Inside PwC where too much trust was a recipe for disaster

PwC report author Ziggy Switkowski. Picture: John Feder

Check the management books on your shelves and you’ll find them filled with pleas for a more collegial culture and an end to hierarchies in workplaces. Listen to academic commentators, consultants and change agents and hear how flat organisational structures and distributed leadership styles are the holy grail for modern corporations. For decades, Western business has been about dumping the authoritarian, rigid, “masculine” structures and cultures and privileging inclusion and equality and trust in our workforces.

A shock, then, to read the report this week into the problems of Big Four professional services firm PwC, and discover that collegiality and a lack of hierarchy were significant factors in the highly unethical conduct surrounding its tax advice.

The Switkowski report does not blame poor governance and culture entirely for PwC’s bad behaviour – the profit motive is right up there in the analysis – but it argues strongly that the firm’s partnership model created an environment in which some partners found it easy not to question questionable practices.

Here’s one statement: “Historically at PwC Australia, partners have built and relied upon a high degree of trust in each other, with a preference for maintaining harmony.

“In practice there is not a lot of constructive dissent, with relationships and loyalty being key to career progression. In recent years, the emphasis on growth coupled with high levels of trust and reluctance to challenge created blind spots. It may also have contributed to a willingness of partners to tolerate poor behaviours of ‘rainmakers’. Against this backdrop, the overplaying of collegiality creates risk.”

We didn’t need a 77-page report by Ziggy Switkowski to tell us that making money is a great motivator, but who knew that he would deliver such a nuanced appraisal of the pluses and minuses of the partnership model embraced by professional services, accounting and legal firms? Or in the process, almost inadvertently, offer an opportunity to reflect on the advantages of the hierarchy and clear lines of power, accountability and responsibility in corporations?

And while we’ve always known the partnership is a very different beast from a publicly listed corporation or a public service department or a not-for-profit, it is still startling to see how too much collegiality and too much trust among those at the top can be dangerous.

That’s because hierarchy allows for clear reporting lines – and perhaps even more importantly, a real sense of the “right to question” those above and below. In contrast, “within a partnership, in a sense, every partner is equally in charge”, the report says.

PwC was not blind to some of its cultural problems which had been identified by earlier internal reviews but its sprawling nature made it hard to change, with Switkowski noting the complexity and fragmentation of an operation with a “plethora of forums, committees and working groups, as well as matrix-like notional reporting lines between partners”.

Switkowski did not “specifically interrogate” the partnership as an organisational model but he notes that: “A partnership of the scale of PwC Australia risks being unwieldy unless it ensures accountabilities, especially for non-financial outcomes, are clear. ASX-listed company best practice serves as a good guide …”

PwC – which has been kicked around in public for months now – has already agreed to take the ASX road, committing to a better board structure and an overhaul of governance, including a non-executive chair and at least three non-executive board members. It will also release audited financial statements commencing from September 2025 – a measure which will vastly improve transparency and meet a growing public demand for more openness from all the Big Four and similar firms. PwC has also announced a new CEO and leadership team and changed the way partners are paid, to emphasise non-financial measures.

The latter move addresses another issue noted in the report: the focus on revenue and growth and a “whatever it takes” culture.

Switkowski writes: “PwC Australia partners and staff are high achievers. This tends to be associated with a lack of comfort in accepting the fallibility of humans, and a reluctance to reflect on what is not working well.”

This statement could apply to individuals in any company or organisation but when high achievement becomes the main driver, it can lead, as the report notes, to a culture where “good news gets communicated and bad news gets held back”. The review found that at PwC there was “a general hesitancy to delve into uncomfortable conversations, to learn from mistakes and to be prepared to hold others to account”.

Then there’s the matter of trust, regarded as so crucial to modern management.

Trust, we are told, is the two-way street which we are entreated to walk together, with employees and employers both trusted by, and trusting of, each other.

A trusting workplace is positioned in management literature as a desirable goal. Of course, there’s recognition that trust in employers has taken a battering thanks to redundancies and increased casualisation of the workforce. Arguably, some of the excesses of the #MeToo era, of the greater attention to bullying and harassment, have left managers in turn less certain of the reactions and demands of some of their employees. Even so, the importance of trust in equal and unequal power relationships is not questioned.

At PwC, however, it proved to be a problem, according to Switkowski.

Partners appeared to revel in trusting each other in a collegial atmosphere – the CEO was seen as not accountable to the board and as the person who alone “runs the show”.

“The overly collegial culture at PwC Australia has tended to amplify the power of the CEO,” the report says, while the culture of “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 things by overlooking or minimising the significance of questionable behaviours.”

The report notes: “Trust cannot be a substitute for good governance, clear and robust structures and processes, or a preparedness to have uncomfortable conversations when required. Taken together, the key shortcomings may help explain why the firm has been slow to act in its rapidly escalating crisis of trust, why poor behaviours were overlooked or tolerated (and for so long), and why interactions with certain regulatory bodies in connection with the ‘TPB (Tax Practitioners Board) matters’ appear in hindsight to have been overly legalistic and lacking in transparency … PwC Australia has, at important times, been too slow to respond to mistakes and, as a result, found itself at the mercy of the public narrative on trust.”

Partnerships have traditionally worked for the professional services firms in terms of delivering jobs and profits, and the report is careful to note that PwC’s governance flaws are not necessarily attributable to the organisational model but rather to the lack of “independent, external voices” able to challenge and offer oversight.

The report is an unusually frank look at an organisation’s culture, the sort of case study that rarely emerges when consultants (like PwC) are called in to give a company the once-over.

The future of the partnership model in professional services is clearly now wide open to debate here and overseas.

It’s a historic model that now sits in a different business and social context. Time will tell whether it survives.