Former staffers at PwC and other big four firms dominate boards

Research finds former staffers from the Big Four are heavily represented in our top company boards.

Dr Claire Wright, lecturer, UTS. Picture. Britta Campion/The Australian

The boards of Australia’s Top 100 companies are heavily populated by people drawn from the ranks of professional service firms, with almost 25 per cent of directors with multiple seats coming from the Big Four - PricewaterhouseCoopers, EY, KPMG and Deloitte.

The revelation that one in four of so-called “interlocked” directors – those who hold two or more board seats in the top companies – has worked at the Big Four comes as the firms reel from the controversy surrounding PwC’s tax advice to the ­federal government.

The dominance of former employees from the powerful firms raises questions about the influence of the auditing and advisory sector on the nation’s business – not just in possible conflict of interest but in terms of public accountability and culture.

The figures from researcher Dr Claire Wright, reveal the extent to which the Big Four have infiltrated corporate boards, with a career in the firms now widely recognised as a direct path to gaining a board position at the top end of town.

Dr Wright, a lecturer in the business school of the University of Technology, Sydney, who specialises in analysis of board composition, says the 24 per cent of board jobs in her identified cohort are relatively evenly split between the big four firms.

Her work on the role of professionals – lawyers, accountants, investment bankers – in Australia’s publicly listed boards shows that the Big Four experience has been clear over the past two decades, with her latest numbers, in 2018, showing 24 per cent from the four partnerships.

In that year, 26 per cent of “interlocked” ­directors came from business backgrounds, for example, people holding executive positions in companies such as Woolworths or Qantas; with the remaining 50 per cent evenly split between lawyers, engineers, investment bankers and other consultants.

Dr Wright has also analysed the backgrounds of all women directors on Top 100 boards, finding that 30 per cent had worked for some sort of consultancy, mainly the Big Four but also firms such as McKinsey and Boston Consulting.

She says the data raises issue about the influence on companies.

“The primary issue is that we have a very homogenous group of people who are responsible for the oversight over top companies … that has some implications for the sorts of advice provided and the way in which companies are run,” she says.

“The other issue is that there are real opportunities here for conflicts of interest. So if you’ve got (a Big Four firm) advising a company on a particular matter, and they have a former partner or chief on the board of that company, then there is a real opportunity for conflicts of interest or the diffusion of knowledge or leaks of information.

“(The board members) are a perfect conduit if these consulting firms want to leak information to their big clients.”

As well, there is an opportunity for preferencing the Big Four when hiring consultants.

“The Big Four are quite similar to one another,” Dr Wright says. “So whether you go to your former employer, or to one of the other accounting/consulting firms, it’s probably going to be a similar process.”

Dr Wright says that there is an increasingly clear path from the Big Four to board positions in this country.

“I can’t necessarily comment on whether it’s a deliberate strategy of infiltrating, but I will say that becoming a board member has now become a really clear career path pathway, it is extremely transparent as to how you become a board member,” she says. “There are AICD (Australian Institute of Company Directors) courses … and the career path to becoming a board member over time has really narrowed. Whether or not it’s a ­deliberate strategy or not, it’s certainly something that everyone’s kind of aware of these days.”

Dr Wright says that from a cultural angle, it’s important to recognise that members of professional service firms and law firms are not really answerable to stakeholders in the same way as are corporate managers in public companies.

She is now working on tracking the history of corporate women, looking at executives and directors in the Top 100 companies. She has found that a career in consulting firms is generally more important for women seeking board roles than for those looking for executive appointments.

“If you’re a female executive, you generally come through corporate (ranks) rather than through these consulting companies,” she says. “Executives still tend to have professional training but they reach the C-suite through the ranks of that company.”

Dr Wright says the pattern of professional directors on boards has been increasingly clear over the past century: “Top accountants have had a really strong position on top company boards since the early 20th century, so it’s a natural transition for that share of seats held by the accounting profession to be taken up by consulting companies.”

Claire Braund, executive director, Women on Boards, says she is not surprised at the figures because of the crossover of talent between investment banking and advisory roles, with people moving in and out over their careers.

“The question to me is not so much around whether or not the people coming out of the top advisory firms are qualified to be on boards, but whether they are conflicted in these roles via their previous knowledge,” she says.

“But then there is the question of whether previous knowledge is exactly what is required on a board, that the skills gathered in an advisory firm are needed when boards make decisions about issuing contracts, for example.”

Ms Braund says the lack of diversity on boards remains an issue, even in the Top 300 when the approach for selecting directors is often to ask: “Who do we know?”