Chairman's interview

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Mohamed Kande, PwC US and global Advisory leader for TICE, 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.

Mohamed: I’d like to start our discussion today talking about the external market. What’s your outlook on the global economy for the year ahead?

Dennis: The big challenge facing many of our clients today is around growing in a slow growth economy. We’ve come off five years of pretty sluggish growth. But things are starting to turn the corner, particularly in the US, Japan and even in Europe. We’re expecting global GDP growth next year of around 3% but for several reasons there’s a lot of variability around the world. So, it’s looking better, but the economic picture is not without its challenges.

Mohamed: How about looking further out… what are your thoughts on the next few years?

Dennis: Coming out of the financial crisis, it’s clear how interconnected the global economy really is. The slow-growth mode impacting the US and parts of Europe is affecting China today, as well as India, Brazil and Russia. All of this is connected.

Over the next three to five years, we anticipate large transitions affecting economies driven by what we call megatrends, revolving around rapid urbanisation, resource scarcity, and perhaps the most influential trend for most businesses today, the gradual steady rise in incomes and new economic opportunities for millions of people.

Mohamed: I know that you have the opportunity to meet with many CEOs. What are they saying today about the economy and the long-term potential of their companies?

Dennis: I think most are optimistic. Cautiously optimistic is probably a better way to describe it. When you’re in a slow growth environment, it’s very competitive and many clients are talking about the day-to-day impact on pricing, on margins, etc.

The challenge is: how do companies grow in the current sluggish environment while looking for investment opportunities associated with the megatrends I mentioned? We think PwC can help our clients navigate this complicated environment.

Mohamed: There is a lot of concern about the ‘slowdown’ of emerging markets, particularly China. How important are these developing economies in terms of growth and the future of PwC?

Dennis: Whenever I hear about the ‘slowdown’ in China, I think that many countries would like to have the ‘problem’ of 7.5% growth this year – but your point is well taken.

One of the most significant trends that many of our clients are facing is the major shift from the developed economies to the developing world. And, while that may be slowing, it’s got to happen as populations continue to grow, and middle classes are created. Today, developing countries account for about 20% of our network revenues. We expect that to double over the next five years or so. So yes, we expect to see the evolution of our network to focus on where our clients are going and where the opportunities are.

Mohamed: Now, thinking about PwC, how was the performance of the firms in the PwC network in FY 2013? Were you satisfied with the results?

Dennis: Well, Mohamed, when it comes to results, I’m never satisfied. We grew around 4% this past year. We saw good growth in all of our lines of service, which is very encouraging. There are some very bright spots in different parts of the world. The US and the Middle East, for example, performed incredibly well. Places like Spain, for example, did well in a very difficult economy. So while it’s a strong performance in a very difficult market, I’d say there are a lot of opportunities to improve our performance as we look to FY 2014 and beyond.

Mohamed: When you look at the financial results for FY 2013, much of the growth is coming from advisory and non-audit services. What are your thoughts on the implication for the PwC network?

Dennis: This past year our Advisory growth rate was around 8%, a strong performance. That is consistent with my earlier comment about the opportunities for PwC to help our clients navigate through these challenging times. Our Tax practice enjoyed a successful year – growing globally by around 5%. Another solid performance. And let’s not leave out Assurance. In a very tough competitive market, with severe pricing issues, our Assurance practice grew about 1%.

The challenge for all of our lines of service is: how do we continue to make sure we have the right capabilities to help our clients really deal with their issues going forward? That’s where the real opportunities are.

Mohamed: What can be done to revitalise the Assurance business and make it more relevant?

Dennis: The first thing we should do is not overlook the fact that in Assurance, we play a critical role as the custodians of trust in the capital markets. We have a tremendously proud legacy here and we should never forget that.

But it’s also clear, in talking to many of our stakeholders, that they’re looking for new types of assurance services – for example, risk management or our views on non-financial information. So I continue to see a lot of opportunity for the Assurance business to evolve, to respond to what the marketplace is looking for. No different than in Tax or Advisory. It’s all about the relevance of what we’re doing on behalf of all of our stakeholders.

Mohamed: One more question on the PwC network. There have been a number of combinations of firms within the network to form regional networks. Do you expect that to continue? And will acquisitions by PwC firms continue to be part of the strategy?

Dennis: Absolutely. We have tremendous pride in our network today. We believe without question we’re the strongest network of any of our competitors and we’ll continue to evolve it to make sure that we retain that position.

The evolution of our network is very much market driven. Whether it’s the combination of our firms in Africa or the external acquisitions that you mentioned, it’s all based on what’s happening in the marketplace.

Mohamed: Let’s talk about our stakeholders now. First, our people. To be able to grow, you need to have very good people. 184,235 people is a staggering number. How do you know that they are the right people for PwC?

Dennis: Well first off, we continue to be the number one recruiter on campuses all around the world. We have the best brand. So we have access to the very, very best talent. But just having access to the talent on day one isn’t sufficient. This is all about how you continue to develop that talent, how you give them the right experiences, how you give them the opportunities to really grow to reach their potential.

We think we’re doing a good job but we’re never going to be satisfied in terms of how we think about our human capital strategies. They need to continue to evolve and be responsive to what the needs of our people really are.

Mohamed: Let’s talk about the other set of stakeholders that we have which are the regulators. This is a group that is putting extreme pressure on the audit profession today. What’s your position on this?

Dennis: At PwC, we believe there were certainly a number of lessons that all stakeholders had to learn coming out of the financial crisis. And we took that exercise very seriously.

So we embrace many of the changes that are being talked about by the regulators. But we think that certain changes would have a negative effect on audit quality.

For example, mandatory firm rotation. Easy to say, but does it drive audit quality in the right direction? We would say “no”. We don’t think that’s a good step. Another suggested change is expanding the auditor’s report to be more informative to the broader group of stakeholders. That is certainly a change that we would welcome. So, to me, this is an evolution and we need to make sure that any change meets the overall objectives.

Mohamed: We see more attention being focused on whether companies – and individuals as well – are paying their fair share of tax. As a leading provider of tax advice, what’s PwC’s view?

Dennis: When I think about our Tax practice, we understand that we have a really important role to play in society. That entails not only advising our clients on what they can and can’t do, but also ensuring that they’re in compliance with those laws and regulations that have been put in place. And this is a responsibility that we take very, very seriously.

Now if those rules and regulations need to be changed, that’s fine. We can be a part of that conversation.

Mohamed: Do you see the Big Four becoming less alike... in size, service offerings, strategy and culture? How do you think PwC is distinctive?

Dennis: When I think about competition, I look at PwC and I think there are two things that really give us a distinct advantage. One we’ve talked about, which is first and foremost having the very best people to be able to serve our clients. The second is our network and sometimes I think we take this for granted. We clearly have the best network around the world; operating in 157 countries where we have the skills and capabilities to really deliver all of our services to our clients regardless of where they want to operate. And that’s what gives us real competitive advantage in the marketplace.

Having said that, the world is changing and you’re seeing new competitors come into our space every single day, probably competitors we haven’t even thought about. To me it’s all about maintaining relevance. That’s where we never take our eyes off the ball.

Mohamed: What would you say is the most important thing PwC has to offer its clients and people? In other words, what’s the purpose of the organisation; what role does it have to play in the world?

Dennis: It’s a great question because while we have a tremendous legacy going back 150 years, I also think it’s important that we continue to evolve as an organisation. So when I think about our role in the world, I really think about two things.

First is around the whole issue of trust in society. Trust today is at an all-time low and we have an important role to play in regaining trust in institutions. The second part of our purpose is that we’re here to really solve important problems. Addressing client problems, of course, but also using our capabilities to help resolve some of the issues that society is dealing with. To me that’s very exciting… what a tremendous way to think about the future of PwC for the long-term.

Mohamed: That does sound exciting. And that ties nicely into my last question – what would you say to someone considering a career with PwC? Why should they join us?

Dennis: I would say that I’ve been with this organisation now for 39 years and I have never seen as many opportunities that exist today as I’ve seen throughout my entire career. To me that’s energising and I think it would be very exciting for a new person who is considering joining PwC. But, you know, that’s just my view – perhaps there’s a little bias there. So let me turn the question around and ask you Mohamed – what keeps you at PwC?

Mohamed: It’s a very simple answer for me. I’m doing very interesting work with very talented colleagues – with a lot of different opportunities around the global network. You put all this together, it’s the perfect job.

Dennis: The perfect job. That’s what we all aspire to and that’s the way I look at it as well.

Mohamed: Thank you very much for your time, Dennis

Dennis: Thank you Mohamed. Great to be with you.