PwC’s CEO Bob Moritz on his gold standard of corporate governance: employee engagement.
By Dirk Olin
Robert (Bob) E. Moritz has been with PricewaterhouseCoopers LLP, (the U.S. member of PwC International Limited) for more than a quarter of a century. He became a partner in 1995 and was elected to a four-year term as chairman and senior partner in 2009.
Before assuming that role, he served as the asssurance leader of the U.S. firm from 2006 to 2009 and managing partner of the New York Metro region from 2004 to 2006. From 2001 to 2004, he led the U.S. firm’s financial services audit and business advisory practice, which includes the banking, capital markets, insurance, investment management, and real estate sectors. From 1998 to 2001, he served as the metro regional financial services leader. In the early 1990s he served a three-year tour with PwC Japan in the Tokyo office, providing audit and advisory services to multiple European and U.S.-based financial services organizations operating in Japan.
Moritz is a graduate of SUNY-Oswego and certified by the American Institute of Certified Public Accountants, the New York State Society of CPAs, and the New Jersey State Society of CPAs. He was also named a Corporate Responsibility Magazine 2012 CEO of the Year. He recently sat down with Editor-in-Chief Dirk Olin to share his thoughts on how CR has changed at PwC—and generally—during the past generation.
You joined PwC in the mid-80s—what was the state of corporate responsibility then?
In 1985, the term wasn’t even there. There was philanthropy and a commitment to local communities. And there were early aspects of paying attention to the idea of employee engagement. But not a formal concept the way there is today. Now there’s a great deal of interest, but of course it’s a different world. We’re so much more globally connected. Back then it was really just the early pursuit of informing the uninformed—to be informed—whereas now the idea is to be informed in order to take action.
How did you observe the evolution of the concept over the course of your own career?
Well, I was lucky in 1990, after having grown up in audits and financial service, to be asked to go into the HR side of our business. Managers were being brought to the human capital side of the agenda, along with other changes. So with 250 people in the New York office, there had to be a lot of attention paid to mixing and matching skill sets. It was an eye-opening experience. Then in 1991 I had the chance to go to Tokyo, which lasted three-and-half years and involved a lot of travel in Asia. At that point in time, the Japanese economy was starting to go through its decline, which led to a lot of discussion about the role of government during economic distress and the aging population and the question of government propping up business. NGOs and other similar entities were starting up and demonstrating in the streets of Japan for first time. There was an entirely new sense of diversity and cultural dexterity.
Something else was going on then, which was outside of my work, but had a big effect on a lot of thinking and that was the fallout from the Exxon Valdez oil spill. It was all part of this feeling that the world order was changing. Groups were rising up on engagement of corporations with the definition of their bottom lines. And by the mid-90s a next generation was starting to rise, and on campus students were more worldly, and they were developing a sense of a CR ecosystem. Which started to have a big effect on recruiting. Anyway, my eyes were more and more open to leading groups in the right direction. And for us, you have two angles. ‘A’—with clients, we’re in the flow of companies that have to think about this, and ‘b’—we’re evolving how we apply it to an organization such as ours. So in meshing our own best practices and client best practices this is a huge opportunity.
Okay—let’s jump forward to three years ago when you assumed your current role. Where did things stand?
Here’s what I was seeing. We have an average age of 27 in a profession perceived as old white guys crunching numbers with a number-two pencil. Historically, we competed for talent against Wall Street. Now, we’re competing against Google and Facebook and Apple. That puts a value on creating something different to make the place a magnet, to make it sexy.
So I had to ask myself, ‘How do we engage people differently?’ I would argue that we spent too much time at senior and partner level not turning the staff upside down. I wanted to take natural hierarchies out of the picture. And diversity has become easier to achieve because of laptops and the falling of natural borders.
How do I engage all 35,000 in the workforce in strategy, in creating an environment where impact is not just weighed by making money? That requires a leadership team to create that environment so staff can thrive. Don’t fight them, buy into them. And the best way to engage them and give them voice is through the CR policy. They grew up in trophy world. Everybody got a trophy. Now the reality is I can’t give great raises in this economy, but I can create milestones for staff, having them evolve to something more senior in the third or fourth year. I can give them a week of development in personal and professional responsibility—in enriching their mental, physical, and financial skillsets. That’s everything from financial planning to stress management and wellness programs. At a more senior level, you can introduce sabbaticals.
Another important element is that they want choice. So two years ago, to reward hard work, we offered cash or a charity match or a tech package or gift cards. We knew they’d take cash, but we also knew they wanted the choice.
In November 2010, to acknowledge their contribution to our success to date, every staff member received an after-tax “recognition award.” We debated whether the recognition payment should be in the form of cash or a gift, and concluded that each individual should decide. So, every staff member was offered a choice. They could have a cash payment, meaning an additional net payment of $1,000 in their December 15 pay, or they could have an iPad, with the total value of the iPad plus a gift card coming to $1,000, or they could have a Visa gift card valued at $1,000. Or they could have a $1,000 charitable contribution to the PwC Foundation in their name.
Do those initiatives measurably inure to the benefit of the bottom line?
Here’s one thing we did. We held an in-house competition to answer the question, “What’s the next $100 million idea?’ We called it the PowerPitch—a team-based innovation competition to identify the next big business opportunity for the firm. The idea was to develop a new practice—or a new service in an existing practice, or a new way to deliver our services—that over time and incubation has the potential to reach $50 to $100 million in a profitable revenue opportunity. The winning team received $100,000 cash and the opportunity to participate in the development and execution of their business idea. Runners up also received cash awards.
How do you convey your personal commitment to your workforce?
Well, for one thing, I tell my own divorce story and how my need to make a different kind of time for my kids raised my awareness on the issue of flexibility. I have to manage my work-life balance, and maybe it was my male ego, but for some time I never told anybody what my situation was—and that was huge mistake. It doesn’t take much to go from that to broader issues—future leadership in worldwide environmental issues, commitment to communities, dedication to talent, the need for cultural dexterity.
You’ve been articulating a pretty broad agenda.
It has to be. How do we take this well beyond the old notion of philanthropy yoked to client development? That’s not the answer any more. We cut our giving from 4,200 organizations to about 1,200, because we want to do more than just write checks. I expect us to leverage the assets we have, for example, to teach financial literacy. Or going green. We’re not a manufacturer, but we can push everything we do toward electronic production. That also means telling clients to eat the same dog food we do.
Given your stint in HR, can you expand on the importance of employee relations in the context of CR?
I can’t overemphasize it. We get people engagement scores by conducting a global survey once a year, with spot checks. We have about 21 questions with 10 variables by geography and business unit. We look at work-life flexibility, diversity, safety, freedom, whether they see meaning in our social responsibility agenda. We also look at turnover, financial performance, and brand. And the results are dissected by teams of 6 to 12 partners with help from maybe 150 staff.
And there’s a business case for doing this?
Absolutely. You look at the relationship between engagement and turnover. Between morale and turnover. Or recruitment rates on campus. Then that’s put up against overall turnover numbers, business unit revenue performance, and brand performance in the external marketplace. We know there’s a 70 to 75 percent correlation between engagement and your brand health index, for example. So, as you can imagine, we’re using this for both sales and consulting.
And beyond engagement, what about productivity?
Our numbers show, essentially, that if an employee feels valued within the environment, we’re going to get 57 percent more productivity out of that. Which is not necessarily more hours a year—it’s having more impact on the outcome of the company. It’s not the hours they’re working, just the opposite. I want them working smarter.
I think we’re in a significantly different space than we used to be with employees and customers and the community at large. We’re more able to get information that we never had access to growing up. And we know from that that choice works. Take wellness. It can’t just be for the workforce. Managers have to understand what it means. So if they’ve learned the virtues of stress management, and that means they learn to take a walk around the block in some situation, you can’t then have their manager saying, ‘What the hell are you doing?’ You’ve created expectations, so you can’t then squash them. It’s the same reason that the recruiting speech has to align with workday reality. Your leaders need to see this. If you’re not living the truth you won’t be invited back to the party.
Meaning this has major implications for retention as well?
Progressivity is more than necessity. Look at the period from ’85 to 2002. In ’85, we were in a world where our profession was thought of highly, where we had the ability get cream of crop candidates almost effortlessly, where the workforce was told up or out. Under that, the economy does a natural de-selection process for you. And you had a typical turnover rate of somewhere between 15 and18 percent, which was normal in a fast-growing economy.
Come 2002 and in the wake of Sarbox [the Sarbanes Oxley Act], turnover had shot up to 25, which is just not sustainable. We engaged USC’s Marshall School of Business to conduct interviews and surveys with partners, employees, and alumni in our Boston, Dallas, and LA offices. The goal was to learn how our people make decisions about why they stay at PwC while they continue to develop their human capital and/or why and when they to leave the firm for opportunities elsewhere and what they are looking for in those opportunities. We learned a lot. The study confirmed that as employees advance through the levels at PwC, they build up a great deal of human capital that is of high value to PwC and in the broader market. It also showed that employees who leave before the senior manager level do not maximize either their earnings potential or their ability to achieve a top level job in industry. The ones who leave as senior manager—compared to those who leave as senior associate—were clearly at an advantage. They experience earnings in the long-term that are 49 percent greater on average. They are nine times more likely to have attained a VP or high-level job in a company with at least $500 million in revenue. And many employees who left prior to becoming a manager believe in retrospect that if they could do it over, they would have stayed longer. The study clearly indicates that the market highly values and promotes our people that have manager and senior manager experience with PwC, the point where job responsibilities change significantly in today’s highly complex business environment. Bottom line: Employees in the early career levels that leave experience an initial pay increase, but employees who stay longer very quickly catch up to those who left.We concluded that we needed to make our environment more family-like, we needed to make the place feel smaller. We went specifically to the partners, which we’d never done, and gave each 10 members of the staff to connect with. That was necessity. And turnover dropped back to 18.
Now by 2008-2009, turnover was down to 13, and our competitors were laying people off, including partners. In our case, we decided not to cut or rescind our offers. That started to give us a competitive brand. That was a foundation, and I had to decide how to build on that. So we offered time off. We gave recognition awards and held town hall meetings. Turnover is now down to 9 percent.
At a personal level, before you ever got here, what was your own path? And how did you choose your profession?
I was one of four kids. I was the first one out of the box and the first in my family to go to college, including cousins. I went to a small state school, and I didn’t have great grades, but I got great life experiences as an RA. Why this profession? To be honest, I’d read an article in The New York Times that partners made $90,000 a year.