š§ S2E2 | Anne Eriksson, former PwC Eastern Africa regional CEO
In this conversation, Anne reflects on how financial reporting has changed over the years, how leaders can prepare for taking their companies public, and what makes a good non-executive director.
FULL INTERVIEW TRANSCRIPT
Chipo Muwowo: Anne, Iām delighted to have you on the podcast today. Great to see you.
Anne Eriksson: Thank you Chipo, and glad to be here.
Chipo Muwowo: Thank you, thank you so much for making the time. Now, Anne, as I've just said, you spent about four decades with PwC, you retired in 2018. Do you miss it?
Anne Eriksson: [laughs] When you say four decades, it really sounds ancient, and I guess it was. But what I would say is that, really, I had the privilege to have a very exciting career with the firm where I performed various roles, culminating in my last role which, as you said, was as regional senior partner for the wider East African market area. And I was also a member of the Africa leadership team. So during my time with PwC, I served various clients, including some of the largest organisations in the region. And I also worked with very many people and witnessed the growth of several individuals from within and outside the farm. One would say that it was intense, it was exciting. And I would say that whilst I was in it, it was difficult to imagine another life. But going back to your question, no, I don't miss the high tempo, but I miss the people. So what I do is invest in keeping in touch. And the reason I don't miss PwC is because I realised how privileged I was to do what I did for four decades, but that perhaps others that I have nurtured, and help [to] grow, can actually get the firm to an even higher level. And for me, that is very satisfying. Furthermore, I now have time to pursue my other interests and particularly spend more time with family.
Chipo Muwowo: Now, during your time at PwC, you audited various firms, some listed on different exchanges, others unlisted, primarily in Kenya, but in other parts of East Africa as well. Just from a very high level, could you talk to me a bit about what key elements of financial reporting changed over those years that you were intensely involved in that work?
Anne Eriksson: Yeah Chipo, I would say that the regulatory environment changed a lot and one could say has become more stringent. So you find that central banks, capital market authorities are now better organised and more demanding of the corporates that they regulate. I would say as an example, many of these regulators now have governance thresholds that organisations must adhere to. For example, term limits for directors, codes of conduct, you know, those sort of thresholds. What I've also noticed and what I witnessed during this time is accounting standards have become more onerous. So most countries in the region that I worked in, and I continue to work in, have adopted International Financial Reporting Standards (or IFRS in short) as a reporting framework.
Now the implementation of these standards require companies to develop or indeed hire more sophisticated expertise. So auditors and practitioners must keep pace with these developments. And investing in training was a very key part of what PwC did. Nothing stood still. Change was the constant. And so this standards call for very extensive reporting. Annual reports now run into hundreds of pages. And instead of printing endless copies of voluminous reports, what I've also noticed and witnessed is organisations now make these available on their websites. In my view, these developments, onerous as they may sound, and indeed to those that have to comply with them, I think are a good thing, and particularly to the investing public. So a lot of changes, and I think these changes continue to evolve. And as I said, I believe it's for the good.
Chipo Muwowo: Now, within the African context, we often talk about challenges of liquidity within our markets, but also the need for more companies to IPO. And I guess in a sense that conversation is happening in other markets as well. Given what you've just described about the regulatory environment, how do the leaders of companies that have potential to IPO get better educated about some of those obligations that they will have to meet. Once the company is a public company, you know, whose responsibility is it? And yeah, what does that look like to educate them better?
Anne Eriksson: I would say it's multifaceted. I would say the directors of the company have the ultimate responsibility to ensure that the organisation is fit and proper. But the directors can't actually do it on their own and rarely do. So it means hiring the right calibre of management. It also means sometimes drawing on professional help and expertise from outside the business. It's not unusual for an organisation to hire firms such as PwC to help them transition or to help them elevate their capacity to cope with new requirements. And so having management that's [well-versed], responsive, and knows when to look and call out for help and where to get that help, I think is very important.
Equally, I think the board of directors, non-executive as they may be, must keep themselves appraised of what is going on. And we find that institutions such as [the] Certified Public Accountants of Kenya or similar institutes in Uganda, Tanzania and other markets in Africa invest a lot in disseminating information about new regulations, new developments, not just those that have already taken place, but those that are forthcoming. And so it's important for the directors, in addition to management, to at least keep themselves appraised at a high level to know what they need to do and expect management to do or put in place to make sure that the organisation that they govern is in the right place.
Chipo Muwowo: Now, good financial reporting by public companies is obviously a statutory requirement. But I was wondering whether there's any way that companies, some thinking specifically about listed companies, can use it to differentiate themselves within the market. How can you take a task as mundane as financial reporting to differentiate yourself, is that possible?
Anne Eriksson: Absolutely, and I guess you would expect me to say so. But I would also say that a reasonable financial analyst can tell a good set of financial statements from a bad set of financial statements and is more likely to invest in an organisation that is transparent and appears to have good financial statements. So, mundane as it may sound, it's actually a necessary evil. And I would say that good financial statements are the end product of a lot of hard work [ā¦] the management of the company, and their advisors, for example, their auditors. They will have spent a lot of hours, in some cases maybe a few years, preparing for the implementation of a particular requirement. So a lot of hard work goes into this. But then you asked about differentiation and how a mundane obligation can actually do good and be useful to an organisation.
And I'm going to use an example of the FIRE awards in Kenya. [They are] organised by the Institute of Certified Public Accountants jointly with the Capital Markets Authority, the Nairobi Stock Exchange, and the Retirement Benefits Authority. And the awards seek to recognize and honour organisations in various sectors on their financial reporting. They are coveted awards. And what we've seen organisations do is refer to these awards in their publicity that this year, you know, we had the first prize in the ābest presented financial statements overallā, or in ābest presented financial statements in our sectorā. And they will use this information for at least a year, or at least until the next set of awards come through. And even if they do not make it, or earn awards in the subsequent year, they're still able to use the awards that they may have earned in 2023 and do so for a long time. And so why is this important? It's important because, as I said, if you have a financial analyst or somebody that is you know who is [well-versed] with the capital market, you know, they see something like that. They see that sort of information and I think it piques their interest. And so, you know, actually using good financial reporting or the product of good financial reporting can actually create, you know, can have positive contributions for organisations and they can use this significantly for their own publicity.
Chipo Muwowo: I'm curious, you used the phrase good financial statements and I'm just wondering what that looks like?
Anne Eriksson: Interesting question. So it's not the volume that counts, it's the content that counts. So when one talks of good financial statements, it means that they've actually been prepared in accordance with applicable, in this case, international financial reporting standards. So in terms of what is the disclosures that are in those financial statements, what's the story that the financial statements are telling you? What's the linkage between strategy and the actual financial results that are reflected in the financial statements? How transparent has the organisation been? By that I mean, have they disclosed the bare minimum or have they actually gone out of their way to tell their story so that the use of the financial statements knows what's happening in that organisation, what is the health of that organisation, not just in terms of what happened in the past, and that tends to be what the balance sheet or the financial position shows, but also in terms of, as I say, the strategy. How is the organisation speaking to environmental considerations, sustainability considerations, the governance of the organisationā¦
So it is the full breadth of, you knowā¦ it's like the financial statements are the mirror, are a mirror of the institution that they seek to portray. And so a lot of people confuse glossy [reports with] many pages with good financial statements. I don't think so. It's more of the content. And, you know, there is a set of financial statements I would draw a lot of people to that really, you know, in my opinion, set a high standard. And perhaps it's not surprising. It's actually the financial statements of the IFRS trust. They are the standard setters. But you know, if you have some time Chipo, just go into their website and look at those financial statements. They're crisp, but they are very telling. And I think you would struggle to poke any holes in terms of what havenāt they covered. They tell the story, they link strategy to the present, they even talk a little bit about the future. Very refreshing. You don't have to be a chartered accountant to understand and appreciate good financial statements. For me, that is what good financial statements should look like.
Chipo Muwowo: I'm just going to shift the focus to audit firms. So I hear what you're saying and agree that listed firms have this obligation to produce good financial statements that don't just reveal the bare minimum. But we've had a few cases of financial or accounting malpractice with different firms where maybe auditors have maybe missed some information. Obviously in an African context, Steinhoff International was probably the biggest, most prominent story. So in those situations, what's gone wrong? And I know each case will differ. And by and large, audit firms do as they're required and things work as they should. But you obviously have situations where things don't, so just try to understand how... Yeah, what typically goes wrong in those situations?
Anne Eriksson: A very good question and having practiced for the number of years that I did, one of my worst nightmares was if anything went wrong, not just on statements or organisations that I directly serve, but organisations that the firm served. The reason for that is that, you know, it does have significant reputational ramifications that go, you know, well beyond your time. In fact, you know, we have seen huge, huge firms being wiped [off] the face of the earth in a matter of weeks due to things going wrong with the organisation with one organisation that they served, so it's the worst nightmare for a practitioner. And I would say that it's a huge responsibility that auditors carry, but it is a responsibility that is earned. You earn it from the investments you make in the people that you recruit, the training that you provide to them, the empowerment you give to people. And then, you know, the responsibilities that different persons within the firm perform with [the senior] partner normally carrying the ultimate responsibility. And a firm such as PwC would put into place significant internal quality measures to ensure that the quality of work that is produced, and that the firm's attaches its name to, is befitting of that signature.
So it starts with the auditor acknowledging their responsibility and taking that responsibility very seriously through the measures that I have just described. It also, and more importantly, requires the organisation to be appropriately resourced to produce good and credible financial information. And by that I don't mean just an exercise of producing a booklet, I mean the processes that the organisation has in place throughout the year to produce the information that generates those financial statements [e.g.] the completeness of income, that all invoices that should be raised are raised, that payments are made to the right suppliers for goods and services, etc etc etc, that the right people are hired. You're making payments to people that deserve to be paid. You have internal controls that ensure a robust system of internal controls that then underpins the financial statements that are produced.
And so there's also the responsibility of the audit firm to ensure that when they select an organisation to be their client, and by the way, this happens every year because there's a renewal of mandates every year, that the auditor is comfortable that that relationship is mutual. By that I mean that it is an organisation you are comfortable to work with, that they are worthy of working with you because if they are not, they can actually expose you as a firm. Equally, the organisation should have very robust processes in place to ensure that the auditor that they have in place is also fit for their organisation. So it's a mutual responsibility. But that doesn't mean that things cannot go wrong. Things do go wrong because erring is very human. It's how that airing is then managed. It is how it is acknowledged or otherwise. Why did it happen?
What I'm basically saying is that if enough work is done, enough effort is put in place, and we tried very hard in PwC and I believe they still do, I'm now retired, but you know, I observe them in practice. To ensure that you maintain very high standards of professionalism and quality, then such mistakes will be few and far between.
Chipo Muwowo: Thanks for that, Anne. I'm just going to move the conversation on to some of your non-exec director work. So, you know, you serve on and have served on several boards. You currently serve on the board of Jumia, e -commerce technology company and Africa Asset Finance Company. Just take it a few steps back. In your view, what makes a good non-exec director?
Anne Eriksson: Yeah, so Chipo, as you said, I retired from PwC in 2018 and so it's now close to six years and during those six years I've been privileged to serve on several boards as a non-executive director. And I will tell you it's very different from being a provider of professional services as I did. It's also very different from, you know, running a firm like I did as the CEO. So in my view ā and I have to say I am still learning; I believe that one must be open to continuous learning ā I think a non-executive director should avoid the temptation to get into operational details. In my view, that is the job of management. A non-executive director's role is to provide oversight, to govern, to lead, to advise, but not to manage. I also believe that a non-executive director must understand the business and the organisation that they're involved with in order to be able to exercise oversight. I also believe that one should have sufficient time to actually perform the role of a non-executive director appropriately. So you need sufficient time to prepare for meetings, to actually be in those meetings, may they be physical or virtual, and to engage. And to engage in a manner that you ask the right questions and that you're able to make sense of the answers that you get.
I also believe that it's important to, you know, listen and listen hard to others' views. You know, you'll find yourself in a situation where you're on a board with people that youāve never met before. In PwC, I worked with individuals that I had grown up with, so to speak. Here, you'll probably find yourself one day in a boardroom, you know, ready to kick off and you're probably meeting everybody around the table, physical or virtual, for the first time. So, you know, the art of listening, I think, is very important. But also the need to exercise independent judgment is, in my opinion, absolutely key. I believe that one should be professional. And one should be prepared to walk away from a situation that they believe is not in the best interests of all stakeholders. And in the case of companies, particularly if it is not in the best interests of minority shareholders. So I'm sure there are many other qualities that one can point to for non-executive directors. But you know, Those are the immediate ones that come to my mind.
Chipo Muwowo: Now, as I mentioned, you're a non-exec director at Jumia. Now the company, I think it's fair to say has been on a bit of a wild ride these last few years as it pioneers in a big way e-commerce provision in different parts of Africa. Why are you bullish on the company and its prospects long term?
Anne Eriksson: Thanks for that question, Chipo. So Jumia is listed. It's listed on the New York Stock Exchange. So I'm going to refer to information that is already in the public domain. Clearly, it's not possible to refer to anything else. And you're right. The company has undergone a lot of changes. And I would say in the last 15, 18 months has undergone a deep transformation. And we as directors, I as a director believe that this transformation will support the growth that we hope to achieve in 2024 and beyond. Particularly as the macro situation in several of the countries that Jumia operates in are starting to recover. Jumia operates in 11 countries across Africa, West Africa, East Africa, North Africa, South Africa. So it's across Africa, not just sub -Saharan Africa, but across Africa. And we believe that therefore the markets are starting to recover. And I would say that perhaps Jumia has never been in a better position to cover to capture that unique opportunity of e-commerce in Africa. So management has re -evaluated the portfolio that we play in and have made tough decisions regarding certain activities that don't seem to bring the right value. And the board is supportive of these decisions. So recently we discontinued the food delivery operation as we concluded that the growth prospects did not justify the complexity that it created. And so the focus now is more on physical goods. So with physical goods, Jumia enables its customer to enjoy the convenience of e-commerce, but also brings goods to people that would otherwise not have access to these goods.
So let me use an example to explain this. During a trip to Senegal a few months ago, we travelled from Dakar, the capital of Senegal, and travelled up country, visiting various towns and villages that are 100 kilometres plus away from the capital. So Jumia provides employment transporters and agents through whom the company can deliver goods such as a fridge, a cooker, a TV to customers in these small towns and villages who would otherwise simply not manage to buy such goods because the shops, the very, very small shops in their village or small town do not stock such goods. And it's also too far for this single consumer or customer to travel to Dakar or another bigger town to actually buy these goods. But what Jumia will do is through the agents and transporters [ā¦] will get these goods ā a fridge, a cooker, a TV, whatever ā to a consumer basically to their doorstep. They'll come and collect it from the agent who will only be a few hundred meters perhaps away from their home. So this way, Jumia in my opinion is creating employment, but more importantly is actually enriching lives by enabling access to goods that they may otherwise not have done.
Chipo Muwowo: Now, I'm just going to ask about Africa Asset Finance Company. So same question, why are you bullish on the company and its prospects? I have to say it's probably a lesser known name than Jumia, so maybe tell us a little bit about what it does as well, please.
Anne Eriksson: So the Africa Asset Finance Company is in the business of providing customers in Africa with the use of equipment through a variety of programs. So we have equipment, we have ICT, we have agriculture. So what happens is that customers pay for the use of the equipment from the cash flows that the equipment helps generate. So for example, for the Equipment as a Service program, and we refer to this one as EASE, it's Equipment as a Service. It provides organisations with cost -effective access to state-of-the-art equipment. And through its unique pay-per-use model, EASE customers are able to generate cash flows that pay for the equipment without having to tap into equity or to credit. So EASE will buy the equipment, provide it to the customer. The customer will use that equipment to deliver its service, for example, a hospital, and the repayment terms are structured on a pay-per-use model. So as a result, what this ensures or what this achieves is that more organisations can access equipment that is critical to the quality of their service and the growth of their activities.
You would ask why would EASE or Africa Asset Finance seek to do this? Isnāt this the work of banks? But what we have found in several markets in Africa, not all, several markets in Africa. But this is actually a business that the banks are not interested in. They don't want to have such assets on their balance sheet. In the case of Africa Asset Finance, we do, and that's our business. We'll have these assets on our books. We'll depreciate them. We will get paid for them or remunerated for them in the manner that I have described. And so I will say that, you know, even big markets such as South Africa, you know, you would wonder, would this apply? And the answer is absolutely yes. And in fact, during a recent visit that management organised for the board when we were out in one of the countries in the southern part of Africa, we visited a major customer in the health sector. And I have to say I was pleased to witness how the recent installation of a diagnostic machine through the EASE program was making a difference in access to life-saving diagnostic procedures at an affordable price. That is what Africa Asset Finance does, can do. And as I said, EASE is one of the programs that is under Africa Asset Finance.
Chipo Muwowo: And in terms of its long-term prospects, what exactly are you bullish about as you think about the company's future?
Anne Eriksson: So we are at the moment operating in Ethiopia, in Nigeria, in Ghana, and South Africa. I see this model being replicated in several other markets. So the prospects, in my opinion, and considering the trajectory that we see of Africa, the African market or countries in Africa, because actually, there is not a single market in Africa, I think are huge, are enormous. There's the northern part of Africa where we haven't even, you know, scratched the surface. But I think more importantly, we want to perfect, you know, the offering in the markets in which we have already set foot. And as you've heard, you know, we're in the Western Africa, we're in East Africa and in the South, and then from there grow. And so the prospects are immense. This is a private company with private investors, international private investors. And so I see these investors having the possibility to scale these operations or indeed invest or invite other investors. either through private placement or who knows, it could even be probably in a more public situation. But time will tell.
Chipo Muwowo: Anne, I've got just one more question and it's about Endeavour Kenya. Could you please tell us more about what that is and your involvement in it? And perhaps, you know, one thing that gives you hope when you look at Kenyan entrepreneurs, you know, particularly through this programme.
Anne Eriksson: Indeed. So Endeavour is one of the interests that, you know, I've been able to sort of develop particularly since retiring. And for those who may not know, Endeavour is a global organisation started off in southern America, but is now headquartered in New York and works with high-impact entrepreneurs to help them dream even bigger than they currently dream but more importantly, scale faster. And this they're able to achieve by availing resources, human resources, and that's how people like myself come in. I'll talk to that in a little while. But also, you know, facilitates access to funding and finance to help them scale. So in my situation, I'm an Endeavour mentor. And what I do is avail my skills and expertise and experience for Endeavour entrepreneurs to draw from it.
So working with the Endeavour Kenya management team, they're able to line me up or partner me up with organisations where they feel they can benefit from my experience. This is a relationship that you would say is giving back to society, giving back to community, and I do so because of what it exposes me to. I have come across businesses that I did not imagine existed. And as you said earlier, I did 40 years with PwC. I've encountered organisations that I would perhaps never have met and encountered in my time at PwC. Why? These are startups. These are organisations that probably run initially fairly informally. And they scale, you know, the hockey stick is probably not even doing justice to how they are capable of growing and how some of them have grown.
So I've seen organisations, particularly in the financial sector technology space that have started small, say in Kenya, and have then grown to work across Africa with huge volumes and employing lots of people. Many have a huge multiplier effect in terms of job creation, but what I've also experienced is that many of these businesses, have a great concept, but because they've started off as, you know, startups, entrepreneurial organisations, they have very weak structures, particularly in HR, in finance, to support their scaling up. So many have very informal processes with little to no governance. And this is where mentors such as myself come in. We give advice, we provide guidance. And in my view, this ecosystem of entrepreneurs, Endeavour entrepreneurs, are capable of becoming huge multinationals in the not too distant future. So I feel very privileged to work with some of these businesses and to see what they are capable of becoming. Not just in Kenya, but in other parts of particularly the developing world. And that for me is very fulfilling people.
Chipo Muwowo: That's wonderful, Anne. That's a lovely, positive and hopeful note to end on. Thank you so much for joining me on the podcast today. A really interesting, wide -ranging conversation. So thank you very much.
Anne Eriksson: You're very welcome, Chipo, and have a lovely day.
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