PwC responds to tax scandal report by introducing strengthened governance measures

PwC Australia partners have endorsed a ‘milestone’ governance reform package, under which management could withhold pay if there’s trouble akin to the tax scandal that has damaged it.

PwC Australia would withhold payments for members of its management team in case the firm faced a repeat of its damaging tax scandal, the audit and consulting giant said as it outlined new governance rules.

The firm said on Thursday it would “strengthen” governance arrangements, handing new powers and duties to its governance board, after a vote of partners.

The move will see PwC change its governance arrangements, with the firm saying it will select at least two new independent directors for its board, with the search to kick off immediately.

But PwC said its partners would retain powers over “key decisions” at the firm, including voting for internal governance board members, approving extensions to the terms of independent directors and appointing a new chief executive.

All governance board members will now be “formally evaluated” every year by PwC Australia’s new chair, while every three years the board will be assessed by an “external party”.

PwC said it would change the rules around appointing its chief executive and directors.

The firm will now withhold a percentage of payments from the management leadership team in the event of “serious misconduct or significant regulatory or quality failure that results in a loss in confidence of the firm”.

This comes after PwC faced a difficult 2023, tipping out two CEOs in the wake of revelations of the misuse of confidential information by members of the firm’s tax practice.

Former PwC CEO Tom Seymour, who took home $4.6m a year in his final term, left the top job at the firm in the wake of the scandal.

Mr Seymour, who previously ran PwC’s tax practice, was one of the members of the firm’s governance board who was aware of the tax leaks in the years before the issue became public.

The immense brand damage forced PwC to hive off its government consulting arm for just $1, as well as sharply reducing staff numbers.

PwC CEO Kevin Burrowes said he was “really proud” of the move by partners to approve the governance changes.

“By embracing these landmark changes, we are raising the bar for our industry when it comes to best-in-class governance,” he said.

“While there is still much work to do, these changes – once implemented – will ensure there is significant independent represen­tation on our governance board.”

The governance changes come after PwC outlined plans to reform its leadership and management following a review of the firm by corporate veteran Ziggy Switkowski.

Mr Switkowski found PwC had a “shadow” culture, tolerating bad behaviour in the pursuit of profits.

The former Telstra chair found PwC lacked independent voices on its board and warned the chief executive role had become too powerful and un­accountable.

Mr Burrowes said the changes would “result in a much more robust and comprehensive means of governing our firm”.

“Our people, clients and the community expect us to lead by example and this vote enables us to embed the measures we believe are necessary to rebuild trust,” he said.

“It reiterates our firm’s commitment to the changes outlined in our action plan and signifies the next stage of implementation,” he added.

But Greens Senator Barbara Pocock took aim at PwC’s announcement, noting the appointment of new directors was “a weak measure in view of evidence that shows PwC International can reach over the local board as they did in the sacking of Kristin ­Stubbins”.

“With voluntary self-regulation there is no cop on the beat, no ASIC or other corporate regulator to hold these huge partnerships to account,” Senator Pocock said.

Labor Senator Deborah O’Neill warned the changes were a “clear admission” of PwC’s ­failures.

She said the reforms “should not be considered anything more than necessary changes to a firm governance structure which has demonstrably failed to offer necessary safeguards against poor behaviour among PwC partners and leadership”.

“The earnestness of PwC’s ­reforms is undermined by the firm’s ongoing obfuscation with regards to the provision and ­publication of the Linklaters ­report into the international ­dimension of Mr Peter John ­Collins’ misuse of confidential Australian Government information,” she said.

PwC governance board chair Justin Carroll said the firm’s leadership were “delighted” by the changes. “Our people, clients and communities rightly expect the highest standards of governance and accountability from our firm and these enhanced measures establish a best-in-class governance framework,” he said.

PwC Australia’s former interim boss, Kristin Stubbins, told a parliamentary inquiry on Tuesday she was disgusted by colleagues who hid the seriousness of tax leaks from others at the firm.

Ms Stubbins, who took the top job at a time of crisis, said several partners had shown a “flagrant disregard for confidentiality”.

“I’m also very upset that the seriousness of these issues was kept hidden from the broader partnership for so many years,” she told the inquiry on Tuesday.

The former head of assurance said she was “completely stunned” about the tax scandal, noting there were no discussions about confidentiality breaches when she joined PwC’s board in 2020.

PwC faced exclusion from new government work after revelations of the tax scandal, with the audit and consulting giant forced to sell its public services consulting arm in a $1 deal with Allegro Funds.

Ms Stubbins said PwC global chair Bob Moritz called her in mid-2023 to tell her she would be replaced by Mr Burrowes.

Originally published as PwC responds to tax scandal report by introducing strengthened governance measures