What KPMG staff think of new CEO John Sams
This week, we look at the good (new CEO), the bad (new chairman), and the ugly (lay-offs) following the parliamentary inquiry, along with some big promotion news.
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KPMG chief executive John Sams gets the tick of approval from (past and present) personnel, and the firm’s chairman and deputy chair defend their handling of the scandal. Plus: token maxing is out, token budgeting is in.
In this week’s issue:
KPMG CEO John Sams strikes the right tone
New KPMG Australia chief executive John Sams answers questions at a parliamentary hearing in Canberra. Alex Ellinghausen
During the past fortnight I’ve spoken to a range of current and former KPMG personnel about the August 14 hearing to gauge their views.
The overwhelming consensus was relief at the performance of new chief executive John Samsand his willingness to be frank about the conduct at the heart of the audit leaks scandal and the scale of the cultural issues at the firm.
When he was asked by Labor member Tania Lawrence to comment on the irony “that KPMG has failed to be able to manage even the basics of the expectations of them to undertake auditing with confidentiality and trust”, Sams quickly responded: “There is not one part of me that is going to defend any of that conduct. It’s totally unacceptable.”
This followed his earlier comment: “We’ve clearly had some major failings here that we have to reflect on, and I’m not going to try and defend any of those because they’re indefensible, frankly.”
You could almost hear KPMG supporters swooning at a response that featured no downplaying, no mansplaining and no elliptical legalese.
He also didn’t take refuge in the common defence used by corporate leaders to downplay misconduct issues.
“We can’t go with the few bad apples line here,” said Sams. “We absolutely have to look at our culture.
“One thing that I took confidence from, though, in those forums that I’ve run with our staff face to face across six of our offices across the country, is that our staff were shocked and appalled by what they’ve learned through this process, as am I, and so I don’t believe that the behaviours that we’ve seen here are entirely pervasive across the organisation.
“I don’t believe they reflect the values of the vast majority of our people, and that’s why I think we’ve let them down so badly.”
Sams also took aim at the earlier fines issued to three partners who misused confidential Lendlease papers (“woefully inadequate”) and said that the sector needed “further regulation”.
“Well, it’s our responsibility to do the right thing,” he said.
“I would never abscond that. But when wrongdoing is done, I absolutely agree ... that there needs to be stronger regulation around that.”
Ebeid, Mortell defend their actions
KPMG deputy chairman Carmel Mortell and chairman Michael Ebeid. Alex Ellinghausen
Sitting next to Sams on the day was newly confirmed KPMG chairman Michael Ebeid,whose testimony was received with scepticism.
Ebeid apologised and said he took full responsibility for KPMG’s earlier failed investigation of the claims, but then said that he was best placed to fix the problems.
The chairman had to again apologise for privately criticising senator Deborah O’Neill following her initial disclosure of the whistleblower’s allegations in March.
And he repeatedly conceded that he had not done enough as a member of a KPMG board subcommittee that failed to properly examine the whistleblower’s claims.
“I should have pushed harder in asking for those reports in hindsight, but I didn’t, and I have to take responsibility for that,” said Ebeid.
“I didn’t push as hard as I should have, but I did ask for them, in the same way that I know what I asked for. I know what I pushed on things like legal whistleblowers protections, et cetera.”
He then added that “when the opportunity came for me to step into this chair role, I thought I could make a difference, knowing what I know today, knowing where the firm’s shortcomings were, knowing where the weaknesses are in the firm’s governance”.
Liberal National Party Senator Paul Scarr was scathing of Ebeid’s testimony and logic in taking on the chairman role.
“Didn’t it occur to you, or wasn’t there an internal voice saying to you, ‘Gee, I think it might be better if KPMG can just turn a fresh leaf. And I sat on this subcommittee ... which failed to discover the truth’.”
Scarr continued: “Doesn’t any part of you recognise that a lot of people would be watching this and saying, ‘What are you doing? Why are you putting yourself in this position of independent chair?’
“Wouldn’t it be in KPMG’s best interest for you to step away, maybe just serving an interim basis, but to step away and give them an opportunity to have a fresh start?”
Ebeid kind of answered the question. He started his response by noting saying he had “reflected a lot on that question” and that he had joined the subcommittee “17 months into a long, protracted, complex issue”.
“ ... It was 11 weeks from when I joined to when Allens delivered their [December] report ... I barely had found my voice on the committee ... I was still working out who’s who and how things worked in a firm, which was very foreign to me,” he said.
The new chairman then noted that in the past two months he had learnt “a lot about where governance failures are letting the firm down, and I actually thought long and hard because I could have run for the hills, and it would have been so much easier for me, so much easier”.
Helping Ebeid’s decision to stick around? A $1 million annual pay cheque that is double that of PwC independent chairman John Green.
Next to Ebeid at the inquiry was deputy chairman Carmel Mortell, the partner in charge of the board subcommittee.
She also admitted to mistakes, but then said she had relied on advice from the firm’s external lawyers. She also took aim at the partners involved in the data misuse for lying.
Scarr asked her why she had not challenged the decision of legal firm Allens to not search emails in the December Project Magenta report.
Mortell replied: “I do want to say that I am extremely apologetic that we didn’t do that. In hindsight, and maybe in any view, that that was a reasonable step to take at the time.
“And I do apologise sincerely to the whistleblower that that extended the grief and the anguish to them throughout that time.”
Mortell then added that the subcommittee “had accepted their [Allens’] advice that it was reasonable and proportionate at the time”.
What Sams did next
The immediate future for Sams is a series of unpleasant tasks.
On Monday, he announced KPMG would slash 5 per cent of its workforce and cut partner pay by 13 per cent as part of the first stage of a cost-cutting program triggered by the document-misuse scandal that is affecting future sales.
The big four accounting firm said the cuts would include 27 partners and 360 staff, after it reported that annual revenue for the year to June 30 fell 1 per cent to $2.1 billion.
Consulting revenue dropped, but this was offset by growth in the audit, tax and legal divisions.
Average partner pay will also be cut by 13 per cent, or about $72,000, to $645,000.
These initial job cuts are part of the continuing internal review known as Project Vector, and part of reductions that could eventually affect as many as 1000 employees.
Further cuts are expected after the firm completes mandatory discussions with employees in award-based roles. In addition, cuts in the firm’s core audit division are expected after the busiest time of the year ends in late August.
Many also want Sams to get rid of other executives linked to the botched response. Most commonly mentioned are Ebeid and Mortell.
It is also hard to see how the firm can keep deputy general counsel James McClelland, the lawyer who almost cried as he apologised for “the nature” of his communication with the whistleblower.
McClelland said the messages (which Ebeid later said had a “level of aggression” that was particularly concerning) had been “sent on instructions on behalf of the firm”.
McClelland also said his work had been “fundamentally undermined” by partners misleading him during his initial investigation and limitations on the scope of the work.
News briefs
Finally, on a personal note, Hannah Woottonand I were named journalists of the year for our work on the KPMG audit leaks scandal at this year’s Kennedy Awards on Friday. We also took out the award in the business reporting category.
I was very (very!) surprised on the night to take out the top prize and used my short speech (Hannah is away at the moment) to thank the newsroom, the whistleblower, the politicians and my family. I should also have thanked the AFR lawyers and all the past and present KPMGers and other contacts who have spoken to us about the matter.
There is a weight to covering the scandal – as there was with the PwC tax leaks matter – as it is very clear the disruption these matters cause to many hundreds (and thousands) of people not directly involved in the wrongdoing.
We think about that a lot at the paper, and constantly consider that against the public interest.
