Ziggy Switkowski's independent review of PwC released in response to tax leak scandal

PwC Australia in May appointed former Telstra chief executive officer Dr Ziggy Switkowski to lead an independent review of the firm's governance, accountability and culture, in response to issues raised by the Tax Practitioner's Board.

The regulator in January banned former head of international tax Peter-John Collins from practicing as a tax agent for two years, alleging Mr Collins had shared information from a confidential Treasury consultation.

Dr Switkowski's review revealed seven key shortcomings within the firm, including an aggressive growth agenda that drove a "whatever it takes" attitude, and a hesitancy to discuss "bad news".

Though it was not focused on the cause of "the now infamous breach of confidentiality", the report notes observations and findings relating to current shortcoming may have contributed to what occurred.

The 23 recommendations made for reform in the report are therefore "actions that may mitigate the risk of such failures occurring in the future".

Shortcomings included a lack of independence, excessive power conferred on the chief executive officer, a disproportionate focus on revenue growth, a decentralised business model without sufficient visibility of the enterprise view, inefficient structures and processes, unclear responsibilities and accountabilities and an overly collegial culture.

The review uncovered a culture in which the chief executive officer "runs the show", and holds "relatively unchecked authority".

"The CEO has a strong mandate, being elected following a presidential-style campaign and, other than maintaining popularity, has relatively unchecked authority," it found.

Dr Switkowski found the composition of the board of partners "inhibits its effectiveness as an oversight body", given that as partners, they structurally report to the chief executive officer. In addition, a mechanism to allow external members to be appointed had been unused.

The review formed the view that "members of the board of partners are likely to perceive themselves as having insufficient seniority to challenge the CEO and their leadership team, and that in recent years this may have led to sub-optimal management of important issues".

In addition, an aggressive focus on growth created a culture of "whatever it takes", which seems at times to have contributed to integrity failures.

READ MORE:

Dr Switkowski's review also zeroed in on complex structures obscuring the reality inside the firm: "PwC Australia's glossy PowerPoint presentations sometimes give a false impression of comprehensive and disciplined structures and processes when the reality is much less tidy."

Meanwhile, a "plethora of forums, committees and working groups" has created a sense from partners that "matters are in hand", but unclear accountabilities have created gaps rather than overlaps.

Finally, the review identified a hesitancy to discuss uncomfortable topics, learn from mistakes and hold people to account.

"PwC Australia exhibits a 'good news' culture" at the enterprise-level where "good news gets communicated and bad news gets held back."

Dr Switkowksi found the firm was now in the "unenviable position of navigating the brutal unravelling" of trust placed in it by governments, regulators, clients and the wider community.

The review began on May 23 and involved interviews with current and former staff, analysis of documentation provided by the firm and a series of focus groups across the firm's offices.

Its 23 recommendations focused on the board of partners, senior leadership, managing risk and issues, culture and accountability.

Key recommendations included restructuring the board of partners to include at least three independent non-executive members in addition to an independent non-executive chair, as well as revising the process to appoint chief executive officers. The board should also have "express authority" to appoint and remove the chief executive officer.

Risk management capability should be substantially improved, the review found, through recruiting skilled staff and training, and simplifying partners' risk responsibilities.

The firm has agreed to implement the recommendations and set out timelines for their completion. It has also announced it will apply the Australian Securities Exchange corporate governance principles and recommendations "to the extent it is feasible".

In response to the findings, PwC Australia's chief executive officer Kevin Burrowes published an open letter in which he said the firm was deeply sorry for what had occurred.

He said PwC had prided itself on its contribution to the the Australian business sector, "yet, in January this year, the outcome of a Tax Practitioner's Board investigation threw that into question.

"It revealed behaviour we are not proud of - behaviour which does not meet our values and expectations, and behaviour that betrayed the trust of our stakeholders," he said.

"We are deeply sorry for that behaviour and the culture that allowed it to go unchecked for many years."

The firm has published the review and response in addition to a statement of facts that outlines instances between 2013 and 2017 when certain individuals in PwC Australia's tax practice misused confidential information or engaged in conduct that was at odds with PwC's values and policies.

"PwC Australia accepts full responsibility and is deeply sorry for the misconduct that occurred and notes that significant repairs have been made and will continue to be made," Mr Burrowes said in a statement.

But Labor senator Deborah O'Neill, a member of the Senate committee inquiring into the government's use of consulting services criticised the indepenence of the review and called recommendations modest in comparison to its misconduct.

"The report commissioned by PwC and led by Ziggy Switkowski is not an independent review," Senator O'Neill said in a statement.

"This is a report which was paid for and overseen by PwC.

"The firm's choice of Mr Switkowski, a business leader, as opposed to an ethicist, speaks to the nature and purpose of the report which PwC sought to commission and which they have produced."

Senator O'Neill said changes proposed in the report "are modest in comparison to the misconduct in which PwC engaged".

"Whilst these structural and governance adjustments may have some positive impact, I remain unconvinced that these challenges meaningfully reform the structure or culture within PwC which led to Mr Collins' misconduct and the subsequent inaction in addressing this matter by PwC."

We've made it a whole lot easier for you to have your say. Our new comment platform requires only one log-in to access articles and to join the discussion on The Canberra Times website. Find out how to register so you can enjoy civil, friendly and engaging discussions. See our moderation policy here.