Partners overlooked rule-breaking by ‘rainmaker’ colleagues in pursuit of revenue growth, independent assessment shows.

PwC’s Australian partners overlooked rule-breaking by “rainmaker” colleagues in the pursuit of revenue growth, according to a damning report on a scandal involving the misuse of government tax secrets.
The independent report, released on Wednesday, assailed an “overly collegial” culture in which too much power was concentrated in the Australian firm’s chief executive and loyalty was rewarded above challenging more senior partners.
In response PwC Australia promised on Wednesday to install an independent chair above the chief executive and agreed a series of other governance changes, hoping to help draw a line under a political scandal that has tarnished its reputation in the country and prompted multiple investigations across the firm’s global network.
The scandal was triggered by revelations that a PwC partner who acted as an adviser to the government had passed information about upcoming tax changes to colleagues, who used it to tout for business among US tech companies including Google and Uber.
PwC’s global leadership said on Wednesday that a review by the law firm Linklaters had “found no evidence that any PwC personnel outside of Australia used confidential information from PwC Australia for commercial gain”.
Most of those who received confidential information did not know the information was secret, but “six individuals should have raised questions as to whether the information was confidential [and] to the extent that they are still with PwC, their firms have taken appropriate action”, PwC said.
PwC Australia’s former chief executive Tom Seymour resigned in May after admitting he was on emails containing the confidential information. At least eight other partners have also left the firm.
PwC Australia conferred “excessive power” on the chief executive, according to Wednesday’s report, which was commissioned by the firm from Ziggy Switkowski, a former chief executive of Telstra, the Australian telecoms group.
A “high-performance, results-focused culture has been used as an excuse to justify poor behaviour”, wrote Switkowski. “Some rainmakers were described as the ‘untouchables’ or individuals to whom ‘the rules don’t always apply’.”
Switkowski’s report said an “aggressive growth agenda overshadowed and occurred at the expense of the firm’s values and purpose”, adding that a focus on “whatever it takes” seems, at times, “to have contributed to integrity failures”.
The report recommended a governance overhaul. “PwC Australia’s glossy PowerPoint presentations sometimes give a false impression of comprehensive and disciplined structures and processes when the reality is much less tidy,” wrote Switkowski.
PwC promised it would introduce governance structures more akin to those at public companies than at traditional partnerships, including adopting the corporate governance code used by ASX-listed companies “where feasible”.
“We take full accountability for our shortcomings and the culture in our firm that allowed them to go unchecked over time. From the top down we are committed to rebuilding and re-earning the trust of our stakeholders,” said Kevin Burrowes, PwC Australia chief executive. “We are committed to learning, changing and leading.”
Burrowes, a veteran of PwC’s UK business who was most recently based in Singapore, was parachuted in to run PwC Australia in June as global leaders took charge of the situation.
The firm will appoint non-executives to its governance board, one of whom will be chair, and give the board new powers to hire and fire the chief executive, it said on Wednesday. It will also begin to publish audited financial statements.
The overhaul subjects the Australian partnership to more independent oversight and transparency than is typical in the professional services industry, including elsewhere in PwC’s global network.
The Australian firm had revenues of about A$3bn ($1.9bn) in its 2022 fiscal year, out of $50bn for PwC globally.
In June PwC Australia sold its government consulting business for a nominal A$1 to try to ringfence contracts from the scandal’s political fallout.
Australia’s government is also pursuing measures in response. Last week it proposed four pieces of legislation cracking down on corporate tax avoidance schemes and expanding the powers of the regulator for tax professionals.

Question 1 (25 Marks)

Drawing from Okoye’s (2015) research on the underlying causes of corporate failures, analyse a minimum of four (4) factors that played a role in the PwC Australia scandal. (16 Marks)

Examine the recommendations proposed by Caplan et al. (2010) considering the Lehman Brothers failure and determine which of these recommendations is most pertinent to addressing the issues in the PwC Australia scandal. (9 Marks)

Question 2 (25 Marks)
In your role as a corporate governance expert, PwC has sought your expertise in board composition. Drawing primarily from Mallin’s (2015) suggestions, augmented by your independent research, discuss five essential factors that should be carefully considered when selecting the composition of PwC’s board. This analysis should consider the unique context of PwC Australia, especially when the restructuring process is atypical within the professional services sector, including other branches in PwC’s global network.

Question 3 (25 Marks)
Using appropriate examples, analyze the primary areas of responsibility for the forthcoming Board and deliberate on how the latter can establish a combined assurance model for PwC Australia.

Question 4 (25 Marks
Based on the provided case study, discuss the concept of Agency theory, and conduct a thorough evaluation to determine whether there is an agency problem present. Identify specific indicators or evidence from the case study that supports your assessment and discuss the potential implications of any agency problem for the individuals or organizations involved. Additionally, discuss strategies or measures that can be employed to prevent or mitigate agency problems at PwC.

Answers to Above Questions on PwC Australia Case Study

Answer 1: An analysis of the four factors that becomes the major reason for PwC Australia scandal are:
1) lack of adequate checks and balances: It is important to perform regular check on authenticity of books of accounts, but in the case of PwC Australia, there is no proper accountability, as some of the individuals were described as untouchables.


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