Ziggy Switkowski’s review of PwC has blamed a poor governance culture that gave the firm’s chief executive officer excessive unchecked power for a string of serious breaches of ethics and integrity.
The former Telstra boss was commissioned in May by PwC to undertake an independent internal review of the giant consultancy after it was caught betraying the Federal Government’s trust by leaking confidential Treasury information for its own commercial interests.
Dr Switkowski released his review publicly this week, noting there had long been a ‘whatever it takes’ approach to profits, with a ‘disproportionate focus on revenue’ and a ‘lack of independence and external voices’ guiding the firm.
Partners, even at the most senior levels of management, rarely challenged the CEO.
“The CEO has a strong mandate, being elected following a presidential-style campaign, and other than maintaining popularity, has relatively unchecked authority,” Dr Switkowski said in his report.
“The CEO is not perceived to be accountable to the board.”
Unscrupulous behaviour was not only tolerated, but encouraged. This led to Peter-John Collins (while a PwC partner) sharing confidential information with other partners and their clients on how to avoid a multinational tax avoidance scheme the firm was actually helping the government to establish.
Mr Collins subsequently lost his registration as a tax agent, and the matter is now the subject of an Australian Federal Police investigation and ongoing parliamentary inquiries.
The scandal saw the axing of PwC’s then CEO Tom Seymour and several of the firm’s partners.
It also led to PwC Australia selling off its government advisory arm to Allegro Funds for $1, creating a new firm – Scyne Advisory.
Dr Switkowski said that in his view, the shortcomings in governance, culture and accountability identified in his report were contributing factors to the tax scandal.
He offered 23 recommendations for improving governance and culture at the firm, including steps to rein in the CEO’s power and how high-level appointments are made, and restructuring the board and its role in the firm.
“The aggressive growth agenda overshadowed and occurred at the expense of the firm’s values and purpose,” Dr Switkoski said.
“The focus on ‘whatever it takes’ seems, at times, to have contributed to integrity failures.
“Some partners did the wrong thing while others failed to do the right thing by minimising the significance of questionable behaviours.”
In responding to the review, PwC Australia’s new CEO Kevin Burrowes and the chair of its governance board Justin Carroll, accepted all of Dr Switkowski’s recommendations and apologised for the breaches of ethics.
“PwC Australia accepts and will implement the review’s recommendations. We recognise this is a critical and significant step required to re-earn the trust of our people, clients and stakeholders,” the joint statement said.
“Dr Switkowski’s review highlights a failure of leadership – both by individuals and as a firm.
“Over time, this failure of leadership contributed to an erosion of good governance and culture, weakening focus on our professional and ethical standards. We deeply regret and apologise for our failures.
“While at times difficult and disappointing to read, Dr Switkowski’s review lays bare where shortcomings exist in our firm and a culture that allowed them to go unchecked over time.
“It is incumbent on us to accept this, and for each and every one of our partners as well as staff to embrace the need for change, and work together to build a better PwC Australia.”
In a ‘statement of facts’ published with the review, the firm also confessed to other breaches of confidentiality and misuse of information over a number of years when working with the Federal Government.
These included dealings with Treasury and the Australian Taxation Office over GST laws, Treasury’s black economy taskforce reference group, its tax treaties advisory panel, and the sharing of a draft OECD report into profit shifting.