Kayla J. Gillan, a former deputy chief of staff at the Securities and Exchange Commission and founding member of the Public Company Accounting Oversight Board, has been tapped to lead PricewaterhouseCoopers’ new Investors’ Resource Institute.
Gillan, 54, joined PwC in 2011 after serving as deputy chief of staff to SEC chairman Mary Schapiro. As one of the original PCAOB board members, she served from 2003 to early 2008, once the PCAOB was established as a result of the Sarbanes-Oxley Act of 2002. Gillan joined the PCAOB after 16 years at the California Public Employees’ Retirement System, including six years as CalPERS’ general counsel. Just before joining the SEC in early 2009, she was chief administrative officer for RiskMetrics Group, which is now part of MSCI.
As the leader of PwC’s Investors’ Resource Institute, she will steer the group in its mission of adding value to investors’ decision-making processes. The goal is to share PwC’s insights and educational materials about markets, industries and corporate governance to strengthen investors’ understanding of the information available to them. PwC also hopes to deepen its understanding of investors’ viewpoints through the new initiative.
Gillan talked by phone with Accounting Today last week about her new role, and some of the issues facing the PCAOB and the SEC today.
Could you tell us what you will be doing with PwC’s new Investors’ Resource Institute and how that will be educating investors?
Sure, I’m very excited by it. I actually joined the firm a year and a half ago or so, and this is a new assignment for me, hopefully playing into my past where I spent 20 years with CalPERS, a large institutional investor. I kind of think of what we’re going to be doing in three different ways. The first is building relationships. Most of the accounting firms really don’t have direct relationships with investors, and this is our way of trying to reach out and understand investor perspectives better and to help them understand a little bit more about what we are, not just as auditors, but across the firm, all the different kinds of services that we provide and information that we have, cybersecurity as kind of a hot topic that we do a lot of work in that I think investors are pretty concerned about.
Relationship building is the first area. The second one goes into what you mentioned as far as educational material. When I was at the SEC, I developed kind of a passion for the issue of financial literacy. The firm has got a really strong commitment through the Clinton Global Initiative to help promote financial literacy K through 12 and then educators of K-12. This is taking that same concept to maybe the junior college or the college level. There are a lot of retail investors who would benefit from some greater insights into how to read financial statements. What is some of the information that companies make publicly available? How can they read them, how can they access them, how can they compare them from company to company? Those are the kinds of informational materials that we hope to get out. And I think while some of it may be interesting and helpful for institutional investors, I think it’s probably going to be targeted a great deal towards retail investors.
The third area is really part of our new charter: taking what we learned from our conversations with investors, from our interactions with investors, and bringing it into the firm so that not only our leaders can have these perspectives in mind when they’re making decisions, but also our young folks. We’ve put a lot of resources into providing very robust professional development courses for our young people so that they can better understand investor perspectives, investor concerns, investor views, whether they go on to be an auditor or go on to be something else in their lives, but to internalize that investor DNA into the firm a bit.
That sounds a little bit like what’s been going on at the PCAOB. You’re one of the founding members of the PCAOB and they’ve been trying to do more outreach to investors and get them involved with the roundtable meetings that they’ve been holding to get their viewpoints on things like mandatory audit firm rotation, audit committee communications, auditor reports and things like that. Do you think this is something that firms like PwC need to do more, to get those perspectives directly from the investors?
Well, it’s something we want to do. We spend a lot of time as a firm thinking about all the different constituents that use or have an interest in the work that we do. Investors are a huge chunk of those people who are keenly interested in the work that we do. We just want to reach out and develop a relationship with them and have them develop a relationship with us.
I guess PwC already has a large practice in servicing financial institutions like banks and broker-dealers. Is this going to give you more perspective into the clients of those types of financial institutions?
I don’t know. It might. That’s not necessarily one of the objectives. There are a lot of different kinds of investors out there, from institutional to retail. One thing, having worked in the investment field for so long, is I have a real appreciation for the fact that investors are so different. They have different strategies, time horizons, etc., and we obviously want to understand all of that. It’s not necessarily so that we can convert them into clients, but so that we can do a better job for the clients we already have.
So you believe this is also going to be used for training people at the firm and at junior colleges too?
No, I was just doing an analogy. If we talk about financial literacy in K through 12, the kind of financial literacy programs and materials that we’re planning to develop would be geared to an adult level, not to a K-12 level. And then we want to take what we learn from investors. Why isn’t an investor interested in private equity or venture capital? Those are some things that our young people, as they come in the door, may not fully understand. And as they are doing audit work or some other work for a client, it would be helpful for them to understand how the investors are viewing certain kinds of transactions.
Do you think this might tie in with some of the work that the PCAOB has been doing, as with, say, the auditor’s reporting model and helping contribute to that kind of work in identifying what kinds of information the investors would find most useful in those auditor reports?
Well, I expect the PCAOB will likely make a decision fairly soon on that particular standard that they have been considering. What I hope to do, when the PCAOB does come out with a standard, then we will have informational material to explain it for investors. For example, if the PCAOB decides to go with an emphasis-of-matters paragraph approach, which is one of the possibilities that they’ve been thinking of, I hope we have material that will help explain if an audit report contains a goodwill paragraph, these are some of the questions you might want to ask the company, this is what it means, this is how you may want to look at other companies in the same industry, so it really would be to provide additional information and insights that would support what the PCAOB is doing in that regard.
There has been more talk in the last few years about doing integrated reporting, getting details integrated with the financial reporting about environmental work that a company is doing and how it is working with the community or on labor issues, or corporate governance, getting those things tied together in the reports. And there are some investors out there who are really interested in those types of things. You mentioned you worked with CalPERS, and I believe that is one of the factors that they look at to try to get companies to invest in more socially responsible kinds of endeavors. Is that something you think that PwC might also try to educate accountants and auditors about?
Well, PwC has been active as a global network in integrated reporting so we already have a lot of perspectives out in the market about that. And we also do a lot of work in the sustainability space, and I do expect that to the extent that we have views on those topics, we’ll share those with investors and hear their perspectives as well. I think that we probably have a lot of mutuality of interests in both of those topics.
International Accounting Standards Board chairman Hans Hoogervorst announced recently that the IASB is signing a memorandum of understanding with the International Integrated Reporting Council to try to get more of that information integrated with the financial reports (see IASB Plans to Support Integrated Reporting Effort and IASB and IIRC Sign Agreement to Develop Integrated Reporting Framework). Do you think that might be something PwC would support?
PwC has been very active on the IIRC. [PwC chairman] Dennis Nally has a role on that Council.
What do you think will be the first materials we will be seeing from the group that you’re starting? Is it going to be investor education materials or maybe guidelines?
We already have some material up on the Web site. Most of that has been stuff that PwC has produced for the public at large and we thought was of particular interest to investors so we’ve focused on that. We do have one new document that we had at the launch of the Web site called “Demystifying the Audit.” Again, it’s toward the layperson’s perspective of what auditors do and what they don’t do, hopefully providing some clarity there. That’s more like the types of information that we’ll be adding to the Web site, things specifically directed toward investors where we can either explain something or provide our perspective. We’re also going to be doing some surveying work and polling of investors. If you look at the Web site, it’s categorized into two sections: insights for the investment community and insights from the investment community. In the “from” category, we’re going to be doing surveying and reaching out to investors to get a better understanding of specifically what topics would they benefit most from, or are most interested in having us work on, or provide our perspectives on, and what kind of tools would be most useful for them? Do they use computers, do they use laptops, do they use iPads, do they use mobile devices and other things? The first phase of the Institute is really engaging with the investment community to make sure that we provide information and material that’s useful to them.