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PwC Is Getting Rekt in the News

ICYMI, PwC Australia’s (former) CEO Tom Seymour stepped down on Monday which normally would inspire a hearty “who cares” from our primarily US-based audience but the issue surrounding his departure is prompting an attack on the entire professional services industry. Well, for now the attack is mostly laser-focused on PwC but the firm’s well-publicized tax scandal is calling into question the reliability of consultants doing work for the government.

You know it’s bad when our headlines about the situation are chill and The Guardian calls it a “crisis.” And this was Sydney Morning Herald‘s story yesterday:

‘Devoid of an ethical backbone’: PwC scandal raises questions about the firm

Senator Deborah O’Neill – who chairs the Corporations and Financial Services Committee, which last week released a damning 148-page document revealing the scale of the firm’s profiteering from leaking confidential government tax plans to potential clients – said the cultural problems the scandal highlighted raised questions about the global firm’s entire business.

“You cannot provide a level of assurance as required by our financial markets, let alone by the government, if you are operating out of a model that is so clearly devoid of an ethical backbone,” O’Neill said.

Public policy think tank The Australia Institute said Seymour’s resignation as CEO reflects a need for reform across the entire industry, calling into question the relationship between consultants and governments.

Said Bill Browne, Director of the Australia Institute’s Democracy & Accountability Program: “While the resignation of the PwC CEO is welcome it will not fix the ongoing structural issues with the consultancy industry. The government has an over-reliance on consulting firms for core Government work, and consultants’ advice can be used to distort the public debate. What Australia needs is a reinvigorated and properly-funded public service that is prepared to give frank and fearless advice to the government. The public service need the skills and knowledge to do in-house what has been outsourced to expensive and self-interested consultants.”

The Australia Institute’s submission to the parliamentary inquiry into consultancies found that:

  • When consultants are contracted to do work that public servants could do, it stops the public service from developing skills and knowledge in-house.
  • Consultants lead governments to make bad decisions when they produce flawed analysis, tell the government what it wants to hear or bury reports that are unfavorable to the government.

The group said PwC should donate the $2.5 million it took for advice on tax avoidance based on confidential information to charity and recommended to parliament that PwC be banned from receiving government contracts or confidential government information.

Then you have The Guardian. They didn’t run an explosive headline like Sydney Morning Herald but their story did highlight comments at the parliamentary inquiry that suggest consulting firms form “a shadow public service” operating in darkness behind the curtains of government.

Dr Erin Twyford, a senior lecturer at the University of Wollongong who has previously worked for consultancy firm Deloitte, told the inquiry that conflicts of interest were “rife within the engagement of consultants”.

“There is an entrenched relationship between the consulting industry, shareholder-value maximising firms and what I perceive as a hollowed out and risk averse public sector,” Twyford told the inquiry.

“Big consulting firms are secretive partnerships, not companies, and they do not have to disclose where their money is coming from, even though they are the most powerful private institutions in the world.”

Prof Fran Baum, a public health expert at the University of Adelaide’s Stretton Institute, questioned the government’s ability to scrutinise any conflicts of interest given consultancy firms don’t always publicly disclose their clients.

“These consultancy firms are now forming a shadow public service, in effect,” Baum told the inquiry.

“There is now so much work contracted out that it means a whole lot of the work of public servants is on managing those contracts. That’s obviously … detracting from other areas of their work, but also probably pushing their capacity to do so as effectively as they would like.”

And one more:

Andrew Podger, a former Australian public service commissioner and former health department secretary, said consultants may be influenced by commercial motives when giving government advice.

“There is a [risk], when you become reliant on consultants and the consultants also want to continue to get business, that they may tailor their work in order to ensure that they get future business and they won’t necessarily be as independent as you would desirably want,” Podger told the inquiry.

“I think this does occur from time to time.”

Podger went on to say that an over-reliance on consultants had seriously eroded the capability of the public service, suggesting that consulting firms have access to the best talent and essentially put it behind a paywall when the government needs to access it. He was with Australian Public Service from 1968 to 2005 and is currently Honorary Professor of Public Policy at Australian National University.

Labor senator Deborah O’Neill called the PwC tax leak “a betrayal of the ethical and professional standards they should be upholding” and has said she’s concerned other firms may be engaging in the same behavior that PwC is now in the hot seat for but unlike PwC haven’t been caught doing it.

Macquarie University emeritus accounting professor James Guthrie said in a submission to parliament that consultants are “working both sides of the street,” helping to write federal tax legislation then turning around and advising clients on how to get around it. “To fully understand how a consulting firm’s clientele might affect its advice, consultancy contracts should no longer be allowed to operate under a veil of secrecy,” he wrote. “Consulting firms that want to work for governments should be made to disclose things such as any clients they advise that could potentially conflict with the public sector work and the advice provided.”

Wrote columnist Elizabeth Knight:

The six to eight partners who shared the emails have apparently now all gone, but this scandal is far from over.

If those running PwC believe that undertaking some kind of internal investigation into the culture of their organisation will provide them with a get-out-of-jail-free card, they are woefully mistaken.

It is hard to see how the firm is now qualified to undertake such introspection.

Relationships between client and adviser are built on trust – which, once broken, is tremendously difficult to restore. The external push for accountability and payback has picked up a lot of momentum.

It has bled into the broader industry and spurned a larger Senate inquiry into the conflicts of interest between the governments and the big four accounting firms that provide it with expert advice.

Politicians (particularly the Greens) are placing PwC in the middle of their dartboards – and getting plenty of publicity mileage while the demoted Seymour is handing out profuse apologies.

But this is a sideshow.

Expect more salacious headlines to come.