[IMGCAP(1)]Samuel A. DiPiazza, Jr., has some thoughts to share about the accounting profession, his firm and the state of the economy, before his retirement, after having served as CEO of PricewaterhouseCoopers International Limited since 2002.
Previously, he led the PricewaterhouseCoopers U.S. firm as chairman and senior partner. He joined the U.S. firm in 1973 and became a partner in 1979. He currently serves as a trustee of the International Accounting Standards Committee Foundation, chairman of the World Business Council on Sustainable Development, and executive committee member of the International Business Council of the World Economic Forum.
Very active in civic affairs, DiPiazza is the past global chairman of Junior Achievement Worldwide, and serves as a member of the executive council of the Inner City Scholarship Fund, the executive committee of the World Trade Center Memorial Foundation, and the board of directors of the New York City Ballet.
How is PricewaterhouseCoopers coping with the recession? Are your clients cutting back or do they seem to need more accounting services?
If you look at the markets right now, theyre challenging for almost every sector, whether youre in financial services, manufacturing, technology or transportation. Its hard to find one of our clients not facing a very challenging year. In this environment, where the capital markets have been slow, the lack of capital being raised, debt hard to be financed, clearly that has an impact on firms like ours. From a PwC perspective, our business is clearly slower than it was a year or two ago, but still, compared to most other sectors, were faring fine. Our tax business and our advisory business continue to be in growth mode. Our assurance business has slowed, but thats primarily the result of the lack of transactions and the lack of capital markets. That will go on for a while longer. Weve worked really hard to avoid having to do any reductions in force, and in most of our markets around the world, weve managed to do that. Just in a handful of places, such as Ireland or Eastern Europe, where the markets are more challenging, weve had to reduce staff, but overall our approach has been to weather the storm, and we feel pretty good about how weve approached it.
These days, accounting firms seem to be taking the blame for the economy in some ways, with liability suits from shareholders and pressure from Congress to relax accounting standards such as mark-to-market and fair value. Does PwC feel that kind of pressure too?
I would say that in this particular recession and in the events that led up to this recession whether it was the real estate bubble, the subprime crisis, the credit crisis the profession has not been necessarily at the center of all those storms. Every player in the market is feeling some share of the blame, whether it was excessive leverage in the banks or too much risk taking, or whether it was the credit agencies misjudging instruments, or whether it was boards understanding risks, the accounting firms have dealt with some criticism around the fair value issue, but overall I'd say the profession has managed this really well. Weve had to face the issues of going concerns, valuations, impairments, and I would say, for the most part, the profession has managed itself in a very effective way. Now does that mean we have been perfect? No. Certainly theres been criticism around how fair value has been applied here in the U.S. and around the world, but even with that, modifications are being proposed, standards are being reevaluated. Overall Im really proud of the way the profession has worked its way through this. Liability is always a concern because when you have an increased level of bankruptcies, which you see today, oftentimes people ask, Where were the accountants? But I frankly hear that less today than in some cycles in the past.
There seems to be a lot of uncertainty now about IFRS and the roadmap, as you discussed at a recent seminar at Pace University. Do you think the SEC will proceed with the roadmap or call it off, and how are you preparing in either case for what they do?
I think the SEC is doing exactly what it should do. You begin the process of evaluating the implications of a move to IFRS within the U.S. Thats what the roadmap said. The roadmap laid out a process that would allow the SEC somewhere in 2011 or 2012 to make a decision and [have] no commitments other than a timeframe to assess the implications of moving to IFRS. Every signal I get is that the SEC is doing exactly that. Is there more debate around the subject today? Absolutely, but thats what the SEC intended to do by setting up the roadmap, to bring the stakeholders to the table, to talk about whats the cost, whats the benefit, what's the advantage, whats the U.S. role in global markets, whats the U.S.s responsibility. Thats the dialogue thats going on. I certainly hope that they dont delay the decision as we sit here in 2009. I think they should proceed on to 2011 and see what it looks like, and if they decide at that point to set an implementation date, thats fine. If they decide to study it more at that time, thats fine. My personal view is that the U.S. is now the only major economy in the world that is not moving toward IFRS, and the U.S. should think carefully about why they might make any other decision but to have one common language for the markets around the world. But it is appropriate for the U.S. SEC to take its time and make a reasoned judgment.
You talked a bit at the Pace University seminar about securitization of assets. Do you think its been scaled back enough because of the economy?
I think when I made that comment people were talking about the causes of this crisis and what was the positioning of the banks and lending money. My observation was that it is not well understood. One of the most significant changes in the markets today is around the willingness of the markets to accept asset-backed securitization. That was an enormous source of capital in 2005, 2006, even in the early part of 2007, and that capital was fueling growth. Today because of the lack of transparency and the lack of confidence in the markets and the economy, the securitization market has really, really slowed down. The governments response to that by pushing liquidity into that market has been positive, but I think until you get some confidence in the securitization markets, youre going to have a hard time fueling the level of growth we need. Thats my observation. Im not saying its good or bad. Im saying it is really unfortunate and its the result of a lack of transparency, excess complexity, and now a lack of confidence.
I also want to ask you about the PCAOB case thats before the Supreme Court in which the boards constitutionality is being challenged. Would you care to make any predictions about the outcome?
I wont make any predictions, because Im not directly engaged in the case, so Im not an expert in it, but I would say this about it, and I think Ive said this at our session at Pace. I think regulation has been good for the profession, not just here but all over the world. I think its brought a level of focus, and a level of consistency and quality to our work, and I think the PCAOB here in the U.S. has done a good job of learning how to regulate a profession that for the last century operated in a self-regulated form. And I think thats true whether its here, or China, Japan, Germany, or other parts of the world. So whatever the constitutional arguments might be, I think that Sarbanes-Oxley on balance has been good for our capital markets not perfect, but good and I think the regulation of the PCAOB over the profession has been good for us. It has made us a better profession, so Id hate to lose that.
You recently announced that youre going to buy some parts of BearingPoint, along with Deloitte, and the bankruptcy court has given its approval. How do you plan to integrate them?
The BearingPoint acquisition we did was very much consistent with our existing advisory capabilities both here and in other countries. Theres a piece in Japan, other pieces in China and India, and its very consistent with the role were playing as an advisor, as a firm that can help our clients make transformational change. It complements our skills in technology, risk assessment and change management. I dont see this as a complicated integration. These teams will work very well with our existing advisory teams around the world, and we think its a great addition to our skill sets.
Are there any worries about getting back into the consulting business? A lot of accounting firms seemed to spin off their consulting businesses after Enron. Do you see a trend going back the other way now?
You have got to identify what you mean by consulting. In many respects, many of our businesses are consulting. We give clients advice to improve their operations, whether its in tax, or even in the audit process. We help our clients and consult with clients to improve their controls and compliance. We have no intent to rebuild the old IT implementation business that we sold to IBM. We are free to do that if we choose, but thats not our strategy. Our strategy is to stay close to our competencies. Those competencies are around transactions, risk assessment, improvement of performance, human capital and change management. These are things our firm has done for years, and we did many of these things after the IBM transaction. We didnt sell all these businesses to IBM. This is really filling out our capabilities. I think Deloitte may be the only firm that stayed in some of those other businesses. Although we will have significant IT expertise, it is not the implementation of the old ERP business that IBM, Accenture, Infosys and Deloitte do. We dont do that. We are much more strategic and much more into the improvement of performance than we are just into designing software.
How is PricewaterhouseCoopers dealing with recruiting now? There has been a lot of talk about how employers have been scaling back on their hiring, and some accounting firms have done that as well. What is PwC doing on that front?
Weve been very visible on the campuses both here in the U.S. and around the world. Weve been very transparent to the students and the faculty about whats happening in the real world. So weve talked to them about how were approaching our own teams, how were holding onto our own skills and excess capacity in order to come out of this recession with more capabilities. Weve also talked to them about the need to be even more selective in the skills we recruit. When you look around the world, and I think its true here in the U.S. as well, if the question is, are we reducing our objectives or targets on campus, if we are, its slightly. Its not a dramatic change because we feel that our only asset is our people, and were going to continue to bring high-quality people in. Weve been very honest that the bar is up, that were attracting even higher quality today. We have not rescinded offers, we have not done any of the things that frankly our profession has done in the past, and we think that is going to bode well for us in the years to come. But I know were still hiring an enormous number of people. I think well hire this year over 2,000 people in China, and last year it was just slightly above that, so were not reducing very much, even with an economy thats slowing much faster than many people had thought. But the bar is up, and I think the difference is were being very open, very honest, and were telling our people that we will hold onto excess capacity if they commit as well. And thats what were seeing among our people.
When do you expect the economy to turn around, or are you starting to see signs of that already?
Our own economists and the people that we depend on the most would say that youre going to begin to see some growth in this economy toward the end of this calendar year, maybe even as soon as Q3. It will not feel like a dramatic change because were talking 1 percent or 2 percent, where weve been used to over the last decade 3 or 4 or 5 percent. You will begin to see, we think, some recovery in the markets. Some of that is simply inventory replenishment. Its a fact that the markets were driven so low in Q4 and Q1 and even Q2 of this year, that youre going to get a bit of a recovery. But we think it will be a slow 2010, positive but slow. Our view is thats probably the right answer. This has been a very tough and long recession. Weve already been in a recession for close to 17 months and that is the longest of any period since World War II. In fact, its as long as both recessions in the 80s put together, and were probably another three or four months before were technically out of it. So youll be over 20 months in this recession. You need some time to recover slowly. If you come back too fast, you could find yourself in a double dip, and thats not good for any of us. Our clients feel the stability in the markets today and thats good, but they dont actually feel much growth. And I think thats what were going to see for the next quarter or two or three.
What are your predictions for the accounting profession and long-term trends you see?
Im retiring later this year. Im actually stepping out of my job here as the CEO later this summer and will retire from the firm, so I have lots of reflections about the profession. Ill give you a couple. Im really proud of the profession. When I look back over the last six, seven, eight years, our profession has changed an enormous amount and I think for the good. Were focused on the right stakeholders, first the investor, our obligations to civil society, to our own people. Theres a lot less focus on the commercial aspects, and I think thats good for us. I think weve adjusted well to the regulated environment. Our business models finding a way to work in a regulated audit business alongside advisory or consulting businesses I think weve managed that really well as a profession. I think the profession has some challenges out into the next decade. One of those challenges is maintaining its own relevance, and by that I mean, in a world where you have complex rules-based financial statements, its very difficult to understand the output. The profession has to be careful that somebody can use our work. Thats one reason why I am so supportive of IFRS because I do think IFRS creates a more relevant output than U.S. GAAP. I think the profession has to remain very focused on the user, whether its management or the investor, being able to actually use our work and staying relevant. When I look out toward the future, the biggest issue we have is continuing to attract outstanding talent to this business. Weve done well the last five or six years, but were going to have to keep that up for a long time to come. Demographics begin to work against us in a lot of parts of the world. The lack of enough professors and people training young people, thats a challenge for our profession, and I think the profession has to stay very focused on its talent. I feel good about where we sit today, but in the end this is a long game. Our firm is over 150 years old, and we are an unusual entity where the partners work here and at the end of their career, like me, they turn their ownership over to the next generation. Were not an equity-driven organization. Were more fiduciaries, and I think youve got to build talent to keep that future, so I think those are the big challenges that the profession has.
[To listen to a podcast with excerpts from this interview, click here.]
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