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Tech optimist

Chairman of PricewaterhouseCoopers Dennis Nally is embracing the transformative power of technology to enable the accounting business to adapt to constant change.

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'... Are the financial statements being issued today really relevant for today's purpose? And you'd extend the same thought process to the auditor's report. Is it having the kind of impact or role that you would expect it to have as this world is changed in a number of ways?'

THE sea change in today's world brought on by technology is all too familiar to Dennis Nally, chairman of PricewaterhouseCoopers (PwC) International, who had spent his early days at PwC working with manufacturers of personal computers.

"You go all the way to think about some of the big PCs - they were these huge, big old boxes that you couldn't even carry - and that was the portable PC," says the outgoing PwC chairman in an interview with The Business Times.

"So you think about that time period and where we are today, and you think about these huge boxes that probably had about five per cent of the capacity that your smartphone has today. Technology has really progressed in a significant way."

Today, Mr Nally twists his wrist ever so slightly to show off his Apple Watch, as proof that he is staying wired. "As soon as a new device comes out, I've got to have one of those things. My kids tell me I'm probably using 20 per cent of what the system allows."

Suffice to say, Mr Nally is optimistic about technology and its transformative hold over economies and businesses. But he is also aware that the rapid evolution could freeze out institutions that do not adapt quickly - and that includes big accounting firms such as PwC.

"If you go all the way back and you think about the industrial revolution, and how that really changed business - manufacturing, automation and all that type of thing - it transformed businesses. I would suggest that what we're seeing with technology now will have an even more dramatic effect on business, on governments, on societies, than what the industrial revolution had," he says.

Winners in the long term

He cites examples in Airbnb, as well as retail, and supply chain management, noting technology has allowed businesses to rev up efficiency, and to become more responsive to consumers.

"All of that is applicable to professional services. How will we deliver our services to our clients, how will we use big data, how will we use technology tools? This will be the single most significant event in the next five to 10 years. And businesses that are really focused on this, that are willing to invest, willing to change, are going to be the winners for the longer term."

PwC, on its part, has offered in the United States analytics applications across industries that include healthcare, retail and financial services. It offers, for example, analytics for staff attrition, and monitoring services for sales of annuity plans. But the industry, like many traditional sectors, has not evolved as quickly as technology has effected change across businesses, Mr Nally suggests.

"Accounting needs to evolve, and in a very dramatic way. Historical financial statements for example, today, are not necessarily as relevant and pertinent to the world's needs. So you think about all these intangible assets that we've just been talking about. What's the value of those intangible assets? How do you measure that from one company to another? What's the value of human capital, which is critical to be effective for the longer term?" explains Mr Nally.

"Accounting has got a long way to go to ensure that it continues to be relevant and responsive to what the environment is really adapting to."

The disparity is particularly stark when considering that businesses have breached physical boundaries - partly through the power of technology - yet auditing remains a siloed business, with local regulations ruling the day. "The one thing that most would agree with is that what the financial crisis demonstrated is how interconnected this whole economy really is. Unfortunately, you still have rules and regulations that are still being done on a country-by-country basis. Maybe there's more coordination today, but there are still significant differences that make it very cumbersome, and make it very expensive, for businesses to operate on a cross-border basis. Again, in professional services, and in accounting, particularly, we've got the exact same challenge," he says.

High degree of consistency

"I was always of the view that what the global capital markets need is one set of high quality accounting and reporting standards that could cross individual borders and therefore you'd have a high degree of consistency. Whether it's in Singapore, the United States, Germany or Brazil, you'd have that alignment so that investors - because ultimately that's who financial statements are for - (would) really be able to compare one opportunity to another opportunity. I was hoping this would be achieved before my retirement," says Mr Nally, who retires in June from the first and only firm he joined after graduation.

"I'm a realist, and I would say we're probably further apart today than what I would have ever imagined, given where the capital markets have progressed. That's one of the real, big, important issues facing the profession going forward. This is not a profession issue. This is how you get the various standard-setters, you get the largest firms, working together to come up with a solution and it's got to happen. It's just a matter of time, because this is what the markets are looking for, this is what the markets are going to be demanding, and I think it's incumbent upon all those parties to really work together to make that happen. But not in my lifetime."

Some critics have questioned if auditing firms should be providing broader guidelines in auditing statements, going beyond the numbers to inform investors more holistically of risks.

Mr Nally, who took over as chairman in the post-crisis period, is aware of the critical responsibility of auditors.

"Some have raised the question in the past: in the financial crisis, where were the auditors? Why weren't the red flags raised in a way that would signal to the marketplace some of the issues and challenges that were really taking place there? We take that criticism very fairly, so there is appropriate criticism," he says.

"We collectively need to do a better job of explaining our role, our responsibilities and how we're really carrying that out. Hopefully, to avoid another situation that we just saw with the financial crisis."

Still, while Mr Nally acknowledges that the profession can do more, he stops short at committing to firm action in offering qualitative guidance on audited statements.

"I think it comes back to the fundamental point: are the financial statements being issued today really relevant for today's purpose? And you'd extend the same thought process to the auditor's report. Is it having the kind of impact or role that you would expect it to have as this world is changed in a number of ways? I think it's incumbent on the profession to challenge itself, not only whether the financial statements are as relevant as they need to be - and that obviously requires working with standard-setters to move that process along - but in terms of what we do and how we communicate what we do, more transparency, more qualitative views around issues, challenges, risk... " he says.

"Having said that, one of the biggest challenges we have to deal with are the various regulatory issues that exist around that, the various liability issues that are around that, and so in order to progress that conversation, I think the profession cannot do this on its own."

Fit-for-purpose education

At the top of an organisation with more than 200,000 employees around the world, Mr Nally watches with some concern whether today's students and young employees have access to learning opportunities that are geared at helping them face a more complex future.

"I'm more optimistic. I think if you go back to the times of the industrial revolution, people were concerned about jobs back then. I think you had the same concerns back then," he says.

"The challenge, I think, that exists, is that this is moving so fast. Do employees today have the ability to continue to retool themselves? To re-engineer themselves, so that five years from now, what are going to be the skills that you really need, to be employable? And I think that is the biggest challenge that exists today. And that puts a huge premium on companies in my view.

"It puts a big premium on governments, and all the individuals that are touching the employment market, to make sure the skill-set development that exists are all focused on making sure that they are as current as they can be, and therefore, the need for businesses, governments, and colleges and universities to work together on this, is one of the big challenges that is out there today. I can assure you that if you don't have that kind of mindset, then it is going to be a concern."

He sees rising youth unemployment today as one of the direct results of the lack of right skills for the current economy.

"If the education system isn't fit for purpose for today's economy, then the consequences will be that the individuals coming out of the colleges and universities, are not prepared. They don't have the skills, they don't have the qualifications, to contribute to the workforce," says Mr Nally.

Having lectured at the Tuck School of Business in Dartmouth and Western Michigan University - as well as being a proud grandfather of four - Mr Nally lavishes more praise on millennials than is expected from a baby boomer.

"A lot of people talk about the millennials as being very different. I don't really see that at all. I think without question, this generation wants to join organisations that stand for something, that have real purpose, that is broader than just business itself," says Mr Nally.

"I think society is very different today. Some of the challenges that are out there are pretty significant. When you think about the environment, when you think about some of the big issues, I think you have a generation today that is much more aware of those big, societal, challenges and problems. Food safety. Scarcity of resources. Income inequality. There are a lot of those societal challenges that I think this generation is just more plugged into.

That could be because of technology, in terms of 24/7 reporting of these kinds of issues. When I think about what they are looking for, and their knowledge of the world, and some of the issues and challenges, I think you put all of that together, you see a generation that is much more committed to the greater good. It's not that they are not desirous of a successful career, they are just trying to define what success means to them a little differently than maybe what others have defined in the past," he adds.

"But I think it's all positive. I really do. I don't think it's about this generation not wanting to work hard, or not committed or anything like that. They just want to define it in a very different way, and those organisations that really focus on that and accept that, are going to be the magnet for real talent in the future."

Gender parity

Under his charge, PwC is also looking at gender equality by monitoring with care the progress of women through the ranks, preferring this approach to the use of quotas. "We don't believe quotas solve the problem," says Mr Nally.

"One of the challenges is, how do you put a stake in the ground that says, how can you get to the point of making this a non-discussion? You get to the point where the whole issue of gender parity is basically a thing of the past. At PwC, we think that while it's great to have good programmes, workforce flexibility, part-time programmes - all of that is critical to help to deal with some of the challenges that exist from a gender parity standpoint - we also believe that unless you get in to really understand what is happening within the system of advancement, you're not going to make the progress that you want to make," he adds.

With its workforce split evenly in gender terms at the start, PwC monitors staff from the first point of advancement. "How are we still doing? Is it still 50-50? Or is it 60-40? And we are asking those kinds of questions as individuals progress through the organisation, and doing that in a very systematic way so that you put a spotlight on the extent that things are getting out of whack, or out of line. You have that kind of awareness. You don't do this five years, eight years, 10 years, down the road. You're asking those questions at every single advancement point. And we think by focusing on that from an organisational - or systemic - standpoint, you can actually make some real progress here," says Mr Nally.

"If you're not managing your succession pipeline, for example, and individuals aren't being given the kinds of experiences they need to progress, then you can't automatically say, hold on, I want this person on my leadership team."

After 42 years with PwC, Mr Nally says he's looking forward to a little more flexibility in his schedule. "That might be the nice way to put it. I'm looking forward to not having to hop on an airplane all the time," says Mr Nally, who had arrived in Singapore on a 4.30am flight that day.

"Having said that, I'm one of those individuals that will not be on the golf course five days a week. One of the things that I've always loved about PwC is it allows you to continue to learn, to grow, to do different things, and that'll be a part of what I'll be doing."


DENNIS NALLY

Chairman, PricewaterhouseCoopers International

1952 Born in Washington, DC, USA

Graduated from Western Michigan University

1974 Joined PwC US firm's Detroit office

1985 Became partner

1985-2002 Served in numerous leadership positions in the US firm, including: National Director of Strategic Planning, Audit and Business Advisory Services leader, and Managing Partner

2002-2009 Senior Partner of PwC US

Since 2009 Chairman of PwC International

Leads many of PwC's corporate responsibility efforts, including involvement with World Business Council on Sustainable Development, World Economic Forum's Global Citizenship Initiative, and United Nations Refugee Agency. He is PwC's representative to the United Nations Global Compact