In 2004, when Mark Goodburn became vice chairman of KPMG and head of the firm's Americas Advisory services, the Sarbanes-Oxley Act had been in existence for barely two years, yet it was exerting a strong influence on companies' priorities. As he says, before the act, companies had become "overbalanced on performance and underbalanced on understanding risks and controls." The consulting firm's job, therefore, was to help clients restore that balance.
By the mid-2000s, both clients and consultants were heavily involved in establishing internal controls, training employees in them, and documenting company processes. In turn, that effort spawned abundant knowledge and data, according to Goodburn.
Since then, companies have been eager to find ways to use those vast new stores of information for purposes beyond regulatory compliance. That quest has been further propelled by companies' need to change their business models in the wake of the financial meltdown. In fact, Goodburn, who will become global head of Advisory for KPMG International on October 1, sees major changes ahead that will have a profound effect on CFOs. He explains why.
What do you see as the major lasting impacts of the recession?
The business model for virtually every company we work with is different today than it was pre-2008. The drivers for transformation vary: maybe a vendor or a customer that a company had is no longer available to it; maybe the company is trying to expand into global markets to meet its revenue goals, and all of a sudden it's considering an acquisition or some other market-entry strategy.
The second area that is different is risk awareness and intelligence around risk. Many of our clients thought they knew a lot about the risks they were facing, but when they went through the financial meltdown they learned that maybe they weren't quite as intelligent as they thought they were. Maybe they weren't monitoring a certain risk, or maybe they were monitoring the wrong risk. They've had to change their risk frameworks, all the way from the enterprise level down to a very detailed risk level.
The third effect is the increased regulation of companies in financial services and elsewhere. But the meltdown has also affected areas that aren't as obvious. Dodd-Frank has implications for almost every company out there, regardless of whether they're in financial services.
Regarding companies' changing business models, how pronounced a trend is that?
Over the past decade, or slightly longer, we went through Y2K, Sarbanes-Oxley, an M&A and private-equity boom that led to lots of consolidation, and then the economic meltdown, which put the emphasis on cash management and cost optimization. Today we're in what I would call the "transformation era." I see companies wrestling with things like cloud computing and data analytics. Why? They still want to continue that cost optimization — that's a piece of it, but trends like cloud computing will allow them to change their business models more rapidly and on a global scale. Data analytics will help them understand their customers and vendors better, and drive up revenue while maintaining costs. In almost every analyst call that I listen to, that's a hot topic: they know companies' operating income is up, but they want to know how companies are going to start growing revenue.
Sarbanes-Oxley obviously had a huge impact on the relationship between companies and accounting firms and consultancies. Now that the initial pain has faded, what do you see as its legacy?
Companies have shifted their focus to things like, "How do we get it automated versus handling it manually?" And, "How do we get more focused on the prevention versus detection of problems?" In essence, they want to use their headlights to figure out where their control environment is going as opposed to looking backwards.
How have the consulting needs of CFOs changed?
Our strategy is to follow the CFO agenda. If it's important to them it should be important to us. The CFO's role over the course of the last decade has expanded dramatically. It's gotten broader as finance chiefs pick up technology, risk and risk intelligence, and operations. And it is very likely today that the CFO is the closest confidant and clear number two to the CEO.
Their influence in the organization has changed dramatically, and so the way we have to serve them has changed as well. If you looked at the portfolio of skills we had 10 years ago, we had internal-audit services and consulting, forensic skills, and financial due diligence. Today, while we still have to do the execution pieces, we also have to do the strategy pieces. The CFO wants not only the IT implementation, but the IT strategy up front — not only help on M&A financial due diligence, but also help on the M&A strategy on the front end.
What about the back end?
Yes, there too. Ten years ago the CFO would say to somebody in my shop, "My CEO wants to buy this company," and our job was to go out and make sure the company was okay. We did a lot of financial due diligence, which is about understanding the issues you could be inheriting by buying that company. And often it reflects itself in lowering the purchase price.
Advance to today: CFOs are not only worried about the transaction, but they also want help in running that company once it comes over and is integrated. Today we're a lot more involved in providing postmerger integration services: Do you bring over their technology, or do you marry it with the technology you already have? Do you put it out in the cloud?
You mentioned that companies are somewhat less rigid about which kinds of consultants they use for which kinds of work. Has the relationship between companies and consultants changed in any other ways?
If you go back to the late 1990s, when a lot of technology infrastructure was being built, a lot of consultants would be in client companies on a long-term basis. [Now] we go into almost every assignment with the idea that we'd like to transfer knowledge to the client. That's maybe different from where the profession was 10 years ago.
What's the dominant trend as companies rethink their business models?
Globalization is certainly right up there. You can't run your companies anymore on just a multinational basis. There are actually interdependencies among the multiple countries. The dispersion of a company's vendors and customers is also much broader now than it was in the past. Globalization affects supply times, quality issues, and understanding of customers and demographics, and it has tax implications.
What impact does that have on consulting firms?
In our case, it affects, for one, the kind of talent we go after. Candidates today, for example, are much more likely to have some level of global experience. Even coming right from college, they've often seen a lot of the world already and appreciate differences in customs and cultures. Globalization has also changed the way we [assign]. Often our people are no longer working with a client that happens to be down the street. Clients really value industry-specific skills and technical [abilities], so we deliver those wherever they're needed. And we've made big investments in emerging markets — hundreds of millions of dollars in China, for example — because we need to understand business needs from both sides, the East as well as the West.