Last year KPMG’s UK chairman Simon Collins got 11,500 staff together and made some of them cry. It was a proud moment.
The event was a shindig at the O2 Arena in London to focus on the professional services firm’s values, and included celebrity chef Jamie Oliver telling how KPMG’s foundation had helped train chefs from disadvantaged backgrounds. Mr Collins had been chairman for two years, and from the stage he could see some people welling up. “The bit that was most emotional was watching [younger members of] the audience crying about experiences of pride in the firm’s heritage and values,” he says, in a meeting room overlooking Canary Wharf.
For Mr Collins, the organisation’s culture will play an important role in motivating the millennial generation’s search for purpose in employment.
But the event, which featured one of the 55-year-old’s favourite bands, 1980s ska group Madness, was also a welcome change of pace from the day job. Here, Mr Collins is figuring out how to deal with the accountancy profession’s strategic tensions: tapping into lucrative advisory work without compromising the firm’s core business of audit; improving diversity in an industry that is “stale, male and pale”; and responding to the increasing politicisation of tax advice.
On top of this, the Swiss firm in KPMG’s global network is in the spotlight over its role for the past 16 years as auditor to Fifa, football’s governing body, now at the centre of a corruption probe. Then there are the issues closer to home: the UK firm is being investigated by the regulator, the Financial Reporting Council, for its audit of the controversial insurance company Quindell; KPMG was also criticised last year by the Treasury committee for failing to uncover a £1.5bn black hole in the Co-operative Bank’s finances, revealed after the mutual organisation tried to buy up Lloyds bank branches in 2013.
In dark suit and tie, Mr Collins cuts a smart and relaxed figure. At his side is an iPad, whose apps include Etude, for doing piano fingering exercises in his rare moments of free time.
The corporate financier, who saw off seven other KPMG partners in a tight contest to become UK chairman, says he has been intrigued by organisational culture since witnessing the effects of the Big Bang in 1986, when London’s securities market was deregulated. As a young auditor at Price Waterhouse he worked on successive City mergers and saw two alien cultures collide as US investment banks snapped up London’s stockbroking and jobbing partnerships.
But, he says, “the most influential and formative part of my career, no question” was four years at SG Warburg, the London investment bank he joined in 1987. Although the founder Sir Siegmund Warburg had retired, his ideas still prevailed. Mr Collins says: “Almost every day the firm’s leaders would stop and say, what would Sir Siegmund have said? What would he have done?”
The Warburg way was to view clients as lifetime relationships, not one-off transactions. While the bank was demanding of its staff, it was also supportive, Mr Collins says. It taught him that commercial aggression and having values can coexist: “they feed each other,” he says.
Mr Collins was absorbed into KPMG in 1998 when the firm bought the debt advisory boutique he had helped set up.
His tenure as chairman — a role for which he was paid £2.5m in 2014 — has been defined by a surge in audit tendering, following new European regulation that makes companies change auditor at least every 20 years and put annual audits out to tender every decade. This has resulted in a merry-go-round of audit mandates between the Big Four accountancy firms. “It has forced us to rethink the business model,” says Mr Collins: when audit work is lost, there is a chance to win lucrative non-audit work with the same client, such as consulting.
In July, KPMG UK won the mandate to audit Barclays, ending PwC’s 120-year relationship with the bank. The new audit mandate, which paid PwC £44m in fees during 2014, means KPMG will sacrifice the much higher revenues it earned from non-audit work for the bank.
Yet Mr Collins cites several benefits. Audit is a reliable revenue stream extending over many years, which helps forward planning; being hired to audit a high-profile brand is good for a firm’s reputation, and essential for developing its people and its advisory skills.
Overriding all this is a public interest issue. Fewer pitches for audit mandates would restrict client choice in the market: “We can’t afford to do that as an industry.” Audit choice is also a key concern of the regulator.
KPMG has been investing heavily in its audit business, signing a joint venture with McLaren Group to use data analytics, and pioneering “long-form” reporting, which adds qualitative commentary to accounts.
This brings Mr Collins to a tricky issue for the accounting industry globally: an “expectation gap” in relation to what audit does, or does not, cover: “We need a consensus between companies presenting information, those using it, those regulating it and ourselves providing assurance on it.”
This “gap” extends to what an audit can find hidden in ac-counts: “Audit is not a guarantee of detecting fraud or predicting company failure. It gives an opinion at the time on the truth and fairness of financial statements,” he says.
While KPMG Switzerland’s audit of Fifa is not being publicly investigated, the global firm is aware of general scrutiny of its Fifa audit and whether it was sceptical enough. Mr Collins says the corruption allegations mainly focus on activities and payments that do not directly affect Fifa’s audited financial statements. On Quindell, which this month revised down by £109m its revenues for 2013, he notes that while KPMG signed off on the accounts, it raised a number of concerns with management, which were overridden.
Audit is not the only business area under constant public scrutiny: tax advice has become highly politicised. Now says Mr Collins, tax planning is out, tax compliance is in: “To oversimplify it, the challenge in the boardroom now is ‘are we paying enough tax?’,” he says.
Now KPMG is investing in its faster-growing consulting business, and snapping up several consultancies. “We will keep developing, growing, bolting on services as the needs and issues that our clients face change.” Buying a big management consultancy is not out of the question, but he is not keen on a “culturally life-changing” acquisition right now because “we’re working really hard on our own culture”.
Here, improving diversity and promoting equal opportunity are a priority for Mr Collins. “We’re not promoting women. I’ve always thought of myself having a clean heart and dirty hands on this issue because I’ve felt strongly about it for a long time and yet not made anything like enough of a difference.”
In last year’s intake, the firm doubled the number of female partner appointments to a third of the UK promotions.
Creating genuine equality of opportunity is a personal ambition, he says. He has two more years as UK chairman in his current stint and potentially a second term of three years.
He reaches for the iPad. There is just time for a few minutes on Chopin’s Nocturne in C minor, before turning back to trying to strike the right note with staff, regulators and public opinion.
Culled from FT
