■ ANALYSIS | IAN POWELL
POWER
PLAYER
PwC’S CHAIRMAN IS TAKING CENTRE STAGE IN THE AUDIT
DRAMA AND HE DOESN’T FORGET HIS LINES, FINDS SALLY PERCY
I
f Ian Powell were a department store, his
motto would probably be: ‘Never knowingly
underprepared’. Last November he put in the most
assured performance out of the Big Four chiefs
when the quartet was grilled by the House of Lords
economic affairs committee over the role of auditors
in the financial crisis. This proved an embarrassing
occasion during which it emerged that the firms
had given clean audit reports to banks following
conversations with former City minister Lord Myners
that indicated the banks would be propped up with
taxpayers’ money in the event they failed. PwC’s
chairman had prepared for the hearing by sitting
before a panel of senior experts from the firm who
bombarded him with tricky questions and the practice
paid off, since rival Big Four senior partner, KPMG’s John
Griffith-Jones, could be seen nodding in agreement
when Powell spoke.
Now, nearly three years into his role as PwC’s top
man, it is clear that 54-year-old Powell has become a dab
hand at dealing with tricky questions, especially ones
concerning whether auditors were ‘asleep on the job’
when it came to predicting the financial crisis. Sitting in
his Embankment office, a view of the Thames and the
London Eye behind him, wearing a dark suit and looking
a little more careworn than he did when he first took
over the reins in July 2008, he firmly bats off questions
along these lines.
‘Many people didn’t see the crisis coming, whether
they be government, regulators, auditors, financial
services institutions themselves, or investors, and
nobody saw a scale of financial crisis that we
experienced,’ he points out. ‘Audits were done
thoroughly and properly at the time, given the rules
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that people had to interpret and report on.’ He
continues: ‘I don’t think the criticism is fair but what I do
think is that there are lessons that come out of it that we
have all got to be prepared to learn.’
Many of these lessons, he says, revolve around getting
‘better transparency’ and communication around audit,
which involves auditors and companies having more
regular conversations with regulators including the
profession’s main watchdog, the Financial Reporting
Council. ‘I think you’ll see a much closer relationship
between auditors and regulators going forward,’
Powell explains.
AUDIT VALUE
But there is an issue, he says, concerning the perceived
value of audit. ‘There is a lot more value that can be
added through audit. Auditors are frustrated because,
no matter what challenge and discussion goes on
behind the scenes, the published audit report
is quite a binary report. It is difficult to see much
difference between a report in an audit that could cost
£50,000 or an audit that could cost £2m. The real value
of audit is the challenge, and debate, and discussion,
behind the scenes.
‘So how can we get more transparency on that? I do
see in the future that there will be expansion of the audit
report, but that needs a lot of cooperation between lots
of people.’
The $150m (£93m) lawsuit launched in New York
last December against Ernst & Young, the former
auditor of failed investment bank Lehman Brothers, has
inevitably raised the spectre of Arthur Andersen, which
collapsed in 2002 after its professional reputation was
destroyed by the accounting scandal at fallen energy
MARCH 2011 | ACCOUNTANCYMAGAZINE.COM
IAN POWELL | ANALYSIS ■
giant Enron. The possibility exists that another Big Four
firm could fail if it is found to have been negligent in its
responsibilities as auditor of a failed bank. Does Powell
think that there is a risk that PwC could be sued over
its audits of Northern Rock or Lloyds Banking Group,
both of which had to be bailed out by the taxpayer?
‘We’d never comment on any client situation,’ says
Powell, although he adds: ‘Personally I don’t think it’s
likely there would be a failure in the Big Four, but it is
not impossible. Where you have a situation where there
can be massive claims against auditors that could bring
down a network, the risk is always there.’
THREATS TO THE BIG FOUR
The threat of a Big Four accountancy firm failing is
one of the reasons why both the House of Lords and
the EU have spent the last few months looking at
the issue of auditor concentration in the large listed
company audit market. In his green paper published
in October 2010, EU internal market commissioner
Michel Barnier put forward a number of suggestions for
discussion including mandatory rotation of auditors,
the appointment of auditors by a third party and the
prohibition of auditors providing non-audit services.
Meanwhile, in his appearance before the House of Lords
economic affairs committee in January, employment
relations minister Edward Davey suggested that the Big
Four firms should ‘voluntarily’ reduce their dominance
in the large audit market.
‘It’s an interesting idea as to whether you would selfregulate on size,’ observes Powell, which presumably
means that he thinks the notion is unworkable. ‘I think
it is well worth exploring, but ultimately the clients
choose who they will work with and clients are going to
look for best value and best quality. If you are a major
multinational organisation, you need a multinational
auditor who is going to give you a great service.’
So does that mean he thinks the mid-tier firms
such as Grant Thornton and BDO would be incapable
of doing the audits of FTSE 250 companies? ‘It’s for
those smaller firms to make the investments that are
necessary to enable them to compete in the marketplace.
We welcome competition. At the end of the day, it is
competition that continually puts the pressure on to
improve standards and efficiency. If you ask the Big Four,
who have made all this investment so they can service
their clients, would you welcome more competition?
Fine, bring on the competition. That’s what keeps us fit.’
But he adds: ‘There is a big difference between
competition and choice. If you have four firms that can
provide this sort of service, then that is a reasonable
choice. Even in an environment where there is a
straight choice between two, you are going to get price
competition. This is a ferociously competitive market.
You have four major global players. Every audit tender
is fiercely fought. Anyone who believes there is a lack of
competition is wrong.’
He also highlights the investment and scale needed
to compete on the largest audit stage. ‘Our clients are
large, global organisations that need to be served on
an international basis. We’re rolling out across PwC a
new audit approach across the world that cost $400m.
You need to be of a sufficient size to generate that level
of investment.’
ACCOUNTANCYMAGAZINE.COM | MARCH 2011
Photography: Alex Griffiths
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■ ANALYSIS | IAN POWELL
SURVIVING THE DOWNTURN
Given the tumultuous events of the past few years,
Powell was certainly thrown in at the deep end when
he took the PwC job. ‘Two years ago I came into this
job at the start of the recession. It has been absolutely
fascinating and I’ve really enjoyed it,’ he says. The firm’s
strategy has been to hold its nerve and continue its
investment in its people and services – a strategy that
has paid off as it managed to grow 4% last year and
edged further ahead of Deloitte, its closest rival.
‘We felt from a confidence perspective to the
marketplace that if we withdrew our graduate recruitment,
then that would not send a very positive message to the
market. So we continued with our graduate recruitment.
We’ve continued to buy businesses, we’ve continued to
invest in our consulting business in particular and we’ve
continued to promote partners. We’ve really taken the
view that we want to come out of the recession much
stronger than we went into it and a lot stronger than any
of our competitors. We feel as though we have got a clear
number one market position and the investments we have
made stand us in good stead for the future.’
Despite the ongoing controversy about auditors
providing non-audit services, the firm doesn’t hide its
ambitions for its consulting practice, aiming to treble
fees from this lucrative work to more than £1.3bn by
2013. Powell sees strategy and sustainability consultancy
as big growth areas and opportunities working with
clients in the pharmaceutical, healthcare, energy and oil
and gas industries. Then, of course, there is the heady
prospect of involvement in the restructuring of the NHS.
Powell says that PwC is already working for the
government to ‘make sure that the services that need
to be provided can be provided’ although he’s cagey
about whether the firm has been doing this work for
free. ‘We might be doing some tiny bits and pieces but,
as a strategy, we are not looking to do pro bono work.
The government wants people providing the services
it wants and it is prepared to pay for them, but at a
sensible price.’
Meanwhile, clients are starting to see an improvement
in the economy, he adds, although ‘everybody feels
things are quite fragile’. Major issues include the
uncertain situation in the eurozone as well as public
sector spending cuts and the implications of these on
the private sector.
TALENT WARS
Then, says, Powell there is the ‘war for talent’, which
he thinks is still raging despite the global economic
downturn. It’s an issue that affects PwC as much as its
clients and one that Powell sees as a ‘big challenge in
the coming years, especially as top talent becomes more
marketable and attractive internationally’.
PwC’s own response to this challenge is to try to
increase its proportion of female partners to 20% from
the current 14% through a ‘comply or explain’ policy
that means divisions will have to proactively consider
women in promotion rounds and explain the reasons
for their promotion being blocked. But no date has been
set to achieve this initial target. In addition, 28 highperforming senior female partners have been identified
for personal mentoring by the board.
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‘Personally I don’t think it’s likely there
would be a failure in the Big Four,
but it is not impossible’
Although PwC does not have a ‘fair access’ degree
programme to quite match KPMG’s school leaver
scheme (See Accountancy, February 2011, p14) Powell
does believe that there is a ‘moral fairness’ in ensuring
that people from a wider range of backgrounds have
the opportunity to train with the firm. ‘If you’re good
enough, then you do really well at a firm like PwC – no
matter where you come from.’
Indeed, Powell himself is a case in point. His election
to the PwC top job in 2008 came as a surprise to some
observers but he was quickly embraced by his firm and
perceived as a breath of fresh air in a profession where
senior partners can seem stuffy, aloof and out of touch
with reality. As he jokingly said in an interview with
The Sunday Times in September 2009, he hadn’t met
‘anybody since who didn’t vote for me’.
Despite earning a cool £3.6m last year, Powell is still
approachable. He’s the sort of man you can imagine as
a next-door neighbour whom you might chat with over
the garden fence – except he probably lives in a far
nicer house than most of us. He admits to worrying
about his children. He supports West Bromwich Albion
football club. But as he proved at the House of Lords,
there is a reason why he holds the biggest job in UK
practice. When it comes to business, he is never
knowingly underprepared.
See also Not just jobs for the boys, p26; Shaking
up audit, p32; Rising from the ashes, p34
MARCH 2011 | ACCOUNTANCYMAGAZINE.COM