Full Transcript of CFO StudioLIVE: Interview with Martyn Curragh, CFO, PwC
Andrew Zezas:
CFO Studio Live is part of the CFO Stay Connected Initiative, an intelligence platform designed by CFO Studio to assist CFOs in remaining connected to peer CFOs and the highest caliber service providers. CFO Studio Live is presented by CFO studio and offers live real time streams and interviews with highly accomplished CFOs from prominent New York stock exchange, Nasdaq, and large privately held companies as well as notable tax-exempt organizations conducting business in North America. During CFO Studio Live, CFOs and guests can pose questions to our interviewees and hear live responses during the interviews. Our CFO Studio Live interviews are available in podcast both in audio and video at CFOStudio.com/Podcasts.
Hi, everyone. I’m Andrew Zezas, publisher and host CEO of CFO studios. It’s so nice to be with you today. Thank you for joining us. We have a very exciting interview today with Mr. Martyn Curragh, the CFO of PwC. Before I introduce you to Mr. Curragh, I’d like to remind you that we have number of exciting interviews coming up specifically on CFO Studio Live. In the next few weeks, we’ll be interviewing Paul Henrys, CFO of Feeding America, an organization that’s providing very important and fantastic service throughout the country, especially in this very unusual time. We’ll be also interviewing the CFO of The Nature Conservancy, Leonard Williams. And we’re in the process of scheduling interviews now with the CFOs of Conagra, Jaguar Land Rover, Gogo Air, Horizon Blue Cross Blue Shield of California, IFF, NBC Universal, and many others.
I’d like to introduce you to today’s CFO Studio Live interviewee, Martyn Curragh, and give you some of his background. Martyn Curragh is PwC’s chief financial officer, a role which he was appointed to on July 1st, 2016. Prior to this, Mr. Curragh served as the leader of PwC’s transaction services practice in the US, a business comprised of over 2,500 experienced professionals who advise clients throughout the entire lifecycle of a transaction, providing due diligence for M&A transactions along with advice on accounting and financial reporting and valuation, M&A strategy and integration, capital raising, restructuring, and divestiture options. During his tenure with PwC, Martyn has distinguished himself as a seasoned deal expert with extensive experience in global and cross-boarder deals having served numerous private equity and corporate clients resident in both the US and Europe.
Over the course of his career, Martyn Curragh has been involved in transactions aggregating over 30 billion dollars across a diverse group of industry sectors, including media and publishing, consumer products and retail, industrial products, pharmaceuticals, aerospace and defense contracting. Martyn has provided a broad range of mergers and acquisitions related services to clients including industry market assessments, buy side due diligence, divestiture services, accounting and tax structuring and post-merger integration. Martyn Curragh has been with PwC for 27 years working in both the UK and the US. He joined the US transaction services group in the New York office in 1998, relocating from northern Ireland. Martyn is also a fellow of the Institute of Chartered Accountants in Ireland, and received his undergraduate degree in economics from the Queen’s University of Belfast, Northern Ireland.
Now a little bit about PwC. As one of the world’s largest professional services firms, PwC is distinguished by its purpose to build trust in society and solve important problems. This purpose is shared by the entire PwC network, more than 236,000 PwC professionals providing audit and assurance tax and business advisory services to clients in 158 countries across the globe. Over the past year, PwC firms provided valued services to 419 companies in the Fortune Global 500 alone and more than 100,000 entrepreneurial and privately held businesses.
Today, Martyn Curragh will share his thoughts on business during the ongoing health crisis and on how the pandemic has impacted the present and future of many. Our conversation today is entitled A Candid Discussion with Martyn Curragh, PwC’s CFO, on Business, the Health Crisis, and the Future.
Ladies and gentlemen, it gives me great pleasure to introduce you today to CFO Studio Live’s interviewee, Mr. Martyn Curragh, CFO of PwC. Martyn, it’s so nice to have you here today. Thank you so much for joining us. Good morning. Good Afternoon.
Martyn Curragh:
Thanks, Andy. I appreciate the opportunity to talk to many of my peers today. I’m looking forward to it. Before we do get into it, I want to commend you on the quality of your pronunciation of my surname. I moved here over 20 years ago, and there are very few people who can get it right, and you did a very good job, much better than my CEO Tim Ryan does by the way. So, well done, and that puts us in a good place moving forward here.
Andrew Zezas:
Well, am I allowed to say you had to correct me on it at least once?
Martyn Curragh:
You did very good. You did very good.
Andrew Zezas:
Well, you’re very gracious. Thank you. Having an unusual last name myself, I do my best. Sometimes I succeed at it. So, it’s so nice to have you here, Martyn. We find ourselves in a most unusual time. That goes without saying. There are Asian cultures where they say, “May you live in interesting times.” There are Asian cultures, one in particular, that utilizes a term called [inaudible 00:05:59], which is … Its textbook definition means chaos, but in fact the fundamentals behind [inaudible 00:06:08] is not about chaos for chaos’ sake, but chaos because of the opportunity that it puts forth.
And I do believe that we are in chaotic times. I’m sure you’ll agree, but I think we’re in fascinating times too. We’re in a time of dramatic and substantial change. Evolution is happening all around us. It’s been happening, and there’s more in front of us. And those changes and the evolutions that we’re experiencing, they’re based both on positives and negatives. And I do believe that the future is very exciting for business, for society, for mankind. There’s so much going on. I’m sure you’ll agree that no one knows where we’re going, and it’s going to be an interesting ride.
Martyn Curragh:
Yeah. I couldn’t agree more. Actually, Andy, when you say what you just did, it’s an interesting framing of the topic because at PwC, we’ve tried to message a lot to our partners and our people over the last three months, as you might imagine, connectivity is more important than it ever was. And given that we’re not together in person, it’s very important to leverage virtual communication. And one of the messages that our CEO, Tim Ryan, is very keen to re-emphasize over and over again is this is the time, arguably, when our clients need us the most because they are a very challenging time and needing the sharpest minds, people with top notch world class skills to help them navigate this crisis is really important to understand.
So it’s not a time when we feel we have to hunker down and put our hands over our heads and hope that this storm passes. We’re very much looking forward to it in the context of being able to help some clients that are very important to us, that have been loyal to us, and have been brand defining for us over the years, and we’re very confident that we will help them. And so far, we’re … I wouldn’t suggest for a moment our business is booming, but we’re very encouraged by the positive trends within the business, recognizing the very difficult context we’re managing against.
Andrew Zezas:
Wow, powerful words. It’s impressive to think that a company … not surprising, impressive nonetheless that a company the size of PwC is focused on helping. I’m so happy to hear that.
Martyn Curragh:
Yep.
Andrew Zezas:
Well, you know what? Let’s talk about what’s going on. We’re all dealing with COVID-19 both from a health and a business perspective. And certainly the most challenging event in many of our lifetimes. As an employer, share with me if you would how PwC has handled its staff with regard to the pandemic? And talk a little bit about how the company is planning to return to the workplace.
Martyn Curragh:
Yeah. So, look, I think everybody who knows our firm will understand that people are a hugely important asset of ours, right? So we have nothing without our people. We wouldn’t have our clients, and our brand would not be the same, so we’ve always been very focused at making sure we look after our people, and we preserve the very positive elements of our culture around connectivity and caring for the people that we have working for us and making sure we’re focused on their development. Those fundamentals drive everything we do at this point, right? So, first and foremost, our north star has been safety first. We want to protect the good health of our people. We do not want to put them at any danger or risk.
We effectively closed most of our real estate footprint in early mid-April, and we’ve not returned since. We’ve tried to work very closely with our clients to make sure that where they do want our people on site and feel that’s a necessity, that we’re putting them in a position where they’re not taking undue risk, and we’re trying to balance our client’s desires with also making sure we protect our people.
We recognize that we can’t maintain our old model of connectivity, if you like. We’ve had basically weekly town halls with all of our staff for the past 12 weeks, other than over the 4th of July week, to make sure that they’re not frightened, that they’re not concerned or anxious about their future with us. We’ve been very clear about our commitment to people and trying to retain our people with trying to manage costs that are non-headcount related before we go to any reduction in headcount. We think it’s important to provide that confidence and security to our people.
We’ve been very transparent about our results to make sure that, again, they feel comfortable about the security of their future with our firm and the actions we’re taking as a leadership team. We’re encouraging our partners, empowering them to stay connected. We use a lot of the remote access technology that we have to stay in touch. We’ve drawn attention to the child care benefits and modified those that we have to make sure that they feel they can deal with the flexibility they need. We’ve upped the ante in terms of work life balance, making sure that they stay connected to their own families and their personal life and encourage them to take care of their own mental wellbeing. So, I think we’re doing all that we can to make sure that they feel that they continue to be a really important asset for us.
As I said to you, there’s nothing more valuable in our firm than the people that work for us and the service that they deliver and the enthusiasm they bring every day. It’s important for us to maintain that positivity and make sure that they understand that their health and wellbeing are as important to us as anything else at this point in time and that we are very committed to them.
Andrew Zezas:
That was an exhausting list. I’m not surprised at all the wonderful things that PwC is doing to help its people so that in turn its people can help your clients. But, share with me, what is it about PwC that positions the company so well to weather this kind of storm?
Martyn Curragh:
So, Andy, I would take you back. When we came together as a leadership team under Tim Ryan, when he became senior partner of our firm four years ago, and he put me in the role of CFO, we developed this mantra of customer obsession. And our view at that point was our customers wanted very common things. One was they wanted more value and higher quality. They wanted more tech-enabled delivery, and they wanted lower cost. And that started us on a journey of trying to improve our digital agility.
So back then, four years ago, we looked very hard at our cost [inaudible 00:12:27] and created the capacity to invest in our future. We modernized our remote access capabilities, and we moved to a more web-enabled environment. We put digital tools in the hands of our people. We’ve invested substantial amounts of money training our people and trying to move our operating model away from manual intensity to more tech-enabled delivery. As a result of doing that, while we would never have been smart enough to foresee what was going to happen here, it did prepare us to deal with that event perhaps more seamlessly than we would have expected, right?
So, I still have some client responsibilities. One of the first challenges we had in my client portfolio was I had a client doing an SAP implementation, and they were three weeks from going live whenever we shut down our offices, and we took people out of their offices. And I know I had a very anxious client on the phone to me wondering how they were ever going to meet that go live date. And we took them through go live and effected the project in a very successful way working for three weeks remotely up and through the go live date and then working with them hand in hand three weeks later, and quite honestly I was astonished at how well the whole thing went.
So I think we were fortunate enough to look ahead and understand that technology enablement, digital agility, remote access, flexibility in how we deliver our services were all going to be important in the new world. Little did we know, we would have to enforce those so dramatically or implement them so dramatically as we did in the middle of March this year. We’ve had a lot of remote users on our system, more than we ever expected to have to deal with at one point in time. The systems have been strong. We’re now glad that we invested the money we did. I had many fights with our CIO around the extent of the budget that he required for IT infrastructure, both remote access, cloud enablement, cyber protection. I’m so glad that he won those arguments, quite frankly, and I found him the capacity because I think that coupled with what’s foundational to us in terms of responsiveness to our clients, commitment to our clients has really helped us deal with this in a much better way than I honestly anticipated in the early days of April.
Andrew Zezas:
It certainly sounds like you’re … To say the least, PwC has been on top of this. It sounds like you owe a bottle of scotch to your IT exec.
Martyn Curragh:
Absolutely.
Andrew Zezas:
And I say that jokingly, but there are many heroes that have emerged in the last five months, many of them we’ve heard a lot about. Most of the heroes that we focus on are addressing the humanistic side and the health and wellbeing of our citizens, but at the same time from a business perspective I think it’s fair to say that the unsung heroes of business in the last five months have been the IT executives, the leaders-
Martyn Curragh:
Absolutely.
Andrew Zezas:
Imagine how horrible this would be if we didn’t have the backbone and the infrastructure that we have. Even companies that weren’t nearly as prepared as PwC are still doing business.
Martyn Curragh:
Yeah. I mean, the advantage we had as well, in fairness Andy, is I would estimate, and I don’t know that this statistic is absolutely accurate, but I think it’s directionally correct. I mean, 50% of our people worked outside of the office pre-pandemic. They work on client sites. They work from home. They work from other locations in the US very often. I mean, when I first came to the US and you did due diligence, you had to go to the company. You had to go to the company, look at their records, interview people on site. As I was finishing my time doing due diligence four or five years ago, quite frankly there were times when we never met management teams in person. We did it all via video conference. We got all of our information via data rooms. And so, as we strive to compete with some very strong competitors in the professional services world, and I’ve got a lot of admiration and respect for many of our competitors, we forced each other to raise or game.
And I think I’m very proud of our story, as are all of our leadership team and partners, but I’m sure many of our competitors and peers would have similar stories. I think as a profession we’ve moved very fast to try to make sure that we are digitally adept and that we are utilizing technology to serve our clients. And the speed of that change, to be honest, it kind of goes by in a blink of an eye and almost to the point where you don’t see it happening. So I think as a profession, quite honestly, I’m very proud of where we are.
Andrew Zezas:
Well, PwC has been a participant with CFO Studio for a number of years. And one of the things that’s always impressed me about the company’s leadership is its focus on listening and gathering intelligence through dialog and conversation. I’ve seen the results of that, where the company has listened and participated in dialog, and then in the next discussion come back with results and insights and ideas based on that. So, it’s apparent to me that that’s part of PwC’s culture, a culture of listening to its clients.
I know that the company produces CFO pulse surveys, and you conduct interviews with CEOs and other executives. Share with me, if you will, Martyn, what’s the organization found with regard to industries that you think will be challenged to recover and those that you think were better prepared and will recover faster from the current economy?
Martyn Curragh:
Sure. Look, I think we do, as you’ve mentioned, do a bunch of CEO and CFO surveys, and we do try to make sure that we’re staying close to our clients, not only our clients but those clients of others, quite frankly, who we aspire to have as clients of our own at some point in the future. I won’t give you any surprises here. I think the casualties are relatively well known and recognized at this point. If you look at our business, where we’re seeing softness is in the retail and consumer space, right? We’re finding clients there just don’t have the capacity to spend at a discretionary level because they’re really … They’re struggling at this point. So I think retail consumer for sure. We’re seeing the hospitality and transportation sectors obviously struggling at this point. We see health industries almost bifurcated in terms of some of the providers, the hospitals and so forth having a harder time quite honestly, and some of the discretionary services that are … We don’t have the capacity to deliver those any more. And yet we see farm and life sciences actually pretty strong right now, as you might expect.
Financial services is a sector we see a reasonable amount of strength in, and I would expect that to continue. I think quite honestly going forward, I don’t know that it’s a … There’s obviously secular themes, but I go back to this point about digital agility. The companies ultimately that are most technology enabled and that can deal with the reality that we will run remotely, we will deliver whatever it is we deliver, our services, our products remotely for a large part. Then I think those companies that are best prepared for that will be the winners.
That being said, any business that requires groups of people to be together, whether it’s mall, retail malls, whether it’s the entertainment industry around theaters, concerts, large gatherings of people, sporting events … Thankfully, many of the sports teams in the US are owned by people who are very, very wealthy and can actually sustain some downturn here. But any of those industries that are focused on large people getting together for the delivery of that service or offering, I think it’s going to be a while before that ever returns to the same economic norms.
Andrew Zezas:
Well, your comment about the sports industries being owned by very wealthy people, we’ve had a number of sports franchise CFOs participate with us in various discussions at CFO Studio. And in one particular case, a CFO was very gracious and was walking us around his wonderful new arena, and there were a group of us. And someone asked him, “How do you focus on profit when it comes to running a sports franchise?” And he furrowed his brow, and he looked back, and he said, “Profit? What’s profit?” He says, “I get a call. I’m supposed to find 60 million dollars because we just hired a new player, and I have to go find it.”
Martyn Curragh:
Yeah.
Andrew Zezas:
So I’d like to remind our guests that if you have questions for Mr. Curragh, please use the Q&A function that’s available online at the bottom of your screen.
Martyn, talk to me about best practices. As we said, this is a time of evolution and change. Do you see any particular best practices that are changing that will support the success of companies that will succeed through this?
Martyn Curragh:
Yeah. I think certainly we had a program that we called Your Tomorrow. And we’ve been running that for the last two years, and that’s where I said we put technology in the hands of our people. What we tried to do was make it exciting for them, and make them feel that they could contribute to the evolution of our operating model, and we were empowering them to become part of it, right? And so the average age of a PwC employee is I think 27 or 28 years old, so we have lots of young people, very innovative, very creative. And we try to unlock that innovation and creativity. And it’s frankly that generation that embraces technology the most, and so we tried to make sure that they felt they could actually influence what we did.
Now, we didn’t open up the Wild West. We kept it very organized and controlled in terms of how we harnessed the ideas they had, the amount of money we supported them with. But ultimately I think helping people feel that this is a culture where change will be embraced and innovation will be rewarded was extremely important in terms of going where we did. I think we’ve always been very transparent in our communication with both our people and our clients. It’s funny. We believed actually, PwC, that telling our story in terms how we tech-enabled the business and how we improved digital agility is something that will sell our services. Like we will sell services to clients because we’ve done it ourselves. It’s not like a story that we’re telling as a consultant and someone looks at you and says, “So tell me when the last time was you actually did this thing you’re asking me to do.” We were doing it.
I remember doing a CFO seminar in Las Vegas in December actually, and I talked about our tech enablement story. I was asked the question around, “How do we get people to adopt?” And it’s interesting. One of the things that we did do is we didn’t make it a compliance exercise. So we invest in technology. We empowered people to help us build new tools. And then we didn’t make it a compliance exercise. We didn’t measure compliance. Like we built digital academies where people could go and improve their knowledge around digitization, digital techniques. We created digital badges where people could improve basically their technical spec and their qualifications, and those badges would be basically portable. Should they ever leave PwC, they would be a recognized qualification credential. And so we tried to have people want to do this as opposed to actually force them to do it. That was really important actually because the adoption rates were through the roof.
So I think we’re all very proud at PwC at the level of commitment we got from our people to change our business model and to change the way we serve with our clients and the way we interacted with our clients and how we did our work. And we pushed very hard at trying to reduce manual manipulation and manual tasks and really enhance the digitization of many of our processes, and we enabled and empowered our people to be part of it. And I think that was extremely positive in terms of its impact on our partners, who are probably the hardest to convince at times because obviously as partners we’ve done the same thing for a long time, and we’re a little bit more sort of stuck in our ways, so mobilizing the people within us and creating that excitement around professional development opportunities and an ability to really impact our future in how they did their work was very important.
Andrew Zezas:
So it’s apparent that PwC has invested tremendously not only in its people but in its technology and in its culture as well. Can you share with us how PwC is taking that same approach to technology and digital up-skilling and finance transformation and pushing it out to its clients?
Martyn Curragh:
Sure. So we, as I said to you, we’re very focused on telling our story now, right? And we will go, and we’ll talk about what we did. We’ll be very transparent about the results that we’ve achieved. Our view is that from a client’s standpoint, it’s really an imperative now that they do start to change their business models, and our CEO leads from the front with this. I think he told me he has 300 client meetings … Well, he did have 300 client meetings in person a year prior to the pandemic, right? He’s very active in the market place.
Andrew Zezas:
Wow.
Martyn Curragh:
And he told me consistently that CEOs, CFOs, C-suite executives generally are all struggling with this whole issue of digital agility and transformation of their business, so we’ve been very focused on that as an issue. We’ve been very encouraging to our clients that it’s a mountain you can climb and get to the top of, or certainly get a long way up that mountain. And I think we’ve brought best in class capabilities to those clients and try to make sure that we are addressing the issues that they have when they ask us for help.
We’ve recruited very aggressively in some of the areas that you talk about. We’ve invested … Our partners have been very supportive in reinvesting in our people and our capabilities to make sure that when we interact with clients, they see the level of change that we bring in terms of our process, and that’s been encouraging and incentive to them as well to try to change their own models.
Andrew Zezas:
That’s a very strong story, but every story’s got its challenges as well. What particular challenges do you see PwC going through relative to the health and business crisis?
Martyn Curragh:
I think there’s a couple of things. In many ways, I often say to people that someone’s strength … What makes someone very strong can also be the thing that actually creates vulnerability. So we’re part of a global network, and I think being part of a global network is a tremendous asset to all of us in PwC, but it also is a challenge in terms of the different perspectives people have economically, the way this pandemic has effected different territories, the way different network firms will react.
I can tell you for example, we have one network firm that had 2,000 people back in their head office yesterday to start for the month of … the end of the month of July, and that has gone very well. And that creates challenges around consistency, and how we actually face off with our clients obviously. So I think just getting harmonization across the network is important. I think within the US all those on the video today will obviously be totally clear that the US has got a very checkered sort of landscape in terms of how this pandemic is playing out, and we can’t have a one size fits all, right? We can’t decide we’re going to open all of our offices on a certain date because the states are all in different positions at this point, right? And so getting that harmonization is going to be a challenge to us whenever we get to that point, and I can’t see that point coming until after Labor Day.
So, I think getting consistency across our network because our clients look at us as a global organization. I mean, we’re actually a network of independent firms, but when you hire PwC as a global service provider, you expect global service on a consistent basis. That’s a challenge in a situation like this. Similarly in the US, we’ll have clients with multi-locations. It’s kind of hard not to be acting, again, as one firm in the US. So I think that for sure is a challenge. Like all organizations, our people are concerned. Our people are concerned, and we have to balance their safety and managing their anxiety with the needs of our clients. We have clients that want people back on site today irrespective of our digital capabilities and all the things that we believe we can do remotely, they would like us to be back on site. Our people perhaps don’t want to be back on site, right? Managing that arbitrage is not going to be easy, but we’ve got to do the best we can.
We can’t make our clients feel like we won’t do whatever we can to be there when they need us, and we can’t make our people feel that their health is not of paramount importance to us, so I think it will be a real balancing act. I think we’ll … Unfortunately, we literally have to deal with it engagement by engagement. Like right now when a partner has been asked by a client to be on site or put a team on site, they call into our security team. We deal with each one individually. It’s a rigorous process, and we make sure that we try to create the right level of balance. I think it’s impossible to create a framework where everybody can just simply look at it and say, “Okay. Off we go.”
So, it’s hard. It’s really hard, but I think our clients respect it. We’re thoughtful about it. And our people recognize that we’re not going to compromise their health.
Andrew Zezas:
Martyn, a very loud comment that continues throughout all of your responses to my questions is about people.
Martyn Curragh:
Yeah.
Andrew Zezas:
And not only PwC’s people, but your client’s people. And it’s apparent that PwC takes its people very, very important and recognizes that that’s the business you’re in. So, share with me on that basis, what steps has PwC taken from an employee motivation and engagement perspective? It’s apparent that you’ve armed your people with tools and intel and training, but how are you, from the most senior down to the rank and file, they’re all important I’m sure, but how do you keep them motivated? And how does the company ensure operating efficiency, accountability? And with everyone working from home, how do you drive profitability?
Martyn Curragh:
Yeah. Well, thankfully we’ve been driving it pretty well. That’s the first thing. That’s the first thing I’ll tell you. I’m pleased to say that. Look, it is challenging, right? In many ways, we have a pretty simple business, right? Somewhere around 60% of our costs relate to people. Like that’s what our cost base is, it’s largely people. When you make a commitment like we have to keep our people until cutting heads is a … becomes a last resort, you effectively fix that cost, right? So we’ve frozen new hires. We’re protecting those who are employees of ours right now, and we’ve moved very quickly to try to reduce all non-headcount related spend, right? And so from that stance, we’ve basically cut all of our costs to the point where they’re relatively fixed at this stage or would be damaging to our service delivery, and it’s a case of driving revenue.
So what we’ve told our partners is, “The most important thing we want you to do right now is focus on revenue. We will take care of everything else,” right? “We have it in terms of managing costs. You know our strategy around people. We’re going to manage the costs that we have at the center. We want you to stay focused on the market. We want you to stay focused on managing our clients, making sure you’re with them when their issues arise and that we are supportive of them.” And I think to date that has been extremely important.
I think in all honesty that the risk is that people get distracted by this crisis, that they get knocked off out of their stride, that they start to feel defeated because they’re reading tremendously dire economic forecasts. The reality is we have a certain amount of our work that is dependent on rule or regulation, and that’s not going away, right? So we’re fortunate to have a piece of the portfolio … Companies still need to have audits, right? They’ve got to have an audit done. They need to file tax returns. Those are important things. We have a strong backlog in our business which we’re continuing to work through, and that’s been helpful. And so right now the most important thing is not to get distracted by all that is going on around, but to actually be active in the market.
One thing we don’t want to lose, in spite of the fact that we are carrying more heads, is the drive towards efficiency. We have metrics in our business that over the last two years I’ve been able to demonstrate to our partners we’re getting a return on all the technology we’ve invested in. The infrastructure we built, the technology we use delivering to clients, I can show them profitability and efficiency metrics that demonstrate we’re getting a good return on that. The challenge will be that return will be harder to get when we carry more people than we need, right? Because we can’t keep the same level of productivity with those people if our revenue is down a bit relative to where it was a year ago.
So I think quite honestly we’re focusing on making sure people don’t lose sight of our strategic agenda to drive constant evolution and change in our operating model. We’re trying to keep our people focused on the market and what we can control. And that is staying close to our clients, understanding what problems they need help solving and making sure that we bring world class capabilities to it. And we try to make sure that our people understand that we have a very strong financial foundation. I mean, we’ve spent four years together as a team, Andy. I’ll take some credit for it if I can. We have a very strong financial foundation because we’ve been thoughtful.
When we came together as a team, we were into a very strong or relatively strong economic environment for seven years, and the expectation was that would turn at some point. Our CEO, Tim Ryan, has done a very good job of making sure that we always answered the question, “What if a downturn comes?” By saying, “We’re acting now in terms of taking costs out of our business, evolving our business model, strengthening our financial foundation, in order to make sure we can deal with that downturn, and we have the capacity to deal with unexpected events.” And thankfully we’re in that strong position now.
So I think reaffirming continuation of strategy, reaffirming financial strength and flexibility is really important in keeping our people and our partners focused on the market.
Andrew Zezas:
And I would imagine the way you communicate externally with your partners, you’re communicating internally with your employees as well?
Martyn Curragh:
Absolutely. Absolutely.
Andrew Zezas:
Yeah. So you mentioned before about layoffs and being something that the company hasn’t focused on dramatically. A number of companies, as you well know, have furloughed and laid off substantial number of employees.
Martyn Curragh:
Yep.
Andrew Zezas:
Does that create an opportunity for either PwC or for its industry to acquire higher caliber employees?
Martyn Curragh:
Yeah, so I think let’s break that into two pieces, if I could. First thing is, we adopted the same strategy in the financial crisis. And I think as we all get into this pandemic that we’re dealing with, we’re recognizing that while both these crises caused significant adverse impacts to our business, this one feels different than the financial crisis, right? And it feels like it might be more prolonged, for sure.
But we stuck by our people back then, and it helped us. Because when our business recovered, ultimately we ended up having the capacity to accelerate our growth. And I ran our deals business back then, our transaction services practice as we sometimes call it, and we kept all our people even though the M&A market was at somewhere like 50% of the levels that it was prior to the financial crisis. When business picked back up, we had the capacity to deal with it. I had situations where I had partners in our practice saying that they had clients where they had two service providers, traditionally PwC and one other, and PwC was better placed to deal with a pick up in activity because the other firm were having to go and get resources from their [inaudible 00:36:25] practice or having to transfer other people in because they had taken people out from the M&A business at that point in time when they seen the downturn. We’re not going to do that.
I think another thing … You started off the opening talking about PwC. I know Tim would have been delighted to hear you talk about our values and our purpose. And those are not just shallow words. We actually do believe we have responsibility to the communities that we serve. We do feel we have a responsibility to care for our people and also our clients. And we don’t feel it’s appropriate, and this is not to judge anybody else, but we don’t feel it’s appropriate to immediately turn to reduce heads and protect partner compensation and partner earnings. We’ve a view that shared sacrifice is the right answer, and our partners are behind us on that. And so we will be in a position where our partners will take sacrifices this year in terms of earning to make sure that we do protect the jobs of our people.
Now, to your question about opportunities going forward. Look, I think we do … We do see opportunity on the other side of this, right? I think ultimately I would see some opportunity for us from an M&A standpoint. I think there will be businesses in the professional services world that were not as well capitalized as we have been, that will not be able to sustain some of the pressure that will come from clients in terms of either reduced demand or more aggressive pricing, and I think there will be opportunities for us from an M&A standpoint to look at buying other practices potentially and also recruiting talent from those practices.
I feel very proud of the financial discipline that we have in our practice. I think our partners feel good about the returns they have as partners. And when we go to Catalyst Hire, and we try to bring in people from other firms, our track record is good, and it’s good because of the story we have to tell. We run a very tight ship here. And ultimately I think we’ve had some success with our strategy in the [inaudible 00:38:23] years. And we balance investing in the future, but also giving a good return to our partners. So, I think that financial foundation will put us in a good place to hire people, as will our strategy around our values and our purpose and staying close to our people.
Andrew Zezas:
Martyn, you mentioned M&A in your comments a moment ago. Over the last five months, what’s been the impact on M&A? And how do you see M&A coming back over the near and long term?
Martyn Curragh:
So this is a subject obviously very close to my heart, right? Before, CFO, I was part of our business that supported the M&A community for 15, 16 years. And what I would tell is if you look at … I still have responsibility for a couple of private equity clients. I don’t get the chance to do due diligence for them anymore because my CEO wouldn’t want me doing that knowing my partners, but I stay very close to them from a relationship standpoint. And what I would say is my sense from talking to those in our business from looking at our numbers, we’ve probably seen a reduction around 40 or 50% in terms of activity, in terms of just pure, directly related M&A revenue, right?
So, there’s a lot of downstream revenue that comes to our firm as a consequence of a strong M&A market. It may not be related to the transaction directly, but it comes further downstream, right? Like so a company has a new owner. There’s post-merger integration work. There might be systems change. There might be finance transformation. Those are indirect benefits from a good M&A market, right? Because there’s a lot of churn and change in corporate America. In terms of fees derived from directly supporting M&A, I would say I would expect our business to finish the year by 40 to 50% down in the last three or four months. That’s not a surprise to me based on what I hear from some others, right?
What I would say to you though is I feel like there are some flickers that ultimately people are starting to try and reinvigorate their M&A agenda. I think that’s coming from the fact that three months ago, no one really know. The foundational question for anybody doing an M&A transaction is, “How’s the pandemic going to effect your business?” Back in April and May, I don’t think there were many people who could ultimately answer that question. If you couldn’t answer that question, you had no confidence around forecasts or financial projections, and those are the things that help drive value, and so ultimately you could not really successfully execute a transaction. So, most of what’s happened in the last few months in my mind has been transactions that were ongoing, that were well-baked. But to go bring a business to market right now is a very bold move, right?
That said, my sense is now we’re four months in, businesses are starting to get a perspective on how this affects them. Like I could give you a much better answer today, if you wanted to buy our business, how our firm is responding and how its managing through this than I could have done three months ago.
Andrew Zezas:
Are you finding that CFOs are better able to do that in their own right as well?
Martyn Curragh:
Yes. So I think there’s greater clarity. I think certainty’s too strong a word, but a bit more predictability, and I think that will help.
I think the other thing quite frankly is the preponderance of private equity dry powder right now. Private equity has this model where obviously they have to invest or they have to give back the money to their LPs. They have a five year time horizon. That time horizon requires a certain velocity of capital deployment. And you can put a pause on that for some period of time, but you can’t put a pause on it for a prolonged period of time, and I think that will be an incentive. I do think also that right now there will be clients of ours and other big four firms that will be looking at portfolio reshaping. They’ll be forced to do that now because they’ll need the capacity to continue to drive digital adoption and transformation. And I think one way of doing that is to dispose or divest of assets that are non-core. And so right now, where I do see activity in our M&A business, we’re doing a lot of work with clients around thinking through divestment options, and those assets will come to market.
So, the M&A market will come back. It’s a question of when not if. I would be cautiously optimistic that when we get to the start of the calendar year that we’ll be back to something that feels a little more like normal, certainly not what we’ve seen the last three or four months.
Andrew Zezas:
The beginning of that calendar year seems to be a focus on a lot of fronts, and I think it’s the one that everyone’s looking toward. It makes more sense.
Martyn Curragh:
Yeah.
Andrew Zezas:
Let me jump back to employee work habits for a moment and ask you a question I wanted to ask you earlier. What do you think the evolution of the way employees work, what do you think that will be, not just within your industry but within other industries, and how do you see that changing business in general? I mean, everyone’s not just going to work from home.
Martyn Curragh:
Yeah. No, I agree. We’ve debated this as a team, to be honest with you. And we’re going to do some work actually in the coming months here to try to understand our employees reaction to what we’ve dealt with over the last three or four months and also our understanding of our business now. Like what roles … We’re basically going to try to do an analysis of all of the roles in our firm, and what roles can be done fully remotely? What roles can be done partially remotely, and what roles really need to be done in the office or in a PwC location? We’re going to do that analysis in the coming months.
Important as well in a people organization like ours is, whether you can do it at home or not, you’ve got to understand the impact that might have on your culture, right? Because young people join our firm to work in teams. They join our firm to build networks. They join our firm to find mentors, to learn and to develop. They join our firm to build relationships with partners and peers that they will use as they go on to do other jobs, whether within PwC or otherwise. It’s much, much harder … By the way, they want to learn business development skills. All of those things are made more difficult when you do it remotely. And I think part of our secret sauce is maintaining that culture where people learn as a group and they work together.
I mean, when I reflect on my times doing due diligence, some of the most memorable projects, the ones that I enjoyed the most, were the hardest. They were the ones where there were 10 of us in a dealer room for six weeks in a row in a room with no windows, working together to get something done. Like that’s where you bonded, and that’s where you made your friends. I can’t imagine how that feels doing that from home now like for six weeks. You won’t come out the other side feeling like you build those relationships that you’ll remember and those experiences that you’ll treasure.
So I think … Look, I have no doubt this will change many businesses’ view as to how much they need to have people in their offices. I suspect there will be many people who will find their roles are conducive to remote working more than they expected and actually they quite like to do it. My honest view is, it’s … Again, we’ve always tried to promote work flexibility. I think the key thing here will be to continue to look at that and see, do we have to go a stage further again? But I don’t see us in a situation where we could confidently predict …
Like my partners ask me, “What are we going to do with our real estate footprint?” Like I should know today which offices we’ll no longer need before … I wish I knew. Honestly, I think if we did something dramatic and without facts, and to a point that you made earlier which resonated with me, without listening to our people and without listening to our clients, we would potentially make a mistake. So, we’re going to take that feedback. We’re going to do the analysis, and we’re going to look at what it means for our business. I think it will mean change, but I don’t think it will mean that we will shut a whole bunch of offices in the US, and people will all work from home in the end. I just don’t think that will work for us.
Andrew Zezas:
No, that’s a very interesting comment because very shortly after everyone sent everyone home, we heard from a number of CFOs who said, “Well, it worked. Surprise, surprise, it worked. And what a great opportunity for us to reduce our physical footprint, reduce our occupancy cost, and drive a whole lot of cost outside of the company and drive up profitability.” And while that may be so for portions of employees that can permanently stay home, unless you’re a small company when you can really send everyone home, a company of [inaudible 00:46:54] size can’t send everyone home. So the other side of that ledger requires a modification of facilities, a modification of the spaces that are provided to each individual employee with spacial distancing and plexiglass screens and scrubbed air conditioning systems, and all kinds of things that are prudent and required both by the company and the individual that cost an awful lot of money. So the jury’s out as whether this will actually have an … the overall, both sides of the ledger, will have a net benefit or a net cost to most companies.
Martyn, so much of what you’ve talked about today is about people. Let’s step out of the corporate world for a moment because in my opening comments, I talked a little bit about chaotic times and evolutionary times and the things that are going on in the world outside of business, and society is in pain right now.
Martyn Curragh:
Yeah.
Andrew Zezas:
People are confused, not just because of the pandemic, but because of all the other things that are going on at the same time. We’re faced with a presidential election with political divisiveness and all kinds of backbiting, and it’s tremendous what’s going on. And above all that, and just as important and in many cases more important than that, is we’re dealing with diversity issues and lack of inclusion and to the extreme and civil unrest. Many companies have come out and taken a stand or offered comments about that overall societal issue, if you will, if I can call it one. It’s a lot of issues.
Martyn Curragh:
Yeah.
Andrew Zezas:
What’s PwC’s issue on that basket of important issues?
Martyn Curragh:
Yeah. So, a couple of things. I think I’ve mentioned our CEO, Tim Ryan, a number of times. I knew Tim before I worked with him, obviously, but I didn’t work closely with him until the last four years. One of his defining characteristics is his passion around improving diversity and inclusion within PwC. I think that if you ask any of our partners, they’ll recognize that as something that’s been a tremendous area of focus for him.
So back when we came together four years ago, he set about setting up CEO Action, which was a program that he personally sponsored where he reached out to the CEOs of many of our clients and asked them to work together and put together a pledge to try to drive positive change in the diversity and inclusion arena, so that was kind of the first step that he took.
We’ve had some very unfortunate situations at PwC because we are a microcosm of society where we’ve seen diversity and social injustice impact our people. We had one of our staff who was unfortunately shot dead in Dallas back a couple years ago in his own apartment where he was mistaken for an intruder by a police officer who went into the wrong apartment. So these issues have hit us very hard actually. There are others less public than that. But it’s, as a microcosm of society, you will see your people disadvantaged and hurt by this.
I think our perspective, Andy, is we have a responsibility as a big employer with a tremendous brand in the US and global marketplace to use that brand as a platform for issues that we think are important in society. And I think we feel we have to make a stand around the issue of social injustice and racial inequality. To give you a sense of its impact, right around three, four weeks ago, we had decided that we would do a web cast, a town hall web cast for every employee and partner in the firm, to talk about our year end compensation and bonus strategy. And so we signaled that to the staff about two weeks before we did it. And you can imagine we didn’t have many people who didn’t show up for that web cast, right? Because they all wanted to find out what was going on with the compensation bonuses.
Now, that was right in the midst of all of the protests that were going on and right after some of the unfortunate events that we’re all aware of at that point. And 24 hours before the web cast, we had a very quick meeting of our core leadership team, and we decided that we would change the agenda. And we decided we would not talk about compensation or bonuses. And what we would do was talk about our response to some of the issues that were going on, the societal issues that we were facing and how we as a firm would respond to those.So we spent a very short introductory period talking very briefly about compensation bonus, and we spent the other 55 minutes and actually we over ran by I think 25 with some Q&A and so forth talking about our response here.
We came up with six principles that we believe, or six actions that we believe we should take to try and show that this was more than lip service. Tim told me he got more emails and texts … He’s a guy that responds constantly. If I gave his email address to all of the people who were listening in today and asked them to send him a note, I can guarantee you by midnight tonight he’d respond to everyone. That’s just the type of gentleman that he is.
Andrew Zezas:
Wow.
Martyn Curragh:
He told me for the first time in his career he was overwhelmed. He could not respond to all the emails and texts he was getting from our people. So, we laid out six actions. I won’t go through all of them. But to give you an example, we established or announced that we were establishing a one firm diversity and inclusion council that would be made up of partners and staff that volunteered to be on it, and they would report directly to Tim as the CEO of the firm, right? So they would have regular meetings and direct access to Tim, and this would be important on his agenda.
We said we would be more transparent about our strategy to drive improvements in diversity and inclusion, and we would publish the results unfettered going forward. We would make sure that people could see whether or not it was working and whether or not it was just simply lip service. We agreed to donate a significant amount of money to various organizations that were supportive of dealing with social injustice. And back to the theme of empowering our people, we committed to giving over two million hours from our people’s time to support organizations that drive towards addressing social injustice, so we’ve offered every member of staff 40 hours of time where they can effectively take leave from the firm and go and support an organization. And they’ve got to come to us and tell us what the organization is, what they hope to accomplish, and then when they come back obviously report back, but we’re going to trust and empower them to do it. And I think we’ve empowered our … We run our business through markets, make sure our markets embrace this topic and be proactive in their markets or regions, make sure the PwC brand is very transparently behind areas of social injustice.
So, I think we feel good that it’s something that we’re responding to. It’s not just words. We’re putting dollars behind it. We’re putting resources behind it. We’re trying to get our people involved. We’ve also offered the opportunity for some of our staff now to become involved in this CEO Action program. And initially that program was about just getting a statement of intent. I think Tim is now trying to move that on by putting some resources behind it to actually try to drive some actions and support those outside our firm by committing our people to helping them get results. So that’s some of the things we’re doing but as you’ll understand something that’s very important to us as an organization.
Andrew Zezas:
Martyn, you’re putting more than people and resources. You’re putting your money where your mouth is, and you’re putting your brand behind this.
Martyn Curragh:
Yeah.
Andrew Zezas:
I mean, that’s a tremendous effort to give each of the employees 40 hours to go do good works. I can’t begin to imagine the positive good that that will create.
Martyn Curragh:
Hopefully.
Andrew Zezas:
Martyn, you’ve been very transparent with us and shared a lot of very serious thoughts with us. Before we go to the Q&A, I want to thank you very much for participating with us and for sharing so openly and so honestly. PwC’s doing wonderful work, not surprisingly, and it sounds like the firm will continue to do great work in the future.
I want to remind our guests that you have the opportunity in the next few moments, for those of you who haven’t already, to post questions to Mr. Curragh through the Q&A feature here on our presentation. And we’ve already got a number of questions, Martyn, and I’m going to sort through a couple of them. And I think a couple of them are actually pretty good. One of them is from a regular participant with us who has led discussions and appeared in CFO Studio Magazine, the CFO of York Risk and Sedgwick, Sas Mukherjee.
Hello, Sas. Thank you very much for being with us today and sharing your thoughts. Martyn, his question is this: He says he’s a proud alumnus of PwC from the Price Waterhouse days. And he says … He writes, “As a CFO, we see the messaging, values and scope of services of most of the tier one consulting professional services firms, and it’s often hard to discern between them. Do you think the industry, PwC’s industry, is due for more consolidation? And how would the best firms differentiate and continue to grow as more global firms continue to enter the space?
Martyn Curragh:
I do think there’ll be more consolidation actually. I’ve often heard our clients say, “You guys just can’t be good at everything.” My private equity client that I still have a significant dealing with will always tell me, “Martyn, tell me what you’re world class at, and please don’t tell me you’re world class at everything.” Right?
Andrew Zezas:
Yeah.
Martyn Curragh:
I think particularly in the consulting advisory world, there are certain things that are hotter than others. There’s somewhat of a shifting sands in that industry, and I think being good at things that are highly relevant to where clients and where value is clear is extremely important. I think, like I mentioned M&A, we don’t have deals lined up that we’re about to do tomorrow, but we have a very clear view of where it is we want to double down on, and where we want to be seen as most relevant. So, I think we’ve had a strategy at PwC where we’ve gone to market. And look, again, there’s others who’ve got similar takes, I guess, but we’ve talked about our platform strategies, and those are the things that we believe are our clients most salient issues and the biggest problems they have to solve, and we’ve tried to build capabilities and drive investment around those, and those are the things we want to be known for, right?
So, I think there will be consolidation. I think there will be specialization. And I think making sure that you’ve also got agility to watch where things are moving. Some of the big technology implementations we do today, 10 years ago you wouldn’t have heard of them, and we were doing very different ones. I think some of the issues that people face today, including digital strategies and all the rest, they’re very different problems than you had to solve before, and I think being agile and being willing to double down on the areas you really believe in and being deep in those is in my mind the right strategy as opposed to being everything to everybody.
Andrew Zezas:
Thank you for that, Martyn. George Anon, CFO. Hello, George. Thank you for being with us. He says, “Martyn, very good insights.” He’s asking about the risks of wrong audits due to valuation impairments and bankruptcy in advisory divisions in your industry.
Martyn Curragh:
Yeah. Well, look, I think obviously in today’s environment that there’s greater risk around issues such as that arising than there would have been 24 months ago. And what I would tell you is we’re seeing that, and by the way we’re dealing with it. And what I mean by that is our assurance practice, our core test practice is actually growing right now, right? So it’s growing in this market, and it’s growing because of the additional work that is required around issues like you’ve just described, whether it’s [inaudible 00:59:13] concern, whether it’s valuation impairments, we’re having to do additional work there. And our clients, quite honestly, are cognizant, sensitive, and supportive of us doing that work, right? Because they don’t want to be in a situation where they put themselves at risk either.
So, I think it is a risk. I would be shocked if we’re the only firm doing this. I know we’re not because I get calls from, again, my client that has other relationships in their portfolio beyond PwC, and we’re all dealing with the same issues. I think as a profession, we should feel pride. I’ve got a lot of accounts on the phone here. We should feel pride that we are paying appropriate attention, and we’re not losing sight of quality. Even at a time when there’s extreme pressure on fees and challenges around executing work, it is something that is top of mind in our firm for sure.
Andrew Zezas:
I have one last question for you, Martyn, before I let you go from CFO, Oscar Chodzinski. Oscar, thank you for joining us today. He says, “Digital agility is expensive and likely will create winners and losers. How do you see business outside of the US? And relative to what’s going on in the current economy, are there similar drivers or are there great differences?
Martyn Curragh:
It’s interesting. Obviously, as I’ve mentioned, we’re part of a network of firms. And so our Your Tomorrow strategy, which is what we … We needed a name to excite and inspire our people. That’s what we called it. It was their tomorrow. We launched that in the US, being the lead territory around the globe at PwC. We then shared it with our network. What I would tell you is some territories had already made progress themselves, and some had made none whatsoever, and some frankly couldn’t afford to do it. And so I think as a network we had to come together because we can’t have a situation where one of our clients has an experience dealing with a US team that feels totally different dealing with a team in the UK or Germany. It’s got to feel the same, otherwise we lose the ability to say we’re a global firm with consistent capabilities wherever we serve our clients.
So I think I would say on the whole the network was behind us on the whole and on average. Not everyone was but on average. And I think it is expensive, and it requires the conviction of people to be willing to fund other pieces of the business. So if I reconcile this to not necessarily a global business but a business with different divisions, there may be pieces of the corporation that don’t feel this is relevant, don’t feel they can afford to do it, don’t feel it’s a priority, and maybe quite honestly fiscally just can’t support it. I think as an enterprise, there needs to be one strategy and conviction towards it because it is expensive, and not everyone will believe it’s appropriate, but our experience would tell you that it’s one that delivers a return, and I don’t think we’re the only winner here by the way.
Andrew Zezas:
Martyn, you’ve been wonderful. I know how valuable your time is. I’m grateful that you chose to participate in a CFO Studio Live interview and to share your thoughts with me and our audience. I can’t thank you enough. I hope you’ll come see us again on CFO Studio in the near future and share your additional thoughts with us.
Martyn Curragh:
Thanks. I enjoyed the conversation. Hopefully the audience found it worthwhile. And all the best to everybody. And stay safe and healthy. Thank you.
Andrew Zezas:
Thank you. And to our guests, thank you very much for joining us here on CFO Studio Live. I’ll remind you that we have some very exciting interviews coming up over the summertime, over the next few weeks. Visit CFOStudio.com and CFOStudioBiz.com to learn more and to join us at future events. Until then, this is Andrew Zezas for CFO Studio saying thank you to Martyn Curragh and to PwC, and thank you to all of you for joining us. Be safe. Enjoy the summer, and God bless.