Inside the election of a PwC chief executive
‘Nerds gone wild’: Inside PwC’s last party before it all blew up
It is the days-long party now described as the last hurrah before the storm of the tax leaks matter. Within six months later, the tax leaks scandal would change the firm
Nerds gone wild,” is how one partner remembered it. It was November 2022, and most of PwC’s 950 partners had gathered in Hobart for a lavish three-day conference. The firm was powering along, thanks to a sharp post-COVID rebound in demand, and partners would end up earning an average $930,000 that financial year.
Staying across seven luxury hotels, the partners heard speeches from journalist Stan Grant, sports stars Dylan Alcott and Layne Beachley, and former NSW premier Gladys Berejiklian.
Veterans noted the event was less fancy than past partnership summits held in Singapore and Hong Kong. Part of that was down to then chief executive Tom Seymour’s view that the firm shouldn’t overspend partners’ money.
Tasmania had been the scene for an earlier visit by PwC that had gotten somewhat out of control when a group of deals’ partners were banned from various hotels because of their behaviour. The partners in the group were fined, but others felt they should have been suspended or even kicked out of the firm.
On the final night, after an event at the Museum of Old and New Art, the partners took high-speed ferries back to Hobart city. Many peeled off to a local pub for more celebrations.
Memories are hazy, but several partners recall that someone put in a large order of burgers from McDonald’s. “Someone ordered a shitload of Maccas.”
The burger bill, including the bar tab, is said to have been in the thousands of dollars. It’s not clear who picked it all up – the firm or one of the partners. Later that night, some of that team ended up at The Tasman hotel, drinking until early morning.
Along the way, a couch in the room was damaged by a combination of cigars and red wine.
The conference was designed as the first get-together since COVID-19, and was in Hobart partly to help out the domestic tourism industry. It’s now described by many who attended as the last hurrah before the tax leaks storm. By May, six months later, the scandal had exploded.
In the fifth part of our special series, we reveal why it took five years for the tax leaks saga to be uncovered; how a little-known agency succeeded where the mighty Tax Office had struggled; why the firm fumbled its initial response; and how the saga ever became public.
If there was one man instrumental in unleashing the public scandal about to hit PwC, it was Michael O’Neill. A soft-spoken bureaucrat, the chief executive of the Tax Practitioners Board, which regulates Australia’s tax agents, is a veteran of complicated investigations, including the legendary Project Wickenby. That long-running operation raised $2.29 billion in tax liabilities during a decade of chasing the offshore accounts of wealthy Australians.
Former tax commissioner Chris Jordan is said to have specifically installed O’Neill as the head of the board, to be a pit bull in a junior agency that was at the time seen as something of a “Sleepy Hollow”.
O’Neill didn’t disappoint with his approach to the investigation of partner Peter Collins. His board began formally investigating Collins in January 2021 and quickly extended the investigation to include PwC two months later. By July, the board formally sought information from PwC and the clients that had potentially been provided advice about new laws the firm was helping Treasury design.
PwC responded in the best way it knew how: by unleashing its lawyers led by long-time general counsel and partner Meredith Beattie, well known in the industry as an adept player of legal hardball.
The firm’s own legal report states that PwC defended itself “as would a party to litigation”, producing documents and information responsive to requests and challenging certain allegations. For more than two years, PwC’s lawyers tussled with the board until October 21, 2022, when the board made its findings. O’Neill’s agency had managed to do what the Tax Office had been unable to do for years: investigate and then prove that Collins had leaked confidential government information to help PwC sell tax services.
It took roughly five years between the Tax Office first becoming suspicious that Collins was improperly sharing Treasury information in 2017 and the former PwC partner being sanctioned for his actions by the board in late 2022.
Those five years involved the Tax Office being repeatedly stymied by secrecy laws and PwC doing three half-hearted investigations into what became known as the leaks matter. The third failed chance came after the firm was directly told about the confidentiality breaches in 2021 by the board, when it failed to investigate the “root causes, and assess responsibility” over the leaks matter, the PwC legal report concluded.
Part of the problem was Seymour was CEO at the time and had been head of tax at the time of the leaks. The firm’s legal report states that Seymour failed to “take steps to remove himself from the process” and did not “ensure that the underlying facts were fully reported to those charged with governance”.
The Tax Office referred Collins to the board only in 2020 after spending years exhausting other, more serious sanctions, such as asking the Australian Federal Police to investigate and trying to make use of promoter penalty laws.
Several of the former PwC partners most affected by the tax leaks matter still bitterly complain that the ATO should have just referred the matter to the TPB from the beginning. They think it would have avoided the blow-up that eventually took place over the leaks matter.
To an extent, Jeremy Hirschhorn, the second commissioner at the Tax Office, now partially agrees with this.
“I will say that I fundamentally underestimated the effect that publishing a finding of the TPB would have … if I were in that same situation again, it would be to move more quickly through the phases of AFP interaction, promoter penalty, then TPB referral. So it would get to the TPB earlier,” he told a parliamentary inquiry in April this year.
While O’Neill’s investigation was taking place, PwC’s legal counsel prepared advice via law firm King & Wood Mallesons that was presented to CEO Seymour and operations boss Sean Gregory.
In parliamentary testimony on Friday, Seymour summarised for the first time what the report said. “Meredith Beattie led that TPB review internally with external lawyers, and the legal advice I got was that Mr Collins had breached his confidentiality. And this was in mid-2022,” he said.
“And that it had gone to about six international partners, and I think two or three Australian partners.”
One senior partner was said to have been running around to other partners, telling them to “look at the advice” from KWM, which they described as confirming that only one partner was involved in the leaks matter. Not a big deal. It was a third, and as it turns out final, lost opportunity for PwC to dig into the matter.
KWM had been long involved with advising PwC over the tax leaks matter and the firm’s tax-related regulatory battles. The law firm had worked on the section 353 requests for PwC and was the external counsel that liaised between PwC and the ATO, and then later the TPB. The firm’s lawyers were a key part of sorting and classifying the emails requested by the ATO and then the TPB.
The great error here, many now concede, which ended up hurting the firm the most once the tax leaks matter became public, was not investigating the Collins matter in the same depth as was eventually done, by KWM again, after the extent of the tax leaks scandal became apparent in May last year with the release of the cache of internal PwC emails.
In October 2022, the board of the TPB met and made its findings about Collins and PwC.
Collins retired that month from PwC with a one-off “termination payment” and approval to receive ongoing retirement payments. There was also an informal agreement that he would return to PwC as a “consultant” once the dust had settled on the confidentiality breach issue.
Jason*, who was familiar with the relationship between the ATO and the firm, says: “They had a game plan. Throw Peter* under the bus, call him a rogue operator.”
Collins’ registration as a tax agent was cancelled for two years, while PwC was ordered to provide training on a six-monthly basis to relevant partners and staff on how to handle conflicts of interest and to file compliance statements twice a year detailing the training and who attended.
Neither Collins nor PwC challenged the board’s ruling. Collins’ punishment, the two-year ban, was at the low end of the scale. It could have been up to five years. A range of referee letters helped with this.
PwC made a big deal of removing Collins’ entitlement to his post-retirement payments once the issue became widely known in May last year. The consulting gig was untenable once the extent of the tax leaks matter was out.
It’s not clear if PwC’s leaders understood that the Collins matter was always going to become public on the board’s register. The firm’s leadership, having not done a detailed investigation, locked themselves into the position that this was all a one-off event involving a departed partner.
In January, Neil Chenoweth, an experienced and multi-award-winning senior writer at The Australian Financial Review published an exclusive article on the board’s decision to ban Collins.
PwC played it down, saying Collins had shared the documents with few staff, and that the board investigation did not find that any client arrangements or structures were affected.
Finance, which determines the rules of how the federal government buys goods and services, was given a similar explanation after it asked PwC for an explanation of the matter.
Tom Bowen, the firm’s chief transformation officer, and Gregory, replied to Finance with what they were told at the time by the firm’s leadership. “We have done the review. One person involved. He’s left,” Alexander*, the former senior partner says.
The firm’s tax advisers were also running around telling everyone the same message. Only a date was shared. Only one person was involved. No client arrangements or structures were affected. Not a big deal.
The reality was the information was used by a group of local and international PwC partners to market tax schemes to win multinational clients. As the board found: “The confidential knowledge gained from the consultations with Treasury would be leveraged to market PwC to a new client base and influence the structures of existing clients in a manner that may be perceived to circumvent the intent of the proposed [laws]”.
The omissions in PwC’s explanation to Finance in January would directly lead to the firm being effectively banned from winning new government work when the extent of the leaks became public in May. That, in turn, would force PwC to sell its public consulting arm – which brought in about $600 million in annual revenue across its federal and state clients – for $1 by Allegro Funds in July, creating the public sector-focused outfit Scyne.
That first week in January, Federal Treasurer Jim Chalmers also let loose. At a press conference, he accused PwC of a “shocking breach of trust” and that he was “absolutely furious, absolutely ropeable” over the matter. The honeymoon that PwC had long enjoyed with the government of the day was over.
A former partner, Emmanuel*, says he was one of many who directly asked Seymour if there was anything else that could come out about the matter when the first board story came out in January last year. Seymour told him, and others, that there was nothing else. Seymour, it appears, had been operating on the premise that the emails held by the board and the Tax Office would never be released publicly.
“That’s why they were so confident to email Finance in January saying there’s nothing to see here,” Emmanuel* says. “They convinced themselves that the offence was so small and meaningless in the end that it didn’t matter.”
PwC’s legal report is scathing of the initial response: “After the TPB’s January 2023 press release of its findings, PwC publicly acknowledged the findings and its failings. Faced with subsequent media questioning and public scrutiny, however, former senior leadership downplayed the significance of the matter and severity of the findings, and did not adequately represent the key issues.”
In the short term, that strategy worked.
On March 5, Seymour attended The Financial Review Business Summit during which he appeared on stage in a one-on-one chat with senior Financial Review columnist Jennifer Hewett. Towards the end of the interview, Hewett raised the tax leaks issue and O’Neill’s “20 or 30 people” comment.
“So first of all, just the facts,” Seymour responded. “We did have a partner breach a confidentiality agreement. That was totally unacceptable when he did that and we’ve been very clear that that should never have happened ... the other specific finding was that we should have had a system in place ... there [were] no findings that 30 people got the information.”
Seymour went on: “The issue for us is there’s a perception issue and that’s because we didn’t have the right management tool in place. We’ve worked very hard with regulators to now put that in place.”
(Seymour now denies he ever said those words. “I did not say ‘I believe this is a perception issue’,” he told a parliamentary hearing last Friday.)
Despite all of this, Seymour still had widespread support within the partnership. Emmanuel* says: “If you went back … even after the ‘perception issue’ comment, without the emails being public, he’s still got 85 per cent followership. He was about to tell them they were going to get 11 per cent upside, a big increase in base pay.”
But it wasn’t to last. The event that would set Seymour’s demise in train had already happened, one month earlier in Canberra at a parliamentary committee hearing.
Labor senator Deborah O’Neill was questioning the head of the Tax Practitioner’s Board Michael O’Neill (no relation). The Tax Office had referred PwC and the possible leak to the board – a week after Seymour was elected chief executive.
Deborah O’Neill had battled the big four firms before, particularly via a long-running inquiry into audit quality.
Towards the end of one hearing, late into the night, she asked about the Peter Collins probe. “How high up in PwC did this go? Who was complicit with Mr Peter-John Collins? At what level were the executives at PwC?”
Michael O’Neill: “There were partners and staff both in Australia and internationally who were involved in these discussions, from the evidence we have available to us.”
Deborah O’Neill: “How many?”
Michael O’Neill: “From the evidence we have, maybe 20 or 30.”
Deborah O’Neill: “Twenty or 30 people?”
Michael O’Neill: “Twenty or 30 people, as is evident from the documents we have available to us. As to the degree of involvement of those people, we couldn’t say, but 20 or 30 people are involved, on the face of the evidence that we’ve seen.”
Deborah O’Neill: “That’s a lot more than the one person who’s been singled out for punishment.”
She was agog at the response. “I thought he would say it was a few PwC staff, maybe up to a dozen, and I expected they would all be Australia-based. When he replied it was about ’20 or 30 people’, both in Australia and internationally, I was stunned,” she now says.
Within PwC, the “20 or 30 people” comment had everyone paying attention on edge. The firm’s Canberra-based consultants noticed that their public sector clients started to become a bit more standoffish. They found themselves suddenly not invited to some tenders.
Seymour’s words also had another effect internally. Until then, he had been on track for the governance board to push through an offer for him to lead for two additional years instead of going to a partner vote for a full four-year term. That extension was going to be offered mid-year, but was put off because of all the growing noise around the TPB findings.
Two days later, Deborah O’Neill made a move that would be decisive in exposing what had happened.
“I sent further questions on notice to the Tax Practitioners Board,” she says. “It was their response to those questions on notice that included the release of PwC’s internal emails.”
At that stage, it wasn’t clear if those PwC emails would ever be released to the public. Questions on Notice are typically a hit-and-miss affair. But not this time.
Meanwhile, Greens senator Barbara Pocock was making the other decisive move that would help expose much of what had happened. She was pushing to create a Senate inquiry into the “management and assurance of integrity” of consulting services provided to the Commonwealth.
“Labor needed to be convinced and they resisted heavily at the beginning,” Pocock now says
Her office drafted some terms of reference for the proposed Senate inquiry and she set out to lobby Labor for support.
Pocock says what turned it around was Michael O’Neill’s reference to the “20 or 30” people PwC being involved. That inquiry became a proxy examination of the PwC tax leaks matter, extracting answers from the firm (and its big four rivals) that had never been made public before. Before it was over, Liberal senator and chairman Richard Colbeck would join senators O’Neill and Pocock in blasting PwC over an ongoing cover firm that “worsens the crime” of the tax leaks matter.
On Wednesday, May 3, the Financial Review published just before print deadline a story detailing the 144 pages of heavily redacted PwC emails released to Deborah O’Neill, which showed the true extent of the tax leaks scandal.
The fallout was immediate. Seymour spent part of the day talking to different partners. Those closest to him say Seymour was shocked, stunned. He was telling his closest advisers: “I’m f---ed.”
The next day, PwC’s governance board held an all-day meeting, while the government consulting partners had come to the conclusion that they, too, “were f---ed”. For almost four months, the firm’s key leaders had been telling everyone who would listen – fellow partners, clients and, most importantly, the government – that this matter involved one former partner leaking information.\
The same day, the firm’s chairman, Tracey Kennair, emailed partners telling them to keep their heads up. “Partners, I appreciate this is a difficult time for all of us. I wanted to acknowledge this … it is now that our spirit of partnership and collective support for each other is paramount.”
Former Financial Review Rear Window columnist Joe Aston summed it all up that evening: “Seymour seems to have no grasp of what’s at stake here, no real sense of how bad this is. His myopia may be the product of normalisation, of so many years at the highest echelons of a sophisticated influence trafficking and information laundering operation. Firms like PwC are experts in the absolute minimum standard of the law, in pushing it to the limit, in dancing on the edges, because that’s where the danger money is.”
That Friday, Seymour held what was to be his last partner-wide meeting as leader. It was all over.
(*Current and former PwC staff still refuse to speak publicly against the firm, fearing it will affect their ongoing relationships, legal obligations and, often, their retirement benefits. It is an obsession with, ironically, confidentiality. All interviewees have requested that their names not be used. In place, we have used pseudonyms and, where required, short descriptions of the speaker.)
Read more about the PwC tax leaks scandal
Part one | ‘We couldn’t believe it’: Insiders reveal how PwC unravelled as scandal broke The inside story of how PwC transformed from dull accountant into a sales-driven firm that would tear itself apart. Part one charts the rise of the two men who have defined the firm for the past twelve years: Luke Sayers and Tom Seymour.
Part two | The emails that almost destroyed PwC Australia Insiders thought it was a “joke” for PwC to both advise the government on tax reform while helping clients exploit those reforms. One meeting sent the Tax Office over the edge.
Part three | The Tax Office goes to war with Seymour as Sayers goes big While PwC tax divisions was mired in a paper war with the Tax Office, the firm transformed from a conservative accounting firm to hard-charging, hard-drinking financial services company.
Part four | ‘I’ll make you more money’: Inside Seymour’s CEO pitch The candidates had unofficial campaign managers and developed manifestos. Lobbying was done in the office, over drinks, during the weekend. And like any good election, the voters’ main concern was what was in it for them.
PwC leaders at war over tax scandal PwC’s former general counsel says she repeatedly advised then chief Luke Sayers and the governance board that legal professional privilege was being misused.
Sayers, Seymour round on Burrowes’ global role Kevin Burrowes’ second role with PwC International was the focus of the joint parliamentary inquiry into consulting on Friday morning.
Chanticleer | PwC hasn’t paid full price for eight years of risk failure Exactly who deserves the most blame for the PwC scandal remains a subject of fierce debate. But it’s the systemic failures of risk management that really matter.
Opinion | Penitence, bravado and rattling the PwC can The firm’s alumni deploy the “I take full responsibility, it was all the other guy’s fault” defence.
‘This may not end well for you’: The secret war behind the PwC inquiry Documents tabled by three federal agencies raise questions about whether the ATO tried to shut down the investigation into the PwC tax leaks and targeted the man leading it, Michael O’Neill.
How confidential tax information was shared at PwC At least six former PwC partners were involved in leaking confidential information from Treasury, the Tax Office and Board of Tax, legal reports concluded.
‘Shadow’ culture of profit first blamed for PwC tax leaks scandal A scathing report into the big four consultancy laid bare the brutal, uncompromising culture at the top that led to the firm’s tax leaks scandal.
‘Growth at all costs’: what PwC report found The mindset was said to have been “growth at all costs” with a spotlight on “revenue, revenue, revenue”.
AFR journalists win Gold Walkley for PwC story Neil Chenoweth and Edmund Tadros broke one of the biggest stories of the year, which ultimately led to the break-up of the accounting firm in Australia.