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Connect, December 2010 - Bob Guido on the global economy - EY - United States

Bob Guido on the shifting global business landscapeWhere we’re headed: my point of view

Bob Guido

While an Ernst & Young partner, Bob Guido not only served as coordinating partner to some of the firm’s largest, most global clients, but he holds the distinction of having served as Vice Chair and Assurance and Advisory Practice Leader not once, but twice: once in the early 1990s and then again in the early 2000s.

In other roles, he co-chaired Ernst & Young’s Global Client Steering Committee and was also the firm’s senior partner overseeing relationships with the Securities and Exchange Commission (SEC) and involved with the Public Company Accounting Oversight Board (PCAOB) during its formative years. Due to his unique view of the changing global landscape, we’ve asked Bob to share his insights as to where he sees globalization heading, as well as what it’s going to take to get us there.

Two things are sure in this uncertain economic environment, and they are closely interrelated: the pace of globalization is only going to continue to accelerate, and, as a result, we are going to need some type of global standards, and the sooner, the better.

Twenty years ago, the impact of globalization was felt primarily by certain big companies in certain developed countries. Today, thanks to better access to worldwide financial markets, technology advances and the increased stability of less-developed countries, thousands of smaller companies are jumping on the global bandwagon.

Along with the dramatic increase in the number of companies “going global,” I also see a fundamental difference between the global companies I served in my first term as head of Ernst & Young’s then-Audit practice in the early ’90s and those I served during my second stint in that role a decade later (as well as among the companies on whose boards I currently serve).

Today’s global companies’ leadership is much more diverse; their shareholders represent a much more widely held global base; and they have much higher expectations in terms of high-quality products and service. Just look at the shift in the automotive industry.

These companies also have different needs now than they did back then. To continue to be successful, they must develop a strong risk management framework while remaining focused on people, process and technology.

As the global snowball continues to pick up speed, I see us moving toward one global economy. There will be less individual country currency and fewer currency exchange policies. We will need to better balance import-export excesses.

Thus, I see a strong need for a single set of global standards that address both auditing and accounting. We need high-quality audit standards to create confidence in the reporting. But we also need global accounting standards that are concise, less complex and that allow transparency for investors.

That’s why all countries, in my opinion, including the US, should adopt global accounting standards as soon as possible. The market and global investors are demanding it.

“As the global snowball continues to pick up speed, I see us moving toward one global economy.”

In 2004, I attended a meeting, along with representatives from the other Big Four, at the SEC. The purpose was to discuss the creation of a roadmap for implementation of International Financial Reporting Standards (IFRS) in the US. While there was clearly a lot of work to do, I came away from the session cautiously optimistic.

Six years have passed since then, and the road seems no less clear. Many US companies — which initially invested much time and energy in US GAAP-to-IFRS migration plans — have now shelved them. Colleges and universities, which are charged with training our next generation of business leaders, are reluctant to invest millions of dollars in IFRS curricula of which they are not sure.

What’s needed, and right away, is a clear definition of what convergence really means and a firm timeline for implementation. I agree with Ernst & Young Chairman and CEO Jim Turley: convergence of US GAAP and IFRS is an extremely important step in creating a single global standard.

I also believe that, in order for IFRS to be successful, regulators must fully support a certain degree of judgment by practitioners — allowing US GAAP to return to the principles-based standard we practiced many years ago.

As the convergence debate drags on, however, that adds uncertainty to global markets. And we must have that certainty to truly become one global economy. Global investors are asking for a single set of high-quality standards. We need to give it to them.

More about Bob Guido

  • Joined Ernst & Young in 1968 in Syracuse, New York
  • Currently serves on the Boards of Directors of both Bally Technologies, Inc., and Commercial Metals Company
  • Frequently speaks on corporate governance at various boards of directors’ institutes and forums
  • Serves on the Board of Trustees at his alma mater, Siena College; is a member of the Business Advisory Board at Case Western Reserve’s Weatherhead School of Management; and is emeritus member of the Advisory Board of Emory University’s Goizueta Business School
  • With seven college buddies, helped form the Big Brothers/Big Sisters of Albany, New York, and sustain it for more than 45 years
  • Served as board member and advisor to the Cleveland Scholarship Program for more than 25 years, assisting inner-city school children to achieve higher education
  • Married for 42 years to his grade-school sweetheart, Charlotte, and has two grown children

December 2010

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