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At least 10 partners have left the firm since May when news broke that its tax advisers had been advising the government on new tax laws and then using the information to tip off corporate clients about upcoming changes.
It’s unclear how many law partners remain at PwC in Australia. The firm has refused to provide a number. But the firm’s website names far fewer than the 60 partners it was aiming to have on board when it started building up its legal arm to compete with top corporate law firms in 2016.
The tax advice scandal has only compounded the problem.
“It certainly detracted from the broader sentiment and morale of the place, and it’s probably just been one more reason why people do not want to be there at the moment,” said a former partner within the legal practice who added that PwC is likely finding it difficult to attract new lawyers.
Law.com International interviewed several partners who have left the firm. They agreed to speak only under the condition that they not be named.
The lawyer who said the scandal has affected morale expects the legal practice will continue to shrink and end up where it was before 2015, with a few specialist lawyers in areas that closely align with the accounting practice, such as tax lawyers, and with no attempt to provide the kind of broad-based multidisciplinary legal offering it claimed would attract clients.
Another former PwC lawyer said the legal arm is already smaller and less multidisciplinary, with PwC lawyers now sitting with different teams rather than in a broad legal practice. “They’re not seriously playing in the market anymore. You can safely say the experiment’s failed,” the lawyer said.
Big Aims
That experiment began around 2016 when PwC made a splash with the hire of King & Wood Mallesons Australian managing partner Tony O’Malley.
It also made some big-name hires, including former Clifford Chance Sydney managing partner Mark Pistilli, Danny Simmons, who had also been at Clifford Chance, and O’Malley’s predecessor as KWM managing partner, Tim Blue. In addition, it took partners from Australian top-tier corporate firms Gilbert + Tobin and Clayton Utz, and from international firms Ashurst and Baker McKenzie.
Pistilli, Simmons and Blue had left before the tax scandal, and O’Malley left in its wake.
When PwC began marketing and promoting its legal arm, it used the name “PwC Legal.” But it wouldn’t say whether it still uses that name. It no longer appears on its website.
In a statement, PwC told Law.com International that it hasn’t retreated from its legal strategy. Instead, it has reorganized its legal function within the business.
“Our legal business in Australia has become part of our Tax & Legal Services business, mirroring the PwC network’s global strategy,” the statement said. “We continue to provide legal services across a range of practice areas, including corporate M&A, workplace, energy transition, finance, infrastructure, construction, digital and cyber, regulatory, and NewLaw.”
The legal practice is providing “a seamless integrated solution to complex problems for the benefit of our clients,” the statement said.
The change is notable. PwC strongly promoted its legal arm and used it as a big selling point.
But while the idea of offering legal, strategic, transactional and financial services in one package might have sounded good in theory, it wasn’t so successful in practice at PwC—or arguably at any of the other accounting firms.
This shouldn’t have come as a surprise. A potential corporate client’s chief financial officer is the person who signs off on which firm will provide tax advice, while the general counsel signs off on the external legal adviser.
“Different buyers control their own advisers and they’re not easily persuaded to package it all up in one place,” one former PwC lawyer said.
Additionally, there was some resistance from inside PwC. The lawyer said the firm’s internal investment bankers didn’t like working alongside the firm’s lawyers because clients didn’t like having legal and banking advice from the same firm.
One of the drivers behind the combined legal and accounting model was that the firm would pick up more business through cross-referrals. But lawyers said there was no strong push from the leadership to make this happen, so cross-referrals were sporadic and due more to individual relationships, they said.
The Scandal
PwC Australia was plunged into crisis earlier this year following revelations it misused information it gained about tax law changes while advising the Australian government on how to tax multinationals more effectively. The firm has admitted that some of its tax partners shared the information with global tech companies to allow them to get a head start on the changes to tax laws and used the information to market to tech-sector clients.
The scandal cost several PwC partners from the tax practice their jobs. It also led to the departure of several lawyers, although there has been no suggestion that they were involved in the misuse of the confidential information.
PwC has since spun out its government practice into a new firm, called Scyne, to avoid any conflict of interest in government work. However, the legal practice remains with the firm.
In the wake of the scandal, O’Malley, who was still chief legal officer for Australia but had also been named the firm’s global legal head in 2019, was asked to take on the added role of chief risk and ethics officer. He had previously announced he would retire within the next financial year, but despite having just taken on the new role, he suddenly moved up his retirement and was gone by August. Frederic Khanian, a partner at PwC’s legal arm in Germany and a former attorney with Freshfields Bruckhaus Deringer, became the firm’s global legal head in July, in a management change pushed through with little fanfare.
PwC Australia was also quiet about the July 1 appointment of Sally Woodward, an employment partner at Norton Rose Fulbright until 2020, to lead the Australian business. The firm said it announced the appointment internally and to “various stakeholders,” but it made no media or public announcement.
Woodward declined to be interviewed for this report.
It also appointed Kylie Grey, who had been litigation, regulatory investigations, and financial crime general counsel at Westpac Bank, as general counsel for PwC Australia.
Several large Australian corporates announced that they would no longer engage PwC’s accountants and auditors following the tax scandal, and one former PwC lawyer said the stench was also affecting clients’ willingness to engage the legal arm.
According to another former PwC partner, some political and business figures were reluctant to associate with them because of concerns about the tax controversy and a lack of clarity from PwC about who was involved.
Many in Australia’s legal industry fully expect that more lawyers will leave PwC. The leader of an Australian corporate law firm said they had received several resumes from PwC lawyers.
“Individual partners make assessments of whether they’re better served by staying at PwC or by taking their practice somewhere else where it might be easier to pick up work in the current environment,” a former PwC lawyer said.
The tax problem, however, has made job hunting more difficult for all but a select number of senior lawyers with good reputations, the former PwC lawyer said. Other lawyers said the firm would struggle to bring in partners to replenish its ranks.
PwC did not respond to questions about whether it plans to replace the lawyers who left.
Commitment Questioned
The problems for legal may also have started before the tax scandal.
Back in 2016 and 2017, when the firm still had ambitions to become a top 20 global legal business, PwC had little trouble attracting top talent. Partners were “knocking on the door, wanting to get in,” one former PwC partner said.
Then in 2020, in the wake of the COVID-19 pandemic, PwC introduced a firmwide hiring freeze. The established accounting and tax practices fared alright, but the legal practice hadn’t hired enough associates and junior lawyers to support the 30 or so partners it had brought on board. “You were doing the kind of work that associates should be doing and no one was out promoting the brand,” said one partner who was there at the time.
Many high-profile partners started leaving.
It became apparent to many PwC lawyers that the legal expansion strategy had failed to have the impact PwC had hoped for, and the firm started to cut back on investment in its legal arm, said a lawyer who worked at the firm at the time.
He added: “The overarching feeling from people on the legal team was that there was a lack of commitment from the leadership.”
