By Tom Hanlon
Judge Sven Erik Holmes first delivered the bad news:
- The US Gross Domestic Product (GDP) growth rate is about 2.8 percent – and not expected to rise much higher anytime soon
- The unemployment rate is about 6.7 percent – and probably worse than that, because of unemployed people giving up looking for more work
- US debt is at about 106 percent of its GDP – not significantly better than some countries who are notoriously struggling with debt
- There is a growing gap of economic disparity in the US – not just between the rich and the poor, but between the rich and the middle class
“People in the middle class continue to feel more disaffected and feel their opportunities and their chances for improvement are diminished,” Judge Holmes, KPMG Vice Chairman - Legal, Risk and Regulatory, told accounting students at a recent lyceum.
“Median household income in 2012 was less than it was in 1989. Middle class salaries have stagnated while productivity has increased over the last few decades.”
And Americans, long noted for their optimism, are struggling to maintain a cheery face in light of the economic struggles they have faced. According to a Pew Research Center poll, only 38 percent believe that working harder than others has any impact on how much money they make.
“These economic problems have direct impacts,” Judge Holmes noted. “Economic destruction causes political destruction.” The toxic political environment and the large number of deeply disaffected people are serious problems, he said. “And the anger and dissatisfaction people feel puts pressure on our political leaders and creates the very dysfunctionality that people are concerned about,” he added.
Political leaders looking to assign blame often point to the business community. “Our regulatory community has enormous pressure put on it by elected officials. This leads to them becoming less reasonable than they otherwise would be, rather than risk being held up as an example of why things aren’t being fixed,” he said.
And now… the good news
“So you have a growing regulatory community, a growing government, and political dysfunctionality. What does this all mean to the accounting profession?
“Actually, most of it is good news,” Judge Holmes remarked. “Because these are the kinds of things that require a solution involving people with the skills and background needed to address these problems.”
In other words, he said, accountants.
“The government,” he noted, “acts as appropriator, regulator, and enforcer. Each of these roles requires a great deal of services from the accounting profession.”
Appropriators need to know how to follow the money – see how much was spent, what it was spent on. Regulators need to know what structures to build within companies.
And the government’s role as enforcer, he said, calls for effective compliance – making sure a company is meeting all of its responsibilities as applicable to professional standards, regulations, and laws.
“All of these things fall to accounting professionals,” Judge Holmes said. “These are the things you will be working on in the future.
“So, yes, we have a lot of issues and problems. But they are in fact the very kinds of problems that you are being trained to address. Our success as a society will depend on your ability to address those problems going forward.”
Judge Holmes spoke about the opportunities that lie ahead for the profession. “I am very optimistic,” he said. “These are challenges that businesses have faced before, that accounting firms have faced before, and with a lot of focus and dedication, we will be able to address these challenges successfully.”
Three keys to success
Judge Holmes outlined three keys to professional success:
- Knowing and sharing the values of your company
- Communicating effectively throughout the organization and with your clients
- Valuing and maintaining high ethical standards
“As you think about where you go from here, how you chart your path, you will be happiest in life working in an organization that shares your values,” he said. “It will be more important over time than the compensation scales, than vacation policies, than any other material aspect. If you go to work where you respect the organization and the people you work with and you respect yourself for being there, there’s no better way than ensuring that respect than to work for an organization that shares your values.”
In terms of effective communication, he noted that professionals are besieged by an onslaught of communications and materials to read. Through numerous focus groups that he conducted with KPMG employees, he found that about half of them would delete a generic email from the CEO without even reading it.
“Communicators need to make sure what they’re saying is relevant,” he said – not some broad-based, breezy statement that isn’t essential for them to know or act upon right then.
The importance of ethics
Finally, he spoke of the critical importance of ethics in business. When he came on board KPMG in 2005, it was undergoing criminal investigation for activities undertaken in the late ‘90s. How KPMG responded, he said, spoke to the value of ethics.
“We made a series of public announcements where we took full responsibility for what happened six years earlier,” he said. “We reached out to every client, told them what had happened, why it was wrong, what we had done about it, and underscored that there was no effort on our part to divert responsibility from the firm for what had taken place.
“Most importantly, we made it clear to our own people that we took full responsibility and there was no effort to suggest we would not accept the consequences of our own conduct, even though it had occurred some years before.
“These actions had tangible results. We never lost a client as a result of dealing with this issue. A large number of clients told us they had greater confidence in KPMG than they had before.” Employee confidence in the company was also high, he noted.
“Value systems drive how you conduct yourself in a business setting,” Judge Holmes concluded. “They can make all the difference, and at the end of the day, people will have much greater confidence in you knowing that you are a value-driven professional in a value-driven organization.”