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.