In 2007, James S. Turley will complete 30 years in Ernst & Young (E&Y), a $14.5-billion (Rs 63,800-crore) firm he joined right after a master's from Rice University. Just 49 today, Turley hasn't done too badly. He became its Global Chairman in July 2001 and, two years later, its CEO. Among Turley's key achievements has been the tricky integration of Andersen with E&Y. Indeed, Turley calls managing the firm's 100,000 employees in 140 countries his job one-something that forces him to spend more time on board his private jet than his plush New York office. Recently in India on his fourth visit (a three-day whirlwind tour of Delhi, Mumbai and Bangalore), Turley took time off to speak with BT's Sahad P.V. on life after Sarbanes-Oxley and the future of accounting. Excerpts:

The past few years have been tough for accounting professionals, with scandals like Enron and WorldCom shaking investor confidence. Has the financial world come out of that shock?

The financial world is focussing on bringing the confidence back. It's doing everything possible to restore that confidence. Because there has been so much confidence lost in companies and in boards. So we all are trying to strengthen every process to meet market expectations.

How have the audit firms responded to the challenges?

In multiple ways. The most important thing is that each of the firms has placed an emphasis and focus on quality and integrity. I can tell you that at E&Y, when every one of the hundred thousand employees wakes up every morning, for him no client-whether it's the biggest in the country or even the biggest in the world-is more important than any one of our employees' integrity. That's why I spend quite a bit of my time travelling. Because you can't infuse that culture by sitting in an ivory tower. You need to talk to people. This morning I spent time with hundreds of E&Y employees in India.

There is an interesting trend of "boardroom activism" globally. Many CEOs like Michael Eisner (Disney), Nobuyuki Idei (Sony), Harry Stonecipher (Boeing), and Carly Fiorina (HP) have had to go because of their boards.

What has happened is that investors are in charge. Investors in the companies are holding both directors and management accountable. This is because either a company is not taking the right direction or there are indications that an executive has not lived up to the very, very high standards of the post he holds. I think it's positive. It, in many ways, shows that the system is working. And the directors are doing their job to enhance benefits of the organisation.

We don't see that kind of activism in India...

I don't think India is behind in activism (laughs). It's just that the cultures are different. The more developed an economy gets, the more we will see owners and shareholders getting active. I guess some of that will grow over time.

Where do we stand on the global debate on regulatory and corporate governance standards?

We are seeing a convergence of regulatory viewpoints around the world. In many ways, the European Union Auditing Directive, Sarbanes-Oxley (sox) Act, or Clause 49 in India, all have similar intent (to improve corporate governance standards). So I think regulatory convergence is possible. But we are seeing accounting standards converging very rapidly now. For instance, International Financial Reporting Standards (IFRS) are being adopted by 100 countries in 2005.

The Sarbanes-Oxley Act came into effect in the US in 2002. But some say that it has to go a long way before it can create shareholder value. What are your views on that?

I think it's a difficult job. But I personally think sox has been more than efficient in terms of overall impact. Having said that, some of the aspects of sox are only being implemented now. (For instance) sox Section 404 (it asks for a statement from the management on the company's internal control over financial reporting) is under a lot of discussion now. It takes an extended period of time for any kind of sweeping reforms to have an impact in a major way. But, on balance, there is a very strong commitment on the part of companies around the world to enhance standards of governance and transparency.

"Clause 49 will help foreign investors look at India, which is a great place to do business. And standards of governance are already in place"

What are your views on Clause 49?

What Clause 49 is trying to do in India is to bring in more globally accepted standards of governance. It asks for a more active role of independent directors, requires CEOs and CFOs certifying accounts and so on. I think it's positive for the country, though hard on the company to ensure such standards. It will help foreign direct investors look at India, which is a stable democracy, a nation of great workforce and a great place to do business. And standards of governance are already in place.

Clause 49 has borrowed from SOX (which is based on stringent rules) and also other models based on principles like voluntary disclosures and transparency. Will this "in-between" model work?

In many parts of the world, governance standards are principle-based. Over time, we get to see how they all work. What is important is to see the intent of Clause 49, the intent of sox, and the intent of the European directive. All have the same direction-to provide greater transparency, greater quality, greater integrity and greater visibility to shareholders. I am focussing on the outcome and the intent, and Clause 49 helps India get closer to that objective. Indian companies are focussing globally, making acquisitions, accessing capital and making expansion plans overseas. I think it (Clause 49) will help Indian companies become global leaders.

Indian businesses are more promoter-run than professional-run. Then how do you ensure corporate governance practices are followed in letter and spirit? For instance, Clause 49 asks for a certificate from the CEO/CFO, who could be less important than the actual promoter, say, in a small or a medium- sized company.

Over time, companies will be not just run by promoters. My guess is that companies around the world will end up being professionally-managed. When a company accesses financial markets, accesses public shareholder money, it will be the responsibility of the shareholders to ensure that there is governance, and to maximise shareholder value. So I don't think it's a big issue.

The rules can be followed in letter and not in spirit. How do we tackle that issue?

Independent directors play a role here. They will be focussing exactly on that question. They will be focussing on creativity (where accounting is so creative that it doesn't comply with rules in spirit, but with the letter of the law). They (independent directors) should be really drilling into those questions. It is an important role of the independent directors.

There can also be qualitative differences in information given by the management to the board. For instance, the management of company X can give high quality information to its board, which will not be true for a less efficient company Y.

In large parts of the world, it's less driven by what management provides the board, but more by what the board is seeking from the management. The board again represents shareholders or the owners of the business. So what is important is whether the board does the appropriate diligence in terms of the information it seeks as opposed to the information it's simply given. None of the governance (initiatives) succeeds without a reasonably active and independent board. Because they provide the necessary checks and balances.

Where are we in terms of converging or unifying accounting standards?

Accounting standards are converging more quickly than the governing standards. The IFRS are being adopted in 100 countries this year. Just as important is that the IFRS and us GAAP are converging very rapidly. So you are seeing the standards-making bodies, such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in the US, working together. I think it's positive. We have to have the same rules everywhere. A good analogy is that of an international soccer tournament...if every country plays with a particular set of rules, there will be utter chaos.

"Standards-making bodies such as the IASB and FASB in the US are working together. I think it's positive. We have to have the same rules everywhere"

When do you see the unification (of accounting standards) to be complete?

The IFRS will be in effect from 2005 in 100 countries. I think in a two-to-four-year period you will see much more rapid convergence of international standards and the domestic standards of the US. I don't think we will get to a global GAAP that fast, but the differences between various standards will be eliminated very rapidly.

How do you see India converging with global standards?

The Indian standards are very similar to the IFRS. That's positive. Whenever a foreign direct investor looks at a country they would like to know if it is embracing global standards of accounting and governance. The fact that India is quite consistent (on that front) is positive.

Yours is one of the first firms to sell its consulting arm to Cap Gemini in 2000, to focus on the core accounting practice. What are the major trends in the audit industry?

Most of the accounting firms sold their information technology consulting businesses. Because we had realised that we couldn't be world class at that (it consulting) and also the best in tax advisory, transaction and risk advisory services. It took too much capital, management attention and other things to be best at both. E&Y is now very focussed on audit, risk and transaction advisory services.

You do a lot of transaction advisory businesses in India.

We do, and in India, we are on top in the Bloomberg League Tables for the third year in running.

Are you trying to compete with investment banks?

We typically provide advice on deal size, which is different from how major investment banks operate. At one level we compete with them. But on another level, we work alongside them on various transactions. E&Y is known globally as a leader in transactions advisory, whether it's an acquisition or a private equity deal.

What has been your experience in integrating Andersen with E&Y?

After Andersen dissolved and its 58 offices joined E&Y (in 2002), the integration has been by and large very smooth. The integration has been successful because the former Andersen partners had looked at each of the firms before merger and those 58 countries that joined us, liked our focus on quality and our focus on people. Some of the former Andersen partners are no more with us at E&Y in India. But you should understand that the integration has been very positive as (still) hundreds of Andersen partners are with us at E&Y in India as well as in the rest of the world.

Some Andersen partners left last year at E&Y India...

There was quite a bit of speculation in the press about it. I don't want to get into the details. We are market leaders and have confidence in the leadership here.

Do you think that integration of Andersen in India was not successful?

I would say that it was very successful. I spoke this morning to E&Y employees and there were several former Andersen people. They are part of E&Y. It's true that some of the former Andersen partners are no longer here. I wish them all the best in what they are doing. The fact that we have a very united organisation does not at all talk about the legacy of Andersen. I think it's a very successful integration.

What are your views on India?

I don't go to every one of the countries we operate every year. But the fact that I come here every year says a lot. Because India is incredibly important and I want to make sure that our global organisation is doing everything we can to support our practice here in terms of knowledge, industry strengths, resource and best practices. Also, a lot of great ideas are born in India, which will help E&Y globally. India and China are going to be the biggest economies in the world. So we want to make sure that we are leaders here and keep that position for the next five, 10, or 20 years.