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PwC tolerated poor behaviour, gave CEO too much power, review finds

PwC Australia oversaw a culture that tolerated the poor behaviour of partners if they were making the firm a lot of money, fostered a “whatever it takes” approach and created a chief executive office role that was unaccountable to the board, a new report has found.

A PwC-commissioned review by prominent independent company director Ziggy Switkowski has provided a damning assessment of the firm that has found itself in the grip of a scandal since it emerged one of its partners had shared confidential government information with other partners and clients.

PwC said in a detailed response to the report that it accepted the 23 recommendations and the firm had already begun work on improving its business

PwC said in a detailed response to the report that it accepted the 23 recommendations and the firm had already begun work on improving its businessCredit: Louie Douvis

The Australian Federal Police are investigating PwC’s conduct and several senior partners have left the group following the scandal. The group has also been the subject of a report by a Senate inquiry into the consultancy sector, which was highly critical of the firm’s revenue-focused culture.

As well as delivering a stiff assessment of the firm’s culture and governance failings, the Switkowski review made 23 recommendations aimed at improving the firm’s governance, culture and systems for managing risk and people. This includes appoint independent board members who can challenge executives, improving the remuneration process, and giving the board the power to remove the CEO, lifting regulatory engagement.

PwC said in a detailed response to the report that it accepted the 23 recommendations and the firm had already begun work on improving its business, including bringing in new independent directors, improving oversight and transparency of siloed units within the business, and giving the board more power over the actions of the CEO and senior staff.

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A key issue that Switkowski found was the firm’s overly collegiate culture, that focused on fostering relationships between long-serving partners and promoted a good news culture that stifled any form of criticism or reflection of the firm’s mistakes or the risks it was taking.

The review found that this culture bled through the firm up to board level. According to Switkowski, PwC’s board was ill-equipped to handle their roles, being appointed from a partnership base that was overly differential to a ‘collegial’ culture where some board members viewed themselves as junior in stature than partners in senior leadership roles or the CEO.

“In practice there is not a lot of constructive dissent, with relationships and loyalty being key to career progression,” the review said.

“In recent years, the emphasis on growth coupled with high levels of trust and reluctance to challenge created blind spots. It may also have contributed to a willingness of partners to tolerate poor behaviours of ‘rainmakers’.”

Ziggy Switkowski has led the review into PwC.

Ziggy Switkowski has led the review into PwC.Credit: Paul Jones

At the same time, Switkowski found the CEO position was not perceived within the firm as being accountable to the board – unlike CEOs in other companies.

“Culturally, the generally accepted view is that the CEO “runs the show”. During a long period of commercial success, this has translated to a reluctance of partners to challenge the CEO, even at senior leadership levels,” the report said.

“It has also led to heightened (potentially even misplaced) trust in the CEO.”

“A powerful CEO can also contribute to “fluid” management practices and to decisions being made ‘out of the room’ or overridden. The overly collegial culture at PwC Australia has tended to amplify the power of the CEO.”

Switkowski said in his report that against this backdrop, the overplaying of collegiality creates risk.

“PwC Australia exhibits a “good news” culture at the enterprise-level where “good news gets communicated and bad news gets held back”.

“The Review found there is a general hesitancy to delve into uncomfortable conversations, to learn from mistakes and to be prepared to hold others to account.

PwC said in a statement that it had developed a comprehensive management response and action plan to serve as its road map for re-earning the community and its stakeholder trust.

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“The Action Plan is built around five commitments for change, including enhancing the independence and effectiveness of our governance board, embedding a culture and practice of constructive challenge, improving discipline and rigour of decision-making, strengthening risk and incident management accountabilities, and putting our values at the core of everything we do,” the firm said in a statement.

Leading this change will be current PwC Australia chief executive Kevin Burrowes, who was brought in from the firm’s Singapore office.

“Our Action Plan will help us chart a course to achieve our vision of becoming the leading professional services firm, built on the highest ethical and professional standards with integrity at our core.”

“From the top down, we will learn from these findings, rebuild and re-earn the trust of our stakeholders. That is our promise to our people, partners, clients and our communities.”

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