13th December 2011:
The
Harvard Business Review recently published an article expanding upon remarks by Muhtar Kent, CEO of Coca-Cola, that China is a better place to do business than the United States. The post, entitled
‘Get Ready for China's Innovation Juggernaut’, reiterated Kent’s comments that businesses in China enjoy a simpler tax system than their American counterparts, as well as reduced red tape and a less polarised political process.
The article’s author, John Quelch, is dean of the
China Europe International Business School in Shanghai. He highlights the strides China is making in entrepreneurial spirit and commercialising innovation, whilst referencing Kent’s concerns about American bureaucracy. Interestingly, these concerns were echoed in our recent
BDO Ambition Survey: Global Opportunities with CFOs mentioning
red tape as a barrier to USA expansion.
However, our survey also found that these barriers are far from unique to the USA and are equally
applicable to organisations looking to grow into China. Whilst there are similar challenges awaiting businesses expanding into both China and USA, the similar opportunities - such as market size and access to new customers - are greater and more numerous.
Although, the impressive growth rates available in the expanding Chinese market is what sets it apart from the mature American one, it is clear by talking to our clients and from the
BDO Ambition Survey: Global Opportunities that, despite the vast political, language and cultural differences between the two nations, they are both open for business and share many of the same opportunities and challenges.
In our Survey, an altered focus away from challenges towards opportunities and increased business confidence is also reflected when CFOs discuss their organisation’s own prospects of success. This is in contrast to
The Economist’s recent finding that amongst senior executives
‘global business sentiment is worse now than on the eve of the financial crisis in 2008’. Despite the erosion of business confidence in the global economy in what is a time of unprecedented change, uncertainty and in many cases, austerity, the BDO Ambition Survey found that confidence is much less fractured when CFOs discussed their organisation’s own plans for cross-border expansion.
The BDO Ambition Survey discovered a great deal of optimism amongst C-suite executives with a clear focus on opportunities. Many are bullish about cross-border expansion into countries, such as China, USA and Germany and the opportunities they represent for growth. The survey found that CFOs believe their expansion initiatives into these new and sizable markets will be successful - as long as they conduct proper research, make sure they have talented, local people on the ground and seek good, solid advice.
Growth is not a panacea to the current financial crisis, however it is clear from our survey that business leaders feel it will be the first step in what will be a long journey to rebuild business confidence in the global economy and the institutions which govern them.
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December 13th, 2011
1st December 2011:
Yesterday the European Commission published draft regulation on audit reform following lengthy discussions that have arisen from last year’s publication of the EU Green Paper: ‘Audit Policy: Lessons from the Crisis’.
The publication represented a unique opportunity for Commissioner Barnier to bring about fundamental change and reform the accounting industry, which in its present guise is unsustainable. Whilst, the regulation and its ramifications for both the audit profession and BDO will take some time to fully digest, it is unfortunate that aspects of the draft proposals relating to market structure reform , including joint audit and other measures that would strengthen the independence of the auditor, have been removed or watered down. Indeed, the removal of mandatory joint audit is extremely disappointing and does not enable the industry to address the urgent issue of market concentration.
However, we continue to support an ambitious and forward-looking review of the structural aspects of the audit profession, which are vital to both enhance the quality of audits and to restore trust in our profession. The dilution of these important proposals before they have been democratically and publicly debated is extremely disappointing, worrying and does not serve the public interest well.
We need now to devote the necessary time to conduct a valid analysis of the current proposals for our network and for the profession as a whole. It is likely, however, that we will be strongly recommending that the European Parliament restores the progressive proposals that have been deleted, both in the interests of investors and in order to ensure the enactment of game-changing policies, rather than half-hearted ones.
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December 1st, 2011
29th November 2011:
The infrastructure of the audit market is no longer sustainable. We are now just days away from the publication of new proposals aimed to change the manner in which the European audit sector operates. Commissioner Barnier has been presented with a unique opportunity to bring about a fundamental change to the dominance of the ‘big four’ accounting networks, who together share 90% of the market.
http://www.ft.com/cms/s/0/bc952af8-1768-11e1-b20e-00144feabdc0.html?ftcamp=rss#axzz1ezeC9Rhv I, and my fellow network leaders in Mazars, RSM, Grant Thornton and Rödl & Partner, as well as the EGIAN group, were seen throughout Europe’s media on Monday (28 November) urging M. Barnier to consider carefully the opportunity that is now in front of him.
http://www.lesechos.fr/entreprises-secteurs/service-distribution/actu/0201761127515-auditeurs-et-consultants-attendent-la-publication-du-livre-vert-par-la-commission-europeenne-254859.php He can diversify the competition that currently exists, and has a once-in-a-career chance to instigate a change to the audit market that will deliver a more sustainable and higher quality of audit for many years to come.
Of the many subject areas included in the proposals, it is the idea of the ‘joint audit’ that has presented us with the most vibrant conversations: they are a key part of the proposals and must remain the cornerstone of them.
Joint audits may indeed be perceived as a ‘controversial’ step - but it is incontrovertible that allowing firms outside the ‘big four’ to play a larger role within the market will lead to fairer and greater competition, in turn resulting in a more accountable and ultimately better audit process.
As I said in my last blog post on the matter
http://www.e-bdo.com/intranet/global/MvRblog.nsf/dx/Stand-tall-Commissioner-Barnier , Commissioner Barnier must ‘stand tall’ and be brave enough to address the reform of the audit market and accept improvements and refinements to the draft proposals.
Right now, M. Barnier is facing a robust challenge to the proposed reforms from our larger competitors, and reportedly some of his colleagues in Brussels as well. They are concerned that the new proposals may lead to a decline in quality and an increase in cost. But as the press on Monday quoted me as saying, “The current infrastructure of the market is not acceptable”. This is a unique opportunity to reshape the profession – don’t let it go.
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November 29th, 2011
24th October 2011:
I have been in the job of CEO of BDO for three weeks now and am busy preparing for my first BDO Annual Conference in that role. Despite my previous involvement in international BDO affairs, I have been particularly struck if not astonished in these first two weeks by the enormous lobbying resources being deployed by the 'big four' audit networks against the imminent European Commission proposals for the audit profession and auditing in the European Union.
These proposals, not yet formally issued but widely leaked, have been developed under the direction of Frenchman Commissioner Michel Barnier, European Commissioner for Internal Markets and Services. They are the result of extensive consultation by way of a Green Paper entitled 'Audit Policy; Lessons from the crisis'. Like many others, we are generally aware of what is contained in the draft proposals and my predecessor Jeremy Newman and others in the BDO network have broadly welcomed the recognition by those proposals of the need to take strong action in dealing with the serious issues within the audit market.
Notwithstanding that the audit profession did not cause the current economic and financial crisis, it is clear to me that our profession must also be reviewed and changes made as part of the post-crisis assessment of the financial services architecture in Europe. It is disappointing therefore to see the huge resources that our larger competitors in the big 4 audit networks are putting into lobbying against the proposals.
I learned last week that one of those networks has no less than sixty - yes sixty - senior people in Europe engaged full-time in lobbying against the Barnier proposals - and we know that they have countless others involved on an ad-hoc, as-needed basis. I also understand that the same network has even approached a Brussels-based law firm to agitate against the proposals on competition law grounds. This I find almost amusing, given the collective dominance of the big 4 audit firms across Europe, and globally, and the likely competition enquiry on the audit market in the UK. I know that the other big Four networks have similar legions of lobbyists in the field.
In my view, there are strong arguments for supporting many of the Barnier proposals, even if some of the detail needs to be refined and made more pragmatic if they are to work. To reject the package of proposals on the grounds of self-interest or the over-ambitious nature of some of them is to risk doing permanent damage to the entire audit profession, of which the big 4 are only a part. The resources, reach and influence of the largest market participants is unhealthy and, for me, their enormous lobbying efforts recently only serve to reinforce this view.
I can only hope that smaller, less well-resourced market players will also make their views known adequately and participate in the debate consistently in the coming months. BDO certainly will - and has done so - to the limits of our resources. We must not allow ourselves be swamped by the weight of big 4 representation all over Europe, in the Brussels institutions, through trade associations, employers' federations and professional associations, and many other avenues where they have significant influence.
Commissioner Barnier, you will have to be brave and hold the line on addressing real change in the audit market whilst accepting improvements and refinements to your draft proposals.
I urge you to 'stand tall' - to borrow an Anglophone term I have come across.
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October 24th, 2011
14th October 2011:
Earlier this week I had the opportunity to be one of the keynote speakers at an accountancy congress in the Netherlands, which was attended by more than 1,000 Dutch accountants. This was an excellent occasion to have a discussion about the impact of the possible proposals of Commissioner Barnier for the accountancy profession as a whole.
Although the proposals are not publicised yet, it is clear that, based on what has been in the press over the last few weeks, there will be major changes to our profession as a consequence of Mr. Barnier’s proposal. Or, as Mr. Barnier tells us ‘... the status quo is not an option ...’ - and we at BDO fully agree and support this notion.
The audit profession did not cause the crisis but it too must look at all aspects of what we do, how our firms are structured, how we report and how we engage with audit committees, how the market is shaped, etc. and the profession should make whatever adjustments that will lead to the audit profession remaining relevant and playing a part in preventing the next crisis.
As I did at the accountancy congress, I urge the full accounting profession to engage actively in the debate and to play its part in shaping the new world for our profession. Please do not leave the representation and debating to those players who are best resourced. We need the full spectrum of the profession’s thoughts to be heard so that the outcome suits the needs of the profession and the public interest as a whole, rather than just narrow interest or sections of the profession.
Positive and constructive engagement is necessary, and BDO as a network is committed to being a positive contributor to this ‘once in a generation’ debate because, as the Commissioner says ‘... the status quo is not an option ...’
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October 14th, 2011
20th September 2011:
I’m very pleased to be posting my first blog as CEO of BDO International Limited, and I’m particularly pleased to announce today the publication of our second
BDO Ambition Survey: Global Opportunities.
Last year’s Report demonstrated without a doubt that ambitious businesses were confident about cross-border expansion, so this year we asked CFOs from globally aspiring companies how they view their growth prospects overseas now. And little has changed: despite continuous economic turmoil, CFOs are broadly a very positive group. Almost all of the heads of finance we spoke to believe that they will be successful in their overseas expansion initiatives in the next three years - as long as they conduct proper research, make sure they have talented, local people on the ground and seek good, solid advice.
The key findings from the survey include:
- Mid-cap CFOs are nearly all (95%) confident that their three year plans to expand internationally will succeed
- China, USA and Germany are the top three countries that are both global investors and attractors of inward investment. For China, opportunity and risk go hand in hand
- Finding local people with the right skills and knowledge is more challenging than finding the money to expand abroad.
We found that businesses aren’t held back by challenges such as the intensity of local competition or geo-political risks - what they focus on are the opportunities, for example the size of the market they are entering and their potential to gain market share. That’s not to say that the CFOs we interviewed are positive about everything. A number of them did say that they think it is getting harder to conduct business overseas and a third of them report that the financial crisis is still causing problems.
At BDO, our clients continue to approach us for advice regarding their plans to develop their business overseas and, in our experience, companies with international aspirations need to be courageous, and to focus on the opportunities that drive expansion, while being mindful of the challenges so that they can be overcome.
You can find out more information on the BDO Survey on the
BDO Ambition Survey web site, including
individual country summaries. I hope you find the findings interesting and insightful. If you wish to discuss any of the issues raised, please contact me or your local BDO contact.
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September 20th, 2011