A new pecking order in the world of professional services could emerge soon. Deloitte has come very close to the leader, PricewaterhouseCoopers. The difference between the two was just a hundred million dollars in 2009. In India, the turnover of the Big Four — PwC, Deloitte, Ernst & Young and KPMG — is not known. The perception is that the fight for the top slot is between PwC and Ernst & Young. Deloitte Touche Tohmatsu Chief Executive Officer James H Quigley fields queries from Bhupesh Bhandari on the road ahead.
If one looks at the latest numbers for 2009, one finds that Deloitte is just a hundred million dollars or so short of PricewaterhouseCoopers….
After five years, we have eliminated the gap. They were once $2 billion larger than us.
But if one looks at India, the perception is that you are the smallest amongst the Big Four.
I think we are the largest in India when you look at the number of people. We have 12,000 Deloitte people in India and we are on our way to 20,000 people.
But a lot of them are your BPO employees at Hyderabad.
We have the number one audit share in India. Our audit share of the listed companies is larger than any of the competitors. My goal is to go for balanced growth in India. I want to be one-third audit, one-third tax and one-third consulting. Growing the tax and consulting businesses is easier than it is to move the audit share because companies don’t change auditors often. The fact that we start with the largest audit share is a terrific foundation for us. My aspiration is that I want to be the absolute leader in professional services, especially in important emerging markets like India.
In how many years?
In three to five years, I want to be the absolute leader here. I have more people here than anyone else today.
You have as many as six audit firms in India….
We have to comply with the institute which restricts the number of partners you can have in a single partnership.
The challenge would be to maintain professional standards across these six firms. How do you do that?
We have common quality control and inspection processes. When you want to be the leader, you have to do a few simple things. One, you have to be careful in terms of client acceptance and be deliberate in who do you choose to do business with. So, our client acceptance standards are the same across the network. Two, you need to have the right people. So, our standards for recruitment are the same. The next thing you have to provide is common methods and tools. Finally, from a training and inspection point of view, you need to have common policies and procedures. I believe the quality of our practice is high.
How has Deloitte strengthened its internal controls after the Satyam scandal?
I don’t think you can say that if one firm has had an issue with Satyam, therefore all professional services firms have a problem. In the aftermath of that fraud, and it was a management fraud first, to make sure that we did not have comparable circumstances, we went back and reviewed our 50 largest audits. We challenged our partners and thinking. We were satisfied that we have completed procedures that will reduce to a relatively low level the risk that an undetected error could occur. Our commitment to quality is tireless. And that is what you want the market leader to be.
Did this exercise require you to say no to some of your customers?
Our client acceptance standards are very high. Each year we also have to make a judgement if we want to continue with the client. And so we go through a rigorous process before we accept a client. We ensure that the management team has high integrity and prepares financial statements that we will be prepared to stand behind.
How do you plan to increase your tax and consultancy practices in India?
It’s all about talent and how you strengthen the brand. A part of the Deloitte culture is that we are a very client-centric organisation. Our tax practice last year grew at 68 per cent. Our consulting business is also growing in a smart way. We grew faster than our competitors (in 2009), and our practice here was the fastest growing in our network.
How tough is it to get talent in India?
Is it tough or is it a beautiful challenge? If you are competing for talent in a market that has 1.1 billion people, an outstanding education system and a highly educated workforce, and if you indicate that you are hiring people then you will have résumés in large numbers. When I was here a year ago, we were at 10,000 people. And I made some comments that I see us on our way at 12,000 people; we are already there. And we will be at 15,000 probably in the next two years. You can’t fuel that kind of growth if you don’t believe you are capable of competing for talent in the market place. I feel very good about the talent in India. I have on my global executive 20 senior partners; two of them are of Indian descent. Our new leader of consulting in the US is of Indian descent.
Has the pressure on the fees that your customers pay eased somewhat in the last one year?
We are not recession-proof by any stretch. So, when things get tight, people exert pressure on fees. Regardless of what happens to the global economy, we are always under pressure to deliver value for the fees we request. But the economy is starting to pick up.
In consulting, which are the sectors that interest Deloitte?
There are opportunities in the consumer business, especially in the emerging markets. That is an area where we hope to enjoy superior growth. The whole broad challenge of healthcare will provide growth. Then there is a whole lot of excitement about green tech and clean teach. In India, there is a huge market that has built around technology and infrastructure.
The Indian government has a huge disinvestment plan this year. Is that an opportunity that excites you?
Absolutely. That’s what we have done in many markets. We believe very much in serving the public sector. We last year acquired the public service practice of BearingPoint for $350 million. That was our commitment to the public service practice. Serving public sector as it divests or privatises is important for us.
But it’s a low-margin business, especially in India.
You have to play a long-term game in professional services. Change creates opportunities for a professional services firm. If you help a firm go private, you develop some loyalty from the management team. That can help a professional services firm in the future.
Has the M&A advisory business begun to look up?
It is absolutely picking up. We are starting to see some significant pools of capital that have been sitting on the sidelines come out. Our M&A teams are busy; they are no longer on the beach.