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New revelations about legal letter sent to PwC in wake of tax scandal
Embattled big four consulting PwC appears to have a fresh controversy brewing just a week after hundreds of jobs were slashed.
"We never trade on or inappropriately disclose inside information."
[Living our Purpose and Values. PwC’s Code of Conduct, (April, 2021), at p 18.]
PwC global’s secret path to control in Australia - Edmund Tadros
PwC International used secretive network rules to put PwC Australia under its control after ruling the tax leaks scandal was causing “ongoing reputational and global brand damage” to the big four professional services firm.
The global network sent a legal letter to PwC Australia last June stating it was a “defaulting firm” under its regulations and ordered the local branch “take all necessary steps” to appoint global partner Kevin Burrowes as interim chief executive, The Australian Financial Review can reveal.
PwC chief executive Kevin Burrowes will stick around until 2026.
Details of the legal agreement between PwC International and its member firms, which include PwC Australia, have never been published.
The revelation that PwC Australia is under the “supervised remediation” of PwC International comes after Mr Burrowes told senators that he runs only the local operation.
It will increase political pressure on PwC to release a report into the overseas partners associated with the tax leaks matter. The global firm is resisting the document’s release in part because it does not want the tax leaks scandal to potentially extend beyond Australia, and trigger scrutiny from US and British regulators.
When asked in February by a Senate committee to provide a copy of the report, Mr Burrowes said he had been unableto obtain the document from PwC International.
“I have formally requested the Linklaters report again from PwC International Limited and that request was refused on the basis that the information contained in that report is privileged and confidential to PwC International Limited,” he said at the time.
PwC International, which has only released a brief summary of the report, disciplined six of the firm’s international operatives for not inquiring about the nature of what turned out to be leaked information. PwC Australia believes local authorities already have the evidence they need to investigate the overseas partners.
‘Entirely appropriate’
Mr Burrowes was appointed chief executive of PwC Australia days after the June letter from PwC International, stepping down from his previous international role as the firm’s global clients and industries leader.
He now reports to PwC Australia’s board of partners and not directly to PwC International, but nine months after the legal letter the local branch remains under the “supervised remediation” of the global firm.
PwC Australia chairman Justin Carroll said it was “entirely appropriate” that the local firm works with PwC International.
“As a member of the PwC global network, it’s entirely appropriate that we work with our global colleagues on our remediation actions and to rebuild trust,” Mr Carroll said.
“As a firm, we are working hard on the necessary steps we need to take to improve our governance, culture and accountabilities to restore trust in our firm on behalf of our people and our partners.”
As CEO of PwC Australia, Mr Burrowes has pushed through unprecedented reforms, including making major changes to how the firm governs itself and selects its management team.
However, there has also been disquiet in parts of the Australia partnership about their loss of control over the firm. When Mr Burrowes decided to stay on in the top job until 2026, local partners were informed about the move instead of being given the opportunity to vote for their CEO as had been the normal practice in the past.
PwC International is the London-based company that runs the PwC brand and sets and polices member firms that operate within its global network. It is led by five regional PwC leaders who have the power to install new leadership in country partnerships that breach its rules.
PwC International’s regulations about “defaulting firms” give it sweeping powers to replace leaders at member firms for a broad range of breaches that include violating “any of the network standards, policies, the organisational documents of the company”, or “by act or omission ... likely to cause a breakdown in trust and confidence in the defaulting firm or significant damage to the reputation, goodwill or standing of the PwC network”.
It also states PwC International “may impose whatever remedial action it deems fit upon a defaulting firm”.
Global intervention
The tax leaks matter involved a former partner sharing confidential tax information with PwC personnel who then used it to help clients sidestep tax laws he was helping Treasury develop.
The supervised remediation letter, along with the details of PwC International’s regulations, shed new light on the legal mechanics by which the Australian firm was quickly brought under global supervision when the extent of the tax leaks matter became public last May.
Representatives from PwC flew into Sydney within days of the Financial Review’s reporting on the extent of the tax leaks matter at the start of May. During the next fortnight, PwC Australia CEO Tom Seymour would step down as leader and Kristin Stubbins would be appointed interim CEO.
PwC’s outgoing global chairman, Bob Moritz, visited once during the crisis while global general counsel Diana Weiss has made multiple visits since this time, Ms Stubbins told a parliamentary inquiry earlier this month.
Kristin Stubbins says she was disappointed when she was replaced as CEO of PwC Australia. Alex Ellinghausen
“Mr Moritz was here to meet with key clients, and also our staff and partners, to reassure them around the support that PwC global has shown, and is showing, and Ms Weiss was here to support from the legal front,” Ms Stubbins said.
Members of PwC International’s legal team, and a local external lawyer representing the global organisation, remain stationed in the firm’s Sydney office.
Ms Stubbins, who retired from the firm in January, also said PwC International replaced her because of the international “brand crisis” caused by the tax leaks.
“I received a phone call from the global chair, Bob Moritz, saying that he was going to recommend to the Australian board that Kevin Burrowes be appointed as CEO ... I don’t recall that there was a clear reason,” Ms Stubbins said.
“I think my perception was that Kevin was very well known, very well respected with the international firm and very experienced.”
She added: “I did want to continue. I wanted to own the outcomes of what had happened. And I felt that I could lead the Australian firm … I was very disappointed.”
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Edmund Tadros leads our coverage of the professional services sector. He is based in our Sydney newsroom. Connect with Edmund on Twitter. Email Edmund at edmundtadros@afr.com.au