RI's efforts to restore investor confidence similar to E&Y's

RI's efforts to restore investor confidence similar to E&Y's

Following the scandalous Enron collapse that precipitated a fall
in business for consulting and auditing firms, big public
accountant firms, including Ernst & Young, had to fight to
restore client and investor confidence. Years later, James S.
Turley, the chairman and CEO of Ernst & Young Global, sees
similarities between the Indonesian government's and E&Y's
efforts to restore investor confidence. The Jakarta Post's Zakki
P. Hakim talked with the global CEO during his brief visit last
week. Following is an excerpt of the interview.

Question: What do you think the government needs to do to boost
investor confidence?
Answer: A continued focus on executing against issues of
corruption, easing administrative regulations that burden
investors, supporting strong governance and transparency.
What can Indonesia learn from E&Y's experience in its effort to
restore investor confidence after the Enron scandal?
What Indonesia can learn from our profession is the importance of
consistency in taking decisions, especially in those focused on
demonstrating transparency and integrity, and doing that whether
in small or large decisions.

In our profession, it means stopping some services that we
previously focused on in the profession. It means being actually
much more consistent in terms of global standards and global
methodology in practice.

I think there are similar examples where the government here
is taking the same steps towards the same direction.
What do you say about the notion that prior to the 1997 Asian
financial crisis, the "Big Five" firms audited failing financial
houses in Asia without raising any red flags about their
troubles? How do you intend to prevent that from happening again?
Well, it is by having a stronger focus on our mandate, which is
in fact to raise red flags and to be more specific in our
communication with the company itself.

If needed, we will actually stop doing business with people if
they are unwilling to do things correctly.

Professionally, we have so many remedies. We have to report
our findings from the work that we do, and if we report problems
in a company to its board of directors we expect some corporate
responsive actions. And if the company does not take corporate
action, we have no choice but to resign.

So, it is the increasing possible outcome in parts of the
world where we can get companies to adopt behaviors that meet
global standards. Eventually, we do not have to take such
actions.
What about your local partners, as back then their clients
reportedly insisted on using weaker local accounting rules?
Our partners have the methodology in the common commitment to the
core values of E&Y and to meet the expectations of investors.

We have to make sure that we demonstrate (the values) in the
actions we take. We take it very seriously.

We investigate, with all due respect, our own performance in
countries all around the world. So, we test our own quality to
make sure we comply with our own process.
Compared to other countries, is Indonesia among the most
recommended countries to invest in?
What we need to do is to make sure our clients do consider
Indonesia as a destination. Now, first to make it clear, our
clients for the most part need to have business drivers that in
the first instance would cause them to consider investment in any
place.

Geography is a secondary factor, because first they consider
the business. Secondly, they would choose a part of the world
that supports them, in terms of proximity to resources, to
customer base and to other things that benefit their businesses.

Once they choose a region of the world, if they are looking at
Asia and Southeast Asia, you must make sure they do consider
Indonesia, and that there are stories to be told.
You still believe that there are good stories about Indonesia,
even with our notoriously weak law enforcement in handling
smuggling and settling disputes, or the problems with the
taxation and autonomy laws, labor regulations and infrastructure?
There are times when it is appropriate for someone to be on the
front line of a change process. I think this country is on the
front line of the change process.

I believe that if a company invests in the early stages during
a change process they will actually get a competitive advantage.

Certainly there are risks, but there are also opportunities.
Part of decisions a company makes every day are always
opportunities against risk.
Talking about globalization. Is the world moving toward a
harmonization of tax and accounting systems?
We are seeing a harmonization of broader regulatory communities
in taxes, which is still different from country to country. But I
think that if you look at it as a larger trend in the financial
world, the analogy that I usually use is think of it as the World
Cup soccer tournament.

If every country plays by a different set of rules, there will
be absolute chaos on the pitch. Therefore, everybody must play
soccer by the same rules.

In the financial world, as quickly as capital moves around the
world, it is important that we have a common set of rules. So,
accounting standards are being harmonized, we are getting more
consistent, whether you are in Indonesia, Eastern Europe, Western
Europe or the U.S. They are coming much closer together.

Auditing standards is also getting much more harmonized. The
international regulatory bodies are encouraging the
harmonization.
What is the cost of the harmonization and who will bear the cost?
As standards strengthen, there is cost involved. There is a cost
of compliance for companies to make sure they maintain a strong
system of internal control. There is a cost for companies to
ensure that they provide transparent disclosure of their
accounts, that they adopt global standards of integrity and
audit. And a lot of this take resources to implement.

The question is will the benefit be worth the cost? Our answer
is yes. Look at the cost of not doing it, the cost of not
adopting global standards. The cost of not having strong
governance is a loss of credibility.

In the financial market, the impact of lost credibility is the
economy would not attract investment from outside Indonesia. An
economy that does not get job growth, would not have the ability
to support the infrastructure that the millions of people need in
the country.

The cost of not doing these actions is much higher than in
adopting them.