PwC tolerated poor behaviour, gave CEO too much power, review finds

PwC Australia oversaw a culture that tolerated the poor behaviour of partners if they were making the firm a lot of money, fostered a “whatever it takes” approach and created a chief executive officer role that was unaccountable to the board, a new report has found.

A PwC-commissioned review by prominent independent company director Ziggy Switkowski has provided a damning assessment of the firm, which has found itself in the grip of scandal since it emerged that one of its partners had been found by the Tax Practitioners Board to have shared confidential government information with other partners and clients.

PwC said in a detailed response to the report that it accepted the 23 recommendations and the firm had already begun work on improving its businessCredit: Louie Douvis

The Australian Federal Police is investigating PwC’s conduct and several senior partners have left the group. PwC has also been the subject of a report by a parliamentary inquiry into the consultancy sector, which was highly critical of the firm’s revenue-focused culture.

As well as delivering a stiff assessment of the firm’s culture and governance failings, the Switkowski review made 23 recommendations aimed at improving the firm’s governance, culture and systems for managing risk and people. This includes appointing independent board members who can challenge executives, improving the remuneration process, and giving the board the power to remove the CEO, lifting regulatory engagement.

PwC said in a detailed response to the report that it accepted the 23 recommendations and the firm had already begun work on improving its business, including bringing in new independent directors, improving oversight and transparency of siloed units within the business, and giving the board more power over the actions of the CEO and senior staff.

Labor senator Deborah O’Neill, who chairs the committee overseeing the parliamentary inquiry, said the Switkowski report “merely scratched the surface” of the firm’s cultural and regulatory issues, and criticised the report as not independent, as it was paid for and overseen by PwC.

“The release of Mr Switkowski’s report and its recommendations do not mark the finalisation of this matter. PwC, and the entirety of the audit, assurance and consulting sector, should expect continued scrutiny of their governance and culture and potential reform of their regulatory oversight,” she said.

Greens senator Barbara Pocock said PwC “represents a case study in untrammelled greed let loose in a boys’ club with proof falling at the first hurdle”.

Asked whether she believed PwC would genuinely reform, Pocock added: “I think there are people in PwC who think that the caravan will just move on, the media will lose interest, the Australian people will lose interest and everything will return to normal in a different way.

“Certainly, that is not going to happen.”

Ziggy Switkowski has led the review into PwC.Credit: Paul Jones

A key issue Switkowski found was the firm’s overly collegiate culture, which focused on fostering relationships between long-serving partners and promoted a good news culture that stifled any form of criticism or reflection of the firm’s mistakes, or the risks it was taking.

The review found this culture bled through the firm up to board level. According to Switkowski, PwC’s board was ill-equipped to handle their roles, being appointed from a partnership base that was overly differential to a “collegial” culture where some board members viewed themselves as junior in status to partners in senior leadership roles or the CEO.

“In practice, there is not a lot of constructive dissent, with relationships and loyalty being key to career progression,” the review said.

“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’ [those who generate income].”

Switkowski found the CEO position was not perceived within the firm as being accountable to the board – unlike CEOs in other companies.

“Culturally, the generally accepted view is that the CEO ‘runs the show’. During a long period of commercial success, this has translated to a reluctance of partners to challenge the CEO, even at senior leadership levels,” the report said.

“It has also led to heightened (potentially even misplaced) trust in the CEO.

“A powerful CEO can also contribute to ‘fluid’ management practices and to decisions being made ‘out of the room’ or overridden. The overly collegial culture at PwC Australia has tended to amplify the power of the CEO.”

Switkowski said in his report that against this backdrop, the overplaying of collegiality creates risk.

“PwC Australia exhibits a ‘good news’ culture at the enterprise level where ‘good news gets communicated and bad news gets held back’.

“The review found there is a general hesitancy to delve into uncomfortable conversations, to learn from mistakes and to be prepared to hold others to account.

PwC said in a statement that it had developed a comprehensive management response and action plan to serve as its road map for re-earning community and stakeholder trust.

“The action plan is built around five commitments for change, including enhancing the independence and effectiveness of our governance board, embedding a culture and practice of constructive challenge, improving discipline and rigour of decision-making, strengthening risk and incident management accountabilities, and putting our values at the core of everything we do,” the firm said in a statement.

PwC Australia chief executive Kevin Burrowes, who was brought in from the firm’s Singapore office after the tax leak was revealed earlier this year, said in an open letter that the firm would change.

“We are deeply sorry for that behaviour and the culture that allowed it to go unchecked for many years. What is clear is that under past leadership, the TPB [Tax Practitioners Board] matter was never adequately investigated by PwC Australia. We have now done what should have occurred from the beginning.”

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