Chairman's interview

Nora Wu, Human Capital Leader for PwC China, recently sat down with Dennis Nally, Chairman of PricewaterhouseCoopers International, to get his views on a range of issues and events related to the past year.

Nora: Let’s start with the big picture. What’s your view of the current global economy?

Dennis: It’s been a difficult year and looking out over the next 12 to 24 months I think it’s going to continue to be pretty challenging. The US economy is sluggish and the eurozone continues to struggle as it works through its debt issues. China’s economy, as you know, is beginning to slow and in India we’re seeing the same story. This underlines the degree to which country economies around the world are dependent upon one another. When one region of the world slows down, you can see a cascading effect hitting other parts of the world. But the picture is not entirely bleak. We have certain markets that continue to prosper. Indonesia and Brazil, for example, are doing relatively well. But clearly, there are a lot of uncertainties out there. And for the time being, we’re all going to have to collectively deal with the global economy’s ‘new normal’.

Nora: How have the past 12 months been for PwC?

Dennis: Given the environment that we’re operating in, I think our performance has been pretty strong. Our revenue is up 8% at US$31.5 billion, the first time we have passed the US$30 billion milestone. We’ve seen good growth in all of our lines of service. Our Assurance practice is up 3%, the Tax practice 8%, and Advisory 17%. We remain very much focused on audit quality, which, in our view, is the name of the game. Our Tax practice continues to do very well as clients look for help in terms of compliance with multiple jurisdictions and changing tax regimes. On the Advisory side, many clients are looking for ways to become more efficient in terms of how they manage their supply chains, control cash flows and improve their capabilities around innovation. Overall, our results this past fiscal year suggest that despite the sluggish global economy, there are many opportunities out there for PwC. Whatever the economic conditions, clients continue to look to PwC for help and our strategy of attracting the very best talent to serve our clients continues to translate into a good top line performance. So, I remain very optimistic about PwC’s future.

Nora: PwC’s growth in recent years has come mostly from its non-audit businesses. Can you comment on that?

Dennis: We view all of our business lines as equal contributors to the PwC brand and we’re focused on making all of them competitive and successful. But it’s correct to say that in the past few years, it’s the non-audit services that are really driving strong growth across the PwC network. And for the foreseeable future, we continue to expect that to be the case. To the extent that we can continue to offer clients an attractive value proposition with respect to our non-audit services, I expect that part of our business will continue to grow.

Nora: Looking at the Assurance practice, what’s your view of the various proposed changes in regulations governing the accounting profession?

Dennis: Clearly, the financial crisis has caused a lot of people to revisit the auditor’s role and responsibility. At PwC, we welcome the opportunity to have that discussion. In terms of the audit, I think there are always things that we can learn and there are always things we can do better. And, in fact, we are engaged in discussions with regulators all around the world with respect to changes that might enhance audit quality, increase investor confidence and generally improve the way the audit profession works. And I think, over the next several months, we’ll begin to see some formal proposals coming out in terms of changes that we think would be good for financial reporting and good for the capital markets.

Nora: In today’s fast-moving environment, how can the audit be made more relevant to companies and their investors?

Dennis: It’s a great question. Regardless of whether we’re talking about PwC’s Assurance, Tax or Advisory practices, the question of relevancy is really central to everything we do. The audit today is very much based on historical financial information. But many investors are saying they want additional information and wider assurances.

Risk management, for example, is one area where greater assurance might be welcomed. So I think the question of relevance is central to the discussion of what the audit should be and the value it should deliver. Right now, there is what I would describe as an ‘expectation gap’ between what some people think the audit profession should provide and what the audit does under current rules and regulations. So the question is, how do we get a better understanding of what investors and regulators are looking for from an audit? And what can be done to close any gap between those expectations and what auditors do now? That’s an ongoing discussion we’re having with regulators, clients, investors, and other stakeholders.

Nora: Looking again at revenues, PwC’s growth is also increasingly attributable to the rise of the world’s developing economies. What are the implications of that?

Dennis: It’s an important point. PwC’s growth really mirrors what’s going on with our clients. And as our clients try to capitalise on opportunities globally, a lot of our growth is coming out of developing markets. Today, our revenues from the developing markets represent about 20% of PwC’s global revenues. We expect that to double over the next five or six years. The developing markets provide us with a substantial opportunity – and also a substantial challenge. How do we bring the right capabilities at the right time to the developing markets around the world? That’s one of the biggest questions we face. If we get it right, if we solve that puzzle, it’s going to deliver a great deal of value to our clients – and offer our people tremendous opportunities for personal and professional growth.

Nora: Coming from China, I can concur that recruiting exceptionally talented people is a top priority for us. Is PwC continuing to expand its workforce around the world?

Dennis: Definitely. PwC’s primary assets are its people. Right now, we have over 180,000 people working in our network. How do we continue to attract our fair share of talented people? I would say the key is offering people the opportunity to learn, grow, and succeed on their own terms. It’s all about opportunity and a commitment to develop our people regardless of where they are in their careers, and to give them the flexibility to work in a way that suits their life style. Considering PwC’s growth trajectory – and the opportunities available to us across the globe – I imagine we will continue to recruit aggressively and offer our people outstanding career choices. I can’t think of a better time to be at PwC.

Nora: I agree. From a professional development perspective, it’s a great time to be with PwC. Can you also comment about how PwC people are getting involved in their local communities?

Dennis: Sure – it’s an important issue for us because it goes to the question about the role of our business. Among a lot of people, there’s an evolving view that business has a broad and significant part to play in terms of contributing to society above and beyond the profits it returns to investors and the salaries it pays to employees. Because of our traditional role in helping to maintain public trust in the capital markets, that’s an idea that is ingrained in our culture. We’ve always had a wide and diverse community of stakeholders. So we take our corporate responsibilities very seriously and encourage our people to get engaged with their communities. This past year we’ve had over 37,000 PwC people around the world involved in community-building and charitable activities. It’s something we’re very proud of.

Nora: On a personal note, what do you enjoy most about your job?

Dennis: I’ve always liked interacting with clients and in my present job I get to do that a lot. And I really like meeting PwC people from different countries and backgrounds. It’s really interesting to be exposed to different cultural perspectives and ways of communicating. And I’ve been to parts of the world I never imagined I would ever visit. This past year, I travelled across large parts of Africa, which was just fascinating to see. It’s a tremendously exciting part of the world. I consider myself very lucky to have a job that’s fun, that I really enjoy, and that I have a real passion for.

Nora: There must be some part of your job that you don’t enjoy so much . . .

Dennis: Well, air travel is not terribly fun, but to be effective in this role you’ve got to be on the ground, you’ve got to get together with clients, talk to PwC people, meet with regulators. You can’t sacrifice that kind of face-to-face engagement – it’s invaluable. So spending a fair amount of time on airplanes is something that just goes with the territory, so to speak.

Nora: PwC operates in a very competitive marketplace. What makes PwC stand out from other professional services providers?

Dennis: A couple of things. First, I would say it’s the calibre of our people. We try to hire really bright and talented individuals – and we do our best to develop them at every stage of their career with us. So it starts with talent. Secondly, I would say it’s the strength of our network – 180,000 people operating in over 150 countries. That enables us to deliver services to our clients everywhere they operate – and everywhere they would like to operate. So the depth of our capabilities – which is reflected in the talent of our people – combined with the breadth of our network is just a powerful combination that, quite frankly, is tough for our competitors to match.

Nora: Last question – What are the big challenges and opportunities facing PwC in the years ahead?

Dennis: I previously mentioned the issue of relevance. As a professional services organisation, we have to evaluate on a continuing basis whether the services we offer match the needs and requirements of our clients. It’s easy to forget that clients change over time, their needs evolve, and if we’re going to stay relevant to them, we have to evolve, too. The other big challenge we have is recruiting enough good people. There’s simply not enough to go around. And so we have to do everything we can to make talented people want to come and work with us – and stay with us. In my view, the organisation that is able to adapt, that stays relevant to its clients, and remains a magnet for talent – that’s an organisation that’s going to win in the marketplace. And, of course, in the years ahead, that’s how we want to position PwC.

Nora: Thank you for your time today, Dennis.

Dennis: Thank you Nora. It was a pleasure speaking with you.