PwC Australia says lack of board oversight enabled tax scandal

SYDNEY – PwC Australia said its risk controls were inadequate and its board did not challenge the firm’s leadership enough, following a months-long independent inquiry into malpractice.

The embattled Australian arm of the accounting and advisory services provider laid out changes it will make after the review, led by former business executive Ziggy Switkowski, into the leaking of tax documents that has hammered revenue and the company’s reputation.

This will include adopting governance recommendations that apply to publicly traded companies and putting more independent directors on its board, according to its statement on Wednesday.

The saga prompted a police investigation, a slew of partners to exit and an overhaul of tax adviser misconduct legislation as businesses cut ties with the embroiled firm.

It also led PwC Australia to install new management, separate the company and sell off its government services arm. 

“From the top down, we are committed to rebuilding and re-earning the trust of our stakeholders – our clients, people, regulators, the government and communities,” PwC Australia chief executive Kevin Burrowes and PwC Australia chair Justin Carroll said in their response. “This is our promise.”

PwC Australia has said it will appoint at least three independent non-executives to its governance board, including a non-executive chair.

Governance principles and recommendations for publicly traded Australian companies will also be applied to PwC Australia to the extent that is feasible, according to the statement. 

Dr Switkowski published his findings after revelations surfaced earlier in 2023 that a former PwC senior partner obtained confidential tax information while advising the Australian government, which the firm then used to market to global clients navigating upcoming changes to tax laws.

“There was a hesitance in our culture to challenge decisions and actions of leaders, hold people to account and reflect on what was not working well,” according to the statement. “We have a highly collegial culture but a ‘shadow side’ of this cultural trait is that, within our firm, there can be overconfidence in decision-making, a reluctance to share bad news and a preference for harmony over having uncomfortable conversations.”

Other findings showed the PwC board did not have sufficient independence, the appropriate structure or mandate to provide the level of oversight and challenge to leadership that was required. Risk practices and systems at the enterprise level were immature – lacking the stature, capability and rigour required.

A number of the changes proposed will require the firm’s partnership agreement to be changed, the statement noted, saying the company will work with partners to agree how those changes will be made. BLOOMBERG