Ian Powell
Building Public Trust Awards speech
29 September 2008

As you would probably imagine this brief speech has been through numerous re-drafts over the past two weeks.

I was going to focus this evening on the topic of sustainability - but while this is probably one of our greatest medium term challenges, perhaps we need to talk about another, more immediate, inconvenient truth.

I thought I'd start with a quote:

"Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent are potentially lethal"

I know you have all guessed that was Warren Buffet, speaking in 2002 when the derivative market was estimated to be worth over $100 trillion.

One of his other great quotes is:

"You only find out who is swimming naked when the tide goes out".

The last few weeks have given us ample opportunity to see the truth of both of his comments in New York, in the City of London -and now in Continental Europe.

The administration of Lehmans is now just a piece of the jigsaw, enormous when it occurred but dwarfed by Hank Paulson's latest plans.

Lehman's is another opportunity, like Enron, for PwC's skills to be stress tested, in what I can only describe as a cauldron of complexity and uncertainty and with bags of adrenalin.

I'm immensely proud of the team we have put in to Lehmans - over 150 partners and staff pulled together with only a few hours notice. The team have already managed to sell significant parts of Lehman's UK businesses and in the process secure thousands of jobs.

It's at times like this that our scale and reach comes to the fore.

If I'm really honest given my background in restructuring part of me is watching the upturn in restructuring opportunities with a personal interest - it's hard to quell your training and natural market tendencies!

Since becoming Chairman of PwC, many people have questioned my timing - asking whether it was a smart move to take the helm as the economy suffers a real downturn.

And these are just my friends!

But I remember the advice others much wiser than me have given.

Many years ago I went to see Sir Christopher Hogg, who is with us tonight, at a seminar in Manchester and sparing Chris's blushes he gave a great piece of advice from his mentor, the late Lord Weinstock.

Arnie Weinstock asked Chris what was keeping him awake at night. Chris replied the state of the economy, interest rates and exchange rates.

Weinstock then asked him what he was going to do about them - and got the predictable answer - well I don't know.

And Arnie Weinstock said so why worry about them?

Focus on the things you can influence and make sure your business is as robust as possible.

Sound advice.

So in that vein, given the current roller coaster that we're on, I thought I'd focus my remarks on a few key issues. Things we need to act upon as a business community, things we can try to influence together in the coming months.

I say 'we' because I believe the fall out is going to be wide and prolonged - none of us will escape unscathed.

The three things I want to focus on are;

Regulation, Reporting and Responsibility - the three R's - not things Jonathan Ross is keen to articulate.

What I'm about to say won't please everyone. But these are points which I believe need to be made.

So let me start with Regulation...

We have seen a significant growth in regulation over the past decade. Some of it good, all of it well intentioned -and some of it has proved to be quite ineffective.

Nobody could argue that we've had a shortage of regulation - but I think we would all agree that the challenges we face are global, and yet the regulation we operate under is national in it's origin and, very largely, in it's application.

The credit crunch will result in more regulation, the focus may be financial services, but the spill-over will touch us all.

But too often in the past regulators have fallen prey to the belief that regulation designed to cope with the last crisis will prevent the next one. Which is about as likely as winning a Formula 1 race only looking in the rear view mirror.

Although for those of you who saw the Singapore Grand Prix, a glance in the mirror to see if your fuel line is still attached sometimes does no harm!

Gone are the days where anyone can oversee a sport, an industry or more importantly an economy from an ivory tower.

I hope this time around we will see some real dialogue between leading regulators and market participants around the world.

Working toward consistent regulations that are well considered - based on a real appreciation of the costs and benefits.

It frustrates me and my firm when we have conflicting national regulations which introduce cost and complexity for no real benefit - costs that all of us suffer.

So what do I think we can do as business people?

It starts with everyone in this room being willing to invest time to shape the direction of travel.

Too often in the past we've delegated or abdicated responsibility and then complained when we don't like the answer.

We have a lot to be proud of in this country - let's not undermine the strength of the London market - a real risk some would argue - and I heard in Paris recently, from a highly influential political commentator, that London will be the real loser in this. We can't let that happen!

The real challenge is to improve our regulations not just add more.

A "one in one out" principle is worth considering and by that I mean that we improve and replace regulations not just add new ones.

Regulatory change is an opportunity to simplify, stream line and look at the real costs and benefits.

This last point resonates throughout our firm - we know as auditors the detrimental impact of box ticking and rigid rule application - it undermines the real drivers of good business and regulation - responsible intelligent people using their judgement to do the right thing.

But the biggest issue we have still to deal with is the issue of systemic risk particularly when so much activity takes place in unregulated entities.

How do we identify it and how do we deal with it?

We need a better mechanism to flag problems, to highlight the symptoms.

I want PwC and the other major firms to be willing to join the top table, with business leaders..., regulators...., central bankers..., credit rating agencies..., and others - to identify ways of creating an early warning system.

Precisely how we do this I honestly don't know. But if we're to learn from recent events we need to find an answer.

This leads me to the second R - Reporting...

We launched these awards six years ago following the Enron and Worldcom failures - when "telling it how it is", a key theme of the awards tonight, appeared to be a problem.

There are echoes of Enron in this current crisis in terms of fair value and off balance sheet vehicles - I suggest we haven't heard the last on both of these issues.

For some, Enron was the spur for upping their reporting game. But while the best are truly impressive, I'm afraid the tail of poor performers is still too long - it's an Achilles heel for the corporate world.

We still see too many corporate reports that remind me of the famous encounter between Andre Previn and Eric Morecambe , where Eric's defence for his appalling piano recital was that all the right notes were there; just not necessarily in the right order!

Alan Greenspan said back in 2003, "We have made great strides in expanding the volume of publicly disclosed information related to risk exposures and derivatives.

A more complex question is whether this greater volume of information has led to comparable improvements in the transparency of firms."

The events of the past few months provide a clear answer.

We need to challenge ourselves to ask whether the reporting model really helps to provide an understanding of the business model, the key risks and the culture and values of the organisation.

Is this the right time to re-think our reporting model?

It could become a competitive advantage in the aftermath of recent events to be the most transparent and straightforward reporter in your industry - it will also help to build and rebuild trust, which after all is the prime objective of this event.

And finally my third R - Responsibility... and when I say responsibility I mean both corporate responsibility and personal responsibility - although some would argue there is no difference between the two.

I know I keep quoting Buffet but they are good thoughts.

Recently he said on personal responsibility that some of the architects of the recent collapses were perfectly decent people in all other ways - but in business were like Mae West's own career assessment: I was once Snow White - but I drifted.

It's at times of economic turbulence that the corporate sector and the leaders of corporates come under increased scrutiny and outright attack.

We shouldn't be surprised by the intensity of challenge particularly around the financial services sector, the incentive driven culture opens itself up to criticism when things go wrong.

But let's be clear... our society depends enormously on wealth creation - but when the private sector ends up being funded by tax payers there is something fundamentally wrong - and it is right that serious questions have been asked around Hank Paulson's "bail out model".

But how is this all going to play out - will we revert to business as usual?

I don't think so. We need to be prepared for a significant shift in the nature and scope of the license to operate which has been created over the past 25 years.

It won't happen overnight but it will require a new response to a number of issues - Corporate governance will come under the microscope again.

Indeed, Lord Adair Turner has said as much.

But I suggest this will extend to issues of culture and behaviours, remuneration and incentive structures and risk appetite - in a way we have not experienced before.

Getting ahead of the curve on these issues could again be an important competitive advantage.

Years ago a mentor told me that the quickest way to understand the strategy of a business is to look at the bonus system - and the quickest way to find out if the Board understands the way the business operates is to see if the bonus system aligns with the CEO's strategy - it is often an interesting game.

Perhaps remuneration committees need to focus more attention on how the policies..., priorities... and values of the Board..., are driven in to the whole organisation - through remuneration and incentive policies.

The credit crunch has been described as the perfect storm, but it is a precursor to the much larger storms which are forming around climate change, resource usage and human rights.

I said at the start that I was originally going to talk about sustainability tonight and let's just touch on the theme which is becoming a mainstream strategic issue for most businesses.

Are we on top of the issue?

Can we cut through the noise and really understand the likely impacts on long term performance?

And can we report our position clearly?

These questions explain why this year we have a new award - Sustainability Reporting.

If we look at all of these issues optimistically I think these challenges bring tremendous opportunities and I would encourage everyone here this evening to look for competitive advantage in all of these areas - we are!

As the new Chairman of PwC, I want PwC to support you in this new corporate environment.

You will see the backcloth to tonight's awards is the phrase, "a step ahead".

It's where we want our clients to be and it's where we want to be.

Here at PwC, we are up for the challenge. We believe that the insights that working with our 100,000 clients and the 16,000 people in our firm, can make a real difference.

I started my speech with a quote from the Sage of Omaha, and thought I should finish with one:

"I don't look to jump over 7 foot bars, I look around for 1 foot bars that I can step over".

So lets look for some one foot bars that allow us to be active in shaping our business environment.

Ones which can ensure regulation is informed and forward looking..., reporting focuses on risk as well as returns..., and where success of the model is seen as a joint responsibility for all of those involved.

This is how we can all build public trust and deliver the value society should demand from us.