Accounting News Roundup: PwC’s Independent Board Members and EY’s Innovation Center | 06.22.17

pwc board independent

Ed. note: I’ll be on vacation from June 23rd through July 3rd, so there won’t be any ANR during this time. However, other GC writers will be picking up the slack including Rachel Andujar, Adrienne Gonzalez, Greg Kyte, Marsha Leest, and Megan Lewczyk. You’ll hear from Accountingfly and its partners, too. And you can always start a thread in Open Items. Okay? Okay.

Big 4 governance

Big 4 firms have been secretive businesses for quite some time. This is true about how the business operates, especially at the partner level and how the firm is governed. Because the owners of the firm are its very own partners, it has no responsibility to the outside world to report on financial performance, executive leadership, governance, or anything, really.

The lack of transparency is significant because Big 4 firms like to point to their reputations as evidence of integrity and trust in the marketplace, when, in fact, few people outside the firms truly know what kind of financial condition they are in, what risks they face and how they hold themselves or their partners accountable when things go wrong. Sure, people get fired now and then, but that’s over easy stuff. There are countless instances of conflicts of interest, ethical lapses, and other misbehavior that firms handle internally with little or no accountability to outside stakeholders.

The firms have enjoyed this privacy for quite some time, but now, at least one has decided to let the outside world in, if only slightly. Michael Rapoport reports the scoop in The Wall Street Journal:

PricewaterhouseCoopers LLP is adding independent directors to its governing board, a first for the private partnership and an unusual move for any Big Four accounting firm in the U.S.

PwC will name two new members to its board of partners and principals from outside the firm: Carol Pottenger, a retired U.S. Navy vice admiral who was one of the first women selected for sea duty, and Carlos Gutierrez, a former Kellogg Co. chief executive who served as commerce secretary under President George W. Bush.

Gutierrez and Pottenger are interesting choices, although I confess I don’t know much about them. What I can tell you is that I was not on the shortlist and am disappointed about that. The firm expects to appoint a third independent director in the future, so I’ll go ahead and declare my availability now.

Gutierrez and Pottenger’s addition to the board of governors brings the total members to…22. That’s twice the size of the average board, according to a study from a few years ago prepared for the Journal. That same study found that businesses with smaller boards “produced substantially better shareholder returns over a three-year period” compared with companies with larger boards.

Accounting firms don’t have returns per se, but it still raises the question — why is the board so big? The answer seems to be, “Having diverse perspectives,” according to Tim Ryan’s Medium post. This, presumably, will help the firm achieve its purpose of “build[ing] trust in society and solv[ing] important problems.” Everyone seems to want to solve important problems these days, and there are lots of opinions and ideas about how to do that from people outside of PwC. Building trust in society is slightly more complicated, especially when society just watched your firm flub an envelope hand-off. But I suppose a good way to start building that trust again is to have some people from society join your board.

Grownovuption

If there’s a grand library of buzzy corporate communication, “EY Launches New York-Based Financial Services Innovation Center” will certainly occupy a prominent spot:

Ernst & Young LLP today announced the launch of its EY Financial Services Innovation Center. The Center, which will focus on financial services, is a flagship location for EY wavespace™, the EY organization’s global growth and innovation network. The lab will serve as a hub for the Suits+Jeans™ approach to innovation, which combines deep business experience with specialists in disruptive trends such as FinTech, blockchain, artificial intelligence, robotics and data analytics.

“When suits and jeans functions come together, they can unlock an institution’s ability to innovate and fundamentally change the way organizations do business,” said Roger Park, EY’s Innovation & Strategy Lead for the Financial Services Organization, reading out of a Silicon Valley script. I think it goes without saying that all of this Suits+Jeans Finchainovation will be happening in the Cloud.

Athlete endorses accountants

NBA legend Walt Frazier has your back: “I find that when young people get money, they think they know everything. They won’t even come to you guys, bona fide accountants, to try to set them up.”

Hey, it doesn’t happen every day.

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