Pricewaterhouse Coopers (PWC): a perfect storm. Dr Andrea Howell and Mike Bengough There's an unwritten rule in crisis management: if you're going to lie, don't get caught. PWC broke the rule (Patrick, 2023). PWC Australia. It's the scandal that keeps on giving (Birch, 2023) Introduction, background and context The professional services industry in Australia (by revenue) was $272.6bn in 2022, with the market growing on average 4% between 2017-2022 (IBISWorld, 2023). The Big Four global rivals - (Ernst Young (EY), Deloitte, KPMG and Pricewaterhouse Coopers (PWC) thereinafter referred to as the "Firms') - are networked firms owned and managed independently, which means they have entered into agreements with the other member firms in their respective networks to share a common name, brand, intellectual property, and quality standards. Each network has established a global entity to co- ordinate the activities of the network (Smith, 2008; Wikipedia, 2023). Historically, the 'Firms' were once labelled the Big 8, however a series of global mergers over the years redefined the industry resulting in high levels of concentration, which has concerned several governments and industry regulators (USA, UK, Australia). The main point of contention is the 'multi- disciplinary' model adopted by the 'Firms' which brings together auditing, management consulting and tax advice under one roof thereby largely avoiding scrutiny in managing conflict of interest issues. In 2022, Connelly reported that EY considered splitting its audit and advisory functions in a "bold attempt" to escape possible conflicts of interest that have disrupted the industry for years. This stemmed from the Big Four's "perceived lack of independence in their auditing of company accounts because of the fees they also generate from consulting, tax and deal advisory work" (Connelly, 2022). Recent audit scandals have disrupted the industry; the Economist (2023) reported EY was censured in Germany in for its failure to spot fraudulent accounting practices at Wirecard, a German fintech organisation that collapsed in 2020. Deloitte and KPMG have both run into trouble in Britain over questionable audit activities. O'Dwyer (2022) reported PWC preferred the multidisciplinary model as it "improved PWC's chances of retaining consultants in the event of a recession by offering them opportunities in the audit business whose revenues are more resistant to downturns". Despite repeated sanctions, the Big 4 continue to breach quality and ethical standards; in 2016 Australian taxation expert George Rozvany (West, 2016; Connett, 2016) stated the Big Four are "the masterminds of multinational tax avoidance and the architects of tax schemes which cost governments and their taxpayers an estimated US$1 trillion a year". And Deloitte's CEO admitted recently that the 'consulting sector operates without clear oversight and misconduct reporting rules' (Tadros, 2023, July 17).The PWC incident... Things came to a head in January 2023, when the Australian Financial Review first reported that the former head of international tax for PWC Australia, Peter-John Collins had been deregistered by the tax practitioners board for failing to act with integrity and for sharing confidential government briefings (Patrick, 2023; Karp, 2023). In essence, Peter Collins worked with the Australian Treasury and government officials between 2013-2015 advising and developing laws to prevent tax avoidance by multinational companies - Multinational Anti-Avoidance Law (MAAL). At the same time, Collins "made unauthorised disclosures" to partners and staff at PWC of confidential information, obtained in consultations, about new rules to stop multinationals avoiding tax by shifting profits from Australia to tax and secrecy havens (Economist, 2023). The idea was to offer clients this information for money. Figure 2: PWC Values PWC Australia announces further actions to enhance the firm's governance, accountability and culture and rebuild trust with stakeholders "It is now clear that when we learned of the confidentiality breach and related Act with integrity Make a difference issues, we failed to conduct an appropriate root cause investigation and thorough assessment of accountability for both the conduct at issue and the culture that allowed the underlying conduct to occur. That was the result of a failure of leadership and governance". Kristen Stubbins, Acting CEO PWC Australia. Care Work together Reimagine the possible Our values Incredibly, Treasury signed three confidentiality agreements with PWC (and Collins) before the Australian Tax Office, suspicious of the speed with which [NB according to an Australian parliamentary multinationals adapted to the new laws, raised Report (Parliament of Australia, 2019) the matter in 2018 with the Australian Federal regulatory capture is 'where regulators and Police (AFP), and in 2020 with the Tax their employees potentially align their values Practitioners Board (TPB), an 'obscure and actions with that of the industry they are regulatory body' (The Economist, 2023; regulating - rather than with the values and Holden, 2023). legislated purpose of the regulator']. However, the ATO where not fully transparent in their dealings either leading Holden (2023) to question the lack of regulation in the consulting industry.For example, the ATO became suspicious late 2016, seeking copies of the 'Firms' correspondence with clients regarding MAAL; PWC refused to comply citing legal professional privilege so the ATO requested copies of internal emails in 2017. The ATO did not advise Treasury of their suspicions, claiming 'secrecy laws' and that 'as a confidentiality breach was not a tax offence, it could not investigate the matter further'. The AFP claim they never received sufficient information to progress an investigation during 2018-2019. Finally, the ATO referred the confidentiality breach to the TPB in 2020, but did not explain the broader issues impacting PWC. TPB did make progress with their 2021 investigation (despite the ATO refusing to co- operate) and announced their findings in January 2023. And compounding all of this, it appears PWC's own processes and systems were ineffectual both in its initial response to the revelation in 2016, and in dealing with the crisis in 2023 (Ross, 2023). The suggestion of impropriety was first raised in 2016 (Table 1). Table 1: Timeline of events Timeline of events relevant to the committee's inquiry into the PWC matter Date Event 9 March 2023 Senate refers inquiry into the management and assurance of 11 December 2013 Peter Collins signs first confidentiality agreement with integrity by consulting services to the Senate Finance and Treasury. Public Administration References Committee, 10 April 2015 Peter Collins and Tom Seymour appear at a public hearing 2 May 2023 Redacted internal PwC emails tabled by TPB as answers to for the Senate Economics References Committee inquiry into questions on notice to Senate Economics Legislation corporate tax avoidance and aggres 15 April 2016 cond confidentiality agreement with ate Finance and Public Administration References Treasury. Committee holds its first public hearing for the consulting 1 January 2016 Commencement of the Multinational Anti-Avoidance Law services inqui (MAALL 8 May 20123 eymour steps down as CEO of PwC Australia April 2016 Australian Taxation Office (ATO) becomes aware of 16 May 2013 PwC announces review by Ziggy Switkowski AQ. Budget Estimates 2023-24 hearings - Senate Finance and companies avoiding the MAAL 22-26 May 2023 19 February 2018 Public Administration Legislation Committee. Peter Collins signs third confidentiality agreement with 24 May 2023 Treasury refers the Peter Collins/PwC matter to the AFP for Treasury. March 2018 ATO receives advice from its General Counsel in relation to 29 May 2023 pen letter from PwC Australia Acting Chief Executive with whom the ATO could share information. ATO shares information with the Australian Federal Police "C announces it has stood down nine unnamed partners (AFP). 30 May-2 June dget Estimates 2023-24 hearings - Senate Economics Approx. March AFP and ATO consider there is not sufficient evidence to pursue a form 2023 egislation Committee 2019 vestigation. 2 June 2023 PWC provides answers to questions on notice to Senate 2 July 2020 ATO refers Peter Collins to the Tax Practitioners Board nance and Public Administration References committe requesting the committee publish only the redacted version 11 January 2021 TPB commenced its investigation into Peter Collins. 5 June 20123 wC names four partners Collins, McNab, Bursten and Fuller 8 March 2021 TPB commenced its investigation into PWC. who were all involved in the PwC matter and have all since left PWC. 25 November IPB notified ATO of decision NO of decision re Put 7 June 2023 Senate Finance and Public Administration References 16 December 2022 |TPB notified ATO of decision re Peter Collins. 23 December 2022 7 mmittee holds its second public hearing for the consulting ed its Public Register with findings and sanction services inquiry. "C and Peter Collins. 19 January 2023 TPB updated its Public Register with reasons for decisions on PWC and Peter Collins. 13, 14, 17 February S ementary Budget Estimates 2022-23 hearings - Senate ance and Public Administration Legislation Committee. 15-16 February Supplementary Budget Estimates 2022-23 hearings - Senate Economics Legislation Committee. 1 March 2023 PwC's decade-long, ongoing, tax leaks affair, Source: Australian Senate Source: https://theklaxon.com.au/ztem-35/ When the breach was first revealed, Australian Federal Treasurer Jim Chalmers said he was "absolutely furious and absolutely ropeable about the revelations" (Karp, 2023; Belot, 2023a). "There is no consultation without trust," he told reporters in Canberra. "We want to be able to consult in a meaningful way when changes to the tax system are in prospect. And the actions that we've seen alleged and reported cut across that ... this puts that sort of consultation at risk. And Anthony Albanese, Australia's prime minister, called it "completely unacceptable".Issues PWC failed to properly manage conflicts of interest. When publicised in November and then again in January, PWC employed a number of 'evasive' tactics to hide or downplay the seriousness of the breach (Patrick, 2023). PWC was once again putting "profit ahead of truth-telling". "It indicates that, yet again, PWC is putting its reputation and profit ahead of truth-telling," said Labor senator Deborah O'Neill. The integrity of consultative practices between the Government and its professional service providers generally has been called into question. Relations with PWC specifically are clouded by "ethical considerations" as to whether PWC would win future contracts from the Commonwealth (Ross, 2023). Industry regulators such as the Tax Practitioners Board may need greater powers to sanction/punish firms that ignore their legal obligations to report breaches of fitness and propriety by any partners under the Tax Agents Services Act (Chenoweth & Tadros, 2023). Fallout Immediate fallout PWC Australia chief executive Tom Seymour stepped down on May 8 after pressure from the firm's global leadership, according to various sources (Ross, 2023; Belot, 2023a; Economist, 2023), but the firm maintains he made the decision after coming to an agreement with the Australian board. Seymour and seven others (including the former chief risk officer) were ousted from PWC, with an internal investigation finding, "The investigation identified a failure of leadership and governance to adequately address the matters, either at the time or whilst the matters were under investigation by the Tax Practitioners Board or Australian Taxation Office. This enabled poor behaviours to persist with no accountability." (Ziffer, 2023). Another 69 current and former partners have been linked to the scandal (Birch, 2023). Senior PWC global executives flew into Sydney last weekend, showing that the issue has become an international concern for the consulting giant, which centred a 2021 rebrand known as "The New Equation" around "building trust across the value chain". A scathing Senate report into the firm's handling of the tax leaks scandal, tabled on Wednesday evening concluded PWC engaged in a deliberate multi-year strategy to cover up the breach of confidentiality in the tax leaks scandal, as company personnel worked to monetise the information (Tadros, 2023). New CEO Kevin Burrowes will lead an independent review of its culture and governance practices. Global PWC Chair Bob Mortiz said the priority for Burrowes is to "enhance the firm's culture with a focus on ethics and controls". Burrowes will work with the firm's new Chief Risk and Ethics leader, Tony O'Malley and the wider management team to implement the recommendations of Dr Ziggy Switkowski's independent review of PWC Australia, set to be published in September.Price Waterhouse Coopers (PWC) case study questions - Each question is worth a total of 10 marks and you must provide answers to all 4 (four) questions. A guide as to the appropriate word length is also provided. Question 1(a). Using information from the case, select who you believe to be the six (6) most important stakeholders impacted by the PWC scandal and explain why they have been selected. (3 marks - 150 words) Please type your response below Question 1(b). Using the stakeholder grid, place each of the six (6) stakeholders you selected in Question 1(a) in the most appropriate quadrant and provide a clear justification for each placement. [Remember that the grid axes are power/influence and interest]. Explain how you would manage each of these stakeholders? Is there a stakeholder who could be moved to another position on the grid to ensure optimal execution of any future change program and how would you achieve this? (7 marks - 350 words). Please type your response below Question 2(a). Given the magnitude of the scandal outlined in the case, PWC is likely to undergo significant change in the next 12 months. Whilst this change has not yet been determined, it is logical to assume that such change will be met with some degree of resistance. Clearly explain what form(s) you think this resistance may take, using information from the case to support your opinion. (4 marks - 200 words) Please type your response belowQuestion 2(b) Noting the resistance you have identified in Question 1(b), select three (3) techniques (covered in the unit) that you could implement to significantly minimise this resistance? You must provide a justification for each technique and explain how each one would be applied. (6 marks 300 words) Please type your response below Question 3 Explain each of the four change intervention categories covered in the unit. For each category, identify and describe a specic targeted intervention that you believe is required within PwC. You must also specify and explain the level of the change target. Which of these interventions do you believe would deliver the most benefit for PwC? (10 marks 500 words) Please type your response below Question 4. You are the managing director of PwC and must now navigate the way forward. This will require exceptional communication skills. Select four (4) of the "8C's of effective communication\" covered in the unit to create and convey your message. For each of the four options selected, provide your rationale and ensure you clearly explain aspects such as directionality and channel. (10 marks - 500 words) Please type your response below