PwC scandal shows consultants, like church officials, are best kept out of state affairs

PwC scandal shows consultants, like church officials, are best kept out of state affairs

Photo credit: Adam Jones (via Unsplash)

Australia’s Treasurer Jim Chalmers called it “an appalling breach of trust”. But the scandal involving the local arm of PricewaterhouseCoopers (PwC), the world’s second-largest professional services firm, is much worse than that.

PwC Australia’s chief executive Tom Seymour and two other board members, Pete Calleja and Sean Gregory, last week finally resigned from their leadership positions over the use of confidential information about Australian tax policy to help PwC clients avoid paying tax.

In January, it was revealed the Tax Practitioners Board had (in late 2022) terminated the registration of PwC Australia’s former head of international tax, Peter-John Collins, for sharing information he gained at confidential Treasury consultations. Collins left PwC last October.

In March, the Senate announced an inquiry into the integrity of consulting services. Seymour downplayed the leak as a “perception issue”.

Things only substantially changed after the inquiry this month published internal PwC emails showing that (in the words of the Australian Financial Review) “for years, dozens of PwC operatives used confidential updates on government tax plans obtained by Collins to drum up new tax clients”.

Up to eight partners shared information about plans to tackle multinational tax avoidance. As many as 40 of PwC’s 900 partners received emails discussing using the information. This included Seymour. (For context, PwC Australia has about 900 partners and 8,000 staff.)

It wasn’t until the emails were made public that Seymour announced an “independent” review of the firm’s governance, culture and accountability (to be done by former Telstra chief executive Ziggy Switkowski), with the partners who received the emails being put through PwC’s “consequence management framework”.

Values in conflict

PwC made at least A$2.5 million from the leaked information, using it to drum up new business for the company’s tax services. In terms of PwC Australia’s total revenues of $2.6 billion last year, it’s not much. But the fact it happened, and the response of PwC’s leadership since, is telling.

The whole fiasco stands in stark contrast to PwC’s stated corporate values that “celebrate doing the right thing”.

The firm describes itself as “purpose-led and values-driven”. In 2019 its global chairman, Bob Moritz, was among 181 business leaders who signed a declaration redefining the purpose of the corporation as being about delivering value to all stakeholders.

These are warm sentiments, but the proof is in the pudding, and a key social responsibility of any business is to pay taxes that fund schools, roads, hospitals and protection of the vulnerable. It’s hard to reconcile the statements about values with the apparent laxity around the Collins case.

Bigger than one company

The fundamental conflict that underlies the scandal is what makes it bigger than just PwC.

In any area where governments make decisions affecting business profitability, there are incentives for vested interests to influence the process. There are, however, few areas where the government has so blatantly left its processes open to abuse as through its reliance on external consultants.

Federal spending on consultancy-related contracts rose from $352 million to $888 million a year between 2012–13 and 2021–22, according to the Australian National Audit Office says. PwC’s share over the decade was more than $420 million.

Reversing this trend, and separating corporate and public interests, is now as crucial as separating church and state.

The high priests of consulting

As the coronation of King Charles reminds us, the separation of church of and state is unfinished business in the political institutions inherited from Britain. Nonetheless, since the Enlightenment it has been broadly accepted that keeping church and state broadly distinct is necessary for good democracy.

One of the reasons the church got powerful in the first place is that for hundreds of years it was the only institution more or less based on meritocracy. It was a source of advisers who could read, write and add up numbers – useful skills for any monarch.

Clerical advisers such as Alcuin of York in the court of Charlemagne, or Cardinal Richelieu, the chief minister to King Louis XIII, were a bit like modern corporate consultants.

They belonged to a multinational organisation with a vast global network. Secular leaders looked to them as the experts on many matters. The lack of separation, however, between their allegiances came with significant downsides, both for religious freedom and state political independence.

The power of the modern consultants to influence government is akin to the influence Church officials once wielded. The danger of particular private interests taking precedence over public ones is striking, as the tax scandal illustrates.

Much more needs to be done

The PwC scandal raises serious doubt about the value that consultants are making to government efforts to stamp out tax avoidance by multinational companies, with an estimated US$1 trillion of profits per year funnelled through tax havens globally. The cost to Australian taxpayers (through lost revenue from Australian companies using tax havens) is estimated to be about A$6 billion a year (US$5 billion).

Seymour has announced he will retire later in the year. More retirement announcements are expected. The federal government is considering how to impose a financial penalty on the firm.

But these are minor punishments that will leave the systemic problem untouched. Much more needs to be done to prevent the system of democratic government being abused for private gain.The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Get our daily business news

Sign up to our free email news updates.

 
Finexia’s Childcare Income Fund secures ‘very strong’ rating from Foresight Analytics & Ratings
Partner Content
Private credit specialist Finexia Financial Group (ASX: FNX) has secured a “very...
Finexia
Advertisement

Related Stories

China has removed tariffs on Aussie wine, but re-establishing ourselves in the market won't be easy

China has removed tariffs on Aussie wine, but re-establishing ourselves in the market won't be easy

China’s Ministry of Commerce has finally ended its tariffs on...

Loyalty programs may limit competition, and they could be pushing prices up for everyone

Loyalty programs may limit competition, and they could be pushing prices up for everyone

Loyalty programs enable firms to offer significantly lower prices t...

An anonymous coder nearly hacked a big chunk of the internet. How worried should we be?

An anonymous coder nearly hacked a big chunk of the internet. How worried should we be?

Outside the world of open-source software, it’s likely few pe...

The Body Shop shouldn’t have failed when consumers want activism from their brands. What happened?

The Body Shop shouldn’t have failed when consumers want activism from their brands. What happened?

We are in an era of brand activism and conscious consumerism. More ...