Where PwC went wrong: Switkowski review findings

A review of misconduct and breaches of confidentiality by PwC Australia has recommended sweeping governance changes and a board restructure.

The revelations that a PwC partner leaked confidential government tax information aiming to help some of the accounting firm’s multinational clients sidestep Multinational Anti Avoidance Laws has been one of the major governance stories of the year. In June, the Australian Senate’s inquiry into consulting services released its interim report into the scandal, describing it as a “calculated” breach of trust.

The committee concluded that PwC Australia had “engaged in a deliberate strategy over many years to cover up the breach of confidentiality and the plan by PwC personnel to monetise it”.

On 27 September, PwC released the review it commissioned former Telstra boss Dr Ziggy Switkowski AO to conduct into the accounting giant’s governance culture and accountability. 

In his findings, Switkowski calls out a “whatever it takes” attitude within the organisation that contributed to a significant failure of ethics and said the firm’s “aggressive growth agenda was overshadowed and occurred at the expense of the firm’s values and purpose”.

As a result, Switkowski makes 23 recommendations including an overhaul of the firm’s leadership structure.

Governance, culture and accountability

With increasing regulatory and stakeholder expectations, organisations as large and complex as PwC Australia require a highly effective and efficient oversight body, Switkoswki says.

PwC’s board of partners, referred to in the review as the Governance Board, “lacked sufficient independence from the CEO and senior leaders of the firm”, according to the review.

The report highlights the common view at PwC that the board of partners lacked genuine power, some referring to it as “ceremonial” or “relatively toothless” and that its responsibilities for governance and oversight were not well articulated and may have been receiving less focus than the protection of partner interests.

Based on interviews with PwC employees and partners, Switkowski says there is limited transparency for the board of partners on legally sensitive matters, including matters internally referred to as ‘troublesome practice matters’.

Switkoswki concludes that the board of partners is neither ‘fit for purpose’ to govern a complex and sizeable business, nor sufficiently focused on risk implications of firm strategy, oversight of risk management or adherence to best practice governance.

Urgent Actions

Of the 23 recommendations, Switkowski highlighted five as urgent:

Restructure the Board of Partners to ensure adequate independence

Restructure the board to include a minimum of three independent, non-executive members and a non-executive chair.

Clarify and restate the governance role of the Board

Define the remit of the board as the ultimate governing body (as distinguished from the executive board, the firm’s senior executive leadership team) to avoid confusion about the oversight role of the board. [TM1]

Revise the CEO appointment process.

Give the board express authority to appoint and remove the CEO.

Develop a board skills matrix and induction and development programs

Implement a program to ascertain the individual skills of board members and periodically review them to develop the board.

Design and implement board succession planning

Use the Board skill matrix as a reference, design and implement succession planning for the board.

Switkowski also emphasises the need for regular board reviews. “As reflected in the ASX Corporate Governance Principles and Recommendations, it is important for boards to have in place a proper process for regularly reviewing, preferably annually, the performance of the board, its committees and individual members given their critical role to an entity’s governance,” the review states.

PwC Response

PwC Australia CEO Kevin Burrowes says the firms is committed to rebuilding and re-earning the trust of its stakeholders. Three non-executives will be appointed to the firm’s governance board, along with a non-executive chair with a view to bringing “independent, outside-in perspective and objectivity to the firm’s governance”. He promises that by September 2025 the partnership will start to publish audited financial statements and adopt the structure of ASX companies when possible.