Deloitte's CEO role uncertain as Cathy Engelbert not up for second term

05 July 2018 Authored by Consulting.us

Current Deloitte US CEO Cathy Engelbert did not receive the board member support needed for a second term to commence in 2019. The disagreement in the early nomination process could still be ironed out, however, but for now, Engelbert appears to be a ‘lame duck’ CEO.

The CEO of Deloitte US, Cathy Engelbert, has not received the board member support needed to embark on a second term, according to reports from the Wall Street Journal and Financial Times. Engelbert, who took the reins of Deloitte in 2015 as the first female CEO of a Big Four firm in the US, will see her first (and potentially only) term end in 2019.

It was revealed to US partners of Deloitte through email that Engelbert had not secured the necessary amount of support in the early board nominating committee stage of the CEO (re-)election process. Deloitte insiders told the Financial Times that the impasse was due to disagreements between 'strong-willed partners.' If the internal disagreements can be resolved, Engelbert may yet still be nominated for another term.Deloitte's US leadership remains uncertainOne possible reason for the lack of support for Engelbert’s second term is the shifting focus of Big Four firms to consulting, including the increasingly lucrative digital innovation and transformation segments. The auditing and tax segment that the firms were built on are now stagnating in importance and in revenue share in relation to their consulting activities. Deloitte’s global consulting segment has grown from 4.5 billion in 2006 to 14.3 billion in 2017. In contrast, the tax segment grew from 4.3 billion in 2006 to 7.3 billion in 2017, while auditing only grew from 9.8 billion to 13.9 billion. As firms continue to scramble after IT and digital transformation services, the consulting division can expect to continue seeing higher rates of growth and dynamism than the Big Four’s traditional accounting work. Engelbert’s career was built in the traditional auditing practice of the firm, and critics would say that is where the bulk of her expertise lies.

As such, there is the possibility that partners and board members and Deloitte want a leader more steeped in  innovative capabilities as the firm’s consulting and digital divisions grow. Indeed, Deloitte Digital, the firm’s online and mobile strategy and design arm, has been growing at an exponential pace as it has embarked on an aggressive acquisition path, snapping up droves of creative agencies and tech companies. Deloitte’s board may be looking for a leader with greater depth of experience in digital transformation and innovation as the firm’s emphasis and direction evolves.

According to the Financial Times, Deloitte denied that the rift between members was a result of its service portfolio diversification policy, stating that the “multidisciplinary model is central to our strategy, enabling us to capitalise on market leading expertise and deliver technology-enabled services of the highest quality to our clients and the capital markets.”

The model has come under attack in Britain by Parliament, citing the potential for conflicts of interest as the Big Four perform both auditing and consulting services for clients. Indeed, the firms (including Deloitte) broke up their consulting and audit divisions into separate entities following the Enron scandal, though the changes didn’t seem to be permanent. As pressure mounts in the UK, the Big Four have revealed that they have contingency plans for splitting up their functions if necessary.

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