not required to
disclose anything about its finances to the public. Three
months ago, Mr. Bobrow reported only that worldwide
earnings for the year ended June 30 were $10.1 billion, up
$300 million, or 2.7 percent, from results in the previous
The documents show that in the United States, Ernst & Young
had revenue of $4.3 billion in the year ended Sept. 30,
2000, up 12.3 percent from figures in the previous year.
Total earnings were $1.3 billion, down 1 percent from a
year earlier. The profit margin was 31 percent in 2000,
down from 35 percent in 1999.
The equity stake of the nearly 1,900 partners fell to $422
million from $525 million a year earlier, a 19.6 percent
decline. Average cash earnings per partner were $565,000,
up 9.7 percent from $515,000 the year before.
Larry Parnell, a spokesman for the firm, said that it had a
policy of not commenting on its finances and that 'we view
this as a personal matter' between the Bobrows.
While the financial information may not help competing
accounting firms figure out how much Ernst & Young charges
its clients, it may be useful for recruiting purposes
because it allows competitors to beat Ernst's compensation,
said Arthur W. Bowman, editor of Bowman's Accounting
Report, an industry newsletter.
Mr. Bowman, who has estimated earnings per partner at the
big accounting firms in the past, said that he has
estimated that each of Ernst & Young's partners earned
$400,000 in 2000, a figure that was far below the actual
number. (In comparison, he estimated that partners at
PricewaterhouseCoopers took home $584,000 each; at KPMG,
$515,000; at Deloitte & Touche, $454,000; and at Arthur
'In the latter years, Andersen's average was higher than
that,' said Duane R. Kullberg, who retired as Arthur
Andersen's chief executive in 1989. But Andersen was always
more highly leveraged, with a smaller number of partners
than its competitors, he added.
The risk in having such financial information become public
is the additional ammunition it may afford plaintiffs suing
auditors in shareholder lawsuits, he said. 'You disclose
how much money you make, and you become a target for every
charity in town - and every plaintiffs' lawyer,' he said.
The reports also described the terms of $650 million in
loans and revolving credit agreements, including the
interest rates and the number of days the credit lines were
drawn. These details could prove especially value to
competitors as a window on how banks assess the firm's
Other documents detailed the sale in May 2000 of the
consulting arm to Cap Gemini, the big European information
technology company. Although the companies valued the sale
at $11.3 billion, the partnership documents state that
because of a decline in the value of the euro 'the value of
the global proceeds at closing was $7.9 billion.'
Ernst & Young divided the money, with $5.5 billion going to
its American partners, some of which went to shore up an
underfunded pension plan for partners, while partners in
129 other countries received the remaining $2.4 billion.
It also showed that the replacement cost of the consulting
arm's office furniture was $29 million, nearly five times
the figure for its computers and other technology hardware.
And it showed such fine details as the consulting arm's
ownership of 100,000 warrants to buy shares of the Fleming
Companies, the grocery distribution company, for $9.50
Another risk for the firm is a harsh reaction from clients
who did not realize how much money their accountants were
making. 'They don't want to get questioned by the people
that hire them saying, `That's too much money,' ' Mr.
Mr. Bowman added that most people do not realize how much
money accountants make, and might be angered by the hefty
profit margin earned by Ernst & Young. 'The general public
doesn't think accountants should make good money,' he said.
Some lawyers who were apprised of the Ernst & Young numbers
said they were surprised at how close they were - on
average - to what a partner at a large New York firm might
make. However, they speculated that the difference between
the most junior lawyer and the most senior lawyer at a law
firm is probably much smaller than the difference between
the earnings of the most junior partner and the chief
executive at an accounting firm.
The documents that became public yesterday came from
divorce proceedings involving Mr. Bobrow, who fought
efforts by his wife, Jan, to discover how much he was worth
and how much he made. Despite his efforts to keep the
documents from his wife, after she obtained them he did not
ask at trial that they be kept under seal. After The Times
sought the documents, Ernst & Young and Mr. Bobrow asked
that the records be sealed.
In response to the motions to release the documents, Judge
Nation wrote: 'There is no statute or case law that permits
the court to seal trade secrets and/or confidential
financial information after they have become part of the
public record. Because Ernst & Young and Cap Gemini's trade
secrets and confidential financial information were not
sealed prior to becoming part of the public record, the
confidentiality was lost and the court cannot retroactively
alter the status of such documents.'
Out of his $2.75 million annual salary, Mr. Bobrow gave his
wife a budget of $5,000 a month to raise their four
children, testimony showed. He told his wife he wanted a
divorce when he learned he would be promoted to chief
executive. He also told her that Ernst & Young's reputation
and good will had no value. He offered her a $1 million
settlement. Judge Nation awarded her $15 million of the
couple's $23.5 million net worth and noted that Mr. Bobrow
could expect to earn $36 million to $54 million before
retiring on a pension that could be worth more than $1
Two of the three other major accounting firms have already
made moves to see the files, as have several spouses and
former spouses of Ernst & Young partners, according to Mrs.
Bobrow and her lawyer, Robert D. MacGill of the Barnes &
Thornburg law firm in Indianapolis.
The Grant Thornton accounting firm prepared some of the
Ernst & Young documents.
This is not the first time that details of an accounting
firm's finances have become public, Mr. Bowman added. He
received a copy of similar documents in the early 1990's,
when Ernst & Whinney merged with Arthur Young to form Ernst
'Ernst & Young thought so much of protecting it that they
sued me to stop me from publishing it,' Mr. Bowman said.
Ultimately the decision was overturned and the information
was published, he said. 'That's how sensitive this
And in the late 1970's one accounting firm publicly
disclosed its financial results in the belief that how much
auditors make should be public, Mr. Kullberg noted. That
firm was Arthur Andersen.