More recruits, no lay-offs the way to grow, says John Harrison When KPMG's newly appointed global deputy chairman John Harrison first joined the accountancy profession and walked through the doors of KPMG's London offices in 1977, the mainland's economic reforms were a year in the future. Thirty-one years on, Mr Harrison, who transferred to KPMG's Hong Kong office in 1983 and became a partner in 1987, has witnessed huge changes in China and Hong Kong. A veteran accountant specialising in the banking, finance and aviation sectors, Mr Harrison has taken key roles at challenging times; he was elected chairman of KPMG China in April 2003 - right at the Sars outbreak. In October this year, he was appointed KPMG deputy chairman, international, a newly created post. Despite the economic slowdown, he has no plans to scale down expansion nor cut headcount, but instead believes that KPMG should hire more people to prepare for long-term growth on the mainland. China, a country transformed by 30 years of sweeping economic reform, and Asia, would power regional growth and was the fastest growing part of KPMG's business, he said. His three daughters grew up and went to school in Hong Kong, their home of the past 25 years. He is a member of the Inland Revenue's board, president of the Hong Kong Cricket Club and a council member of the Hong Kong University of Science and Technology. You were named to the newly created position of global deputy chairman of KPMG. What are your plans in the new role? This is a global role to support the global chairman of the firm. I will work with the global executive team to carry out business strategies in the 142 countries we operate in. I will make sure that our people and working processes are right and our clients around the globe are being looked after properly. Your current post was created in October just when the global financial crisis was deepening. Is there any connection between your appointment and the crisis? It was purely coincidental. During the past year, we have been working on plans to simplify our firm's global governance structure from four layers to two. The new post was part of this restructuring. Do you think the worst is over, or will market sentiment and the economic situation worsen? It is far from over. We are going to have a difficult situation for at least 18 to 24 months. After Christmas and Lunar New Year, the factories may be the first sector to feel the impact of the economic slowdown. Some factories may be forced to close down due to poor Christmas sales and orders. This would lead to more unemployment. How do you think the financial crisis will affect the accountancy industry? The financial crisis affects us in many ways. One of the negative areas is obviously initial public offerings. We have seen fewer new listings this year. There were also few major transactions as the mergers and acquisition markets are extremely quiet. This is in contrast to the past few years when we had significant IPO and M&A opportunities. Looking ahead, I believe the IPO market will continue to be quiet. The M&A [market] may improve as some troubled companies are seeking buyers while some investors - such as pension funds, private equity and Japanese investors - are eyeing buying opportunities. As a professional firm, we can provide advisory services for troubled companies to do their restructuring or to advise on M&A deals. There is also more need for companies to do due diligence and forensic work during down time. Will you lay off staff or scale down KPMG's expansion plan due to the economic slowdown and fall in the number of IPOs? At the moment, we have no plan to lay off staff. We will look at other measures to cut costs before we will look at lay-offs and we will also continue to recruit in China and Hong Kong. We have recruited 2,000 fresh graduates in Hong Kong and China, which is similar to a year earlier. We should not set our headcount for today but it should be for the next five to 10 years. The economy will recover and we will need more quality accountants then. I am optimistic about the long-term future. As a result, we need more new blood by recruiting a significant number of fresh graduates and providing them with the appropriate training for our future development. Will you expand your accounting firms by acquisitions? KPMG seldom does acquisitions. Some critics blame accounting treatments, which require companies to book their investment securities and property portfolio at a fair value for the huge falls in profitability. Do you agree? Definitely not. There are many factors that led to the financial turmoil and the accounting rules are only there to reflect the value of the assets. The current accounting rules are intended to reflect a fair value of the assets to provide a transparent and level-playing field. Should changes be made to the current accounting rules? One should always revisit the rules from time to time to look for ways of improvement. People can always think of a better way of valuing assets. The stock exchange proposes introducing quarterly reporting, which many analysts want because they believe it would increase transparency. But many listed companies oppose this move. Which side do you support and how do you address the issue of the public interest? I am worried that by having more frequent reporting requirements, it may add a huge burden to listed firms. It may also add more pressure on executives to achieve good earnings every quarter. There are also different ways of quarterly reporting. The US has detailed financial reporting, while the UK model is for management to give a quarterly update about their business. For Hong Kong as a global financial centre, we will need to follow the rest. I personally would prefer Hong Kong to follow the UK style of quarterly reporting. Under the UK model, hotel companies would need to have quarterly management updates about room occupancies and the trend for room rates, while airlines need to tell people about ticket booking. Many accountants say they have difficulties expanding in the mainland market. Does KPMG face the same problem and how do you plan to help them out? We have expanded significantly in China in recent years. We have opened six branches in the last two years and we expanded our headcount to 8,500 in China and Hong Kong. We have no problems finding new people or opening new offices on the mainland to serve our clients. This year, the China market may be difficult. Next year, it may be more difficult. But for the longer term, the mainland market is [bright]. As China wants to develop its own large accounting firms, do you think it will add competition pressure to KPMG? We do need strong Chinese accounting firms. In many different markets, we have some big local accounting firms competing with the Big Four international firms. It would be good for China to develop its own giant accounting firm. What we note is that usually the local firms in many countries focus on local markets. Anyone who wants to establish an accounting firm with an international network would need to pay a high price. For KPMG, we have 137,000 people to operate in 142 countries. It would be difficult to replicate such a huge machine. What do you think are the major challenges and opportunities faced by the accounting industry and KPMG? The major opportunities are the continuous growth of the market in this part of the world - China, Vietnam and Asia-Pacific as a whole. There are huge opportunities in this region. Asia-Pacific is the fastest growing area for KPMG. The challenges are the current financial crisis. But we should not eye just the next six to 12 months. The accounting sector globally has reformed since Arthur Andersen collapsed as a result of the 2001 Enron scandal. What lessons have we learned from that? The key lesson is to have your house in order internally. You have got to set values for your firm and make sure your people follow the values. You have got to have quality risk management. When we talk about future growth, we only want quality growth without sacrificing our integrity. After Enron, the US regulator imposed regulations on what services we can and can't do for our audit clients to prevent conflicts of interest. KPMG has always had strict procedures to make sure our people maintain high integrity to prevent conflict of interests. Why did you become an accountant? I joined KPMG in 1977 in London after I graduated from university. I was 20 at the time and did not know much about accountancy as I studied mathematics. But my friends told me that joining the accountancy profession was a good opportunity to work in London. This was also a good profession to join. I enjoy it very much and I feel I made the right choice and I've had 31 years of a wonderful career working with a great team of people. How do you compare the accountancy industry today from the time you first joined? There has been a lot of changes. There is more alignment of accounting and auditing standards. In terms of individuals, there has been a lot more specialisation. When I first joined, we could serve clients in more sectors - from banking, airlines to manufacturing - and we could offer different services in insolvency, IPOs and forensic work. But now, accountants need to develop more expert knowledge in particular fields. The new generation of accountants is more focused on developing expertise in particular areas. You are deputy global chairman of a Big Four firm. How do you make time for your wife and three children? I have to travel a lot. Luckily, my wife can travel with me sometimes. My three daughters are at university, but we make sure we keep in contact by telephone and e-mails. We will also make sure we have a good family holiday. I will meet my children for skiing in Canada for the New Year. You have stayed in Hong Kong since 1983. What do you think of the changes in the city in the past 25 years, and what do you like the best and the least? It has been a great dynamic 25 years in Hong Kong. China has been opening up and it is a fantastic place to live and to do business. When I first arrived, there were only 800 staff in the company and now we have 8,500 people. It is easy to pick what I like the least about this city - pollution. I remember in the 1980s, it was never an issue. But now it is a real issue that needs to be resolved as it affects a lot in terms of business, health and social welfare in Hong Kong. I like many things about Hong Kong which is a vibrant multicultural city. The 'can do' spirit is strong and it is a very safe city. My three daughters grew up here and were educated here. Do you want your children to be accountants? My eldest daughter wanted to be a social worker, my middle daughter is studying for a master's degree in development and wants to work for a non-profit organisation while my youngest is studying geography in the university. None of them are studying accountancy or business but they inherited my social awareness. What advice can you offer young people who want to join the profession? The accountancy industry is full of opportunities. We don't just recruit people from the accountancy field but we also want graduates from different sectors because we need people with different communication and leadership skills. Working in an international accounting firm like KPMG allows you good opportunities to work and travel on short and long-term assignments. You can also take it as a stepping stone into the corporate world. I have been an accountant for 31 years, and I think it has been a great and challenging career.