Opinion: PwC should’ve reviewed material, provided advice & shut up

Source: ZENNIE/PRIVATE MEDIA

As someone who has worked in the field, I couldn't repeat the words that came into my head when I was first made aware of the detail of the Tax Practitioners Board decision on PwC Australia's egregious breach of ethics, trust, and process. They’re not for polite company.

The local offices of global accounting behemoth PricewaterhouseCoopers, or PwC Australia, continue to be the centre of attention in media and political circles. As was recently revealed, a former partner of the firm, Peter Collins, had been banned by the board for leaking confidential information about tax avoidance laws to other partners and staff.

These plans involved new rules to stop multinationals from avoiding tax, and politicians such as Australian Greens Senator Barbara Pocock and Labor Senator Deborah O’Neill want to know who else was involved in promoting arrangements designed to circumvent these tax changes. A recent motherlode of partly redacted emails points to many other individuals being involved or at least kept in the loop.

Let's be clear: there is nothing like a story involving a global brand, a scandal and questions about why a firm went like PwC used confidential information to explore restructuring options to dodge the full force of incoming tax laws.

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The firm — which advises others on the need for high-quality reporting and transparent disclosure — has continued to make itself the story when it failed to upload a media statement to its website announcing the effective resignation of chief executive officer Tom Seymour after his admission of being one of the many people in the email chain revealed by the board.

Seymour was replaced by assurance leader Kristin Stubbins as acting CEO until the partners vote on a permanent appointment. Two other senior partners, Pete Calleja and Sean Gregory, also stepped down from governance positions. Neither of the leadership changes has been advised in a media statement on the firm's website. The departures, however, have been quietly deleted from the relevant page advertising PwC's leadership batting order.

The fuss, consternation and outrage are understandable given the breach of confidence was linked to the planned promotion of the firm's services that the tax practice itself forecasted would pull in $2.5 million.

What is not well explained is how something like the complete cluster in which PwC finds itself right now could have happened in the first place.

I might be able to help.

For a period in my career I was a policy adviser — a kind of propeller-head focused on accounting, audit and governance matters — with a professional accounting body with duties that involved consulting government departments and agencies.

These roles have multiple functions. You are involved in engaging with members of a body in order to understand their concerns, and then you engage with your counterparts working for other bodies to understand whether the observations made by your members are the same or similar.

You learn from the membership, but you also engage directly with government departments, ministerial offices and various statutory or other agencies to alert them to issues faced by the people you represent.

You also participate in different consultations that a government department might be running, of which there are different kinds. Some are public, such as those of the accounting and auditing standard-setters, and those processes can be observed by those who bother to attend. Anyone wanting to understand the sausage machine that develops accounting standards — which tell companies how to prepare and present the figures printed in newspapers during profit season — can observe it.

Standard-setters may also have specific project advisory groups they will draw on for specialist advice on a topic. I was a part of project advisory groups on ethical and auditing standards in my capacity as an adviser. Many of these discussions would be under an agreement that what is said within the room stays within the room. This meant participants ranging from practitioners to regulators to policy experts could speak frankly.

It is in everyone's interest — and in the public interest — that these things are soundly developed, but some discussions need to be had in confidence, otherwise the opportunity to develop good regulation suffers.

You then have the sensitive type of consultation that has resulted in PwC's international tax division finding itself in a large vat of rocking horse droppings, with the rest of the firm having to hold its nose as it attempts to clear the mess.

Certain consultation processes with governments involve the signing of a non-disclosure or confidentiality agreement. This is particularly so when a new law is being developed to discourage people from mucking about with tax structuring across several countries to minimise tax.

Advisers or experts sign a non-disclosure agreement to review draft law and to provide feedback so Treasury or another relevant department has a full understanding of what the draft legislation means.

You review the material. You provide advice. You shut up.

These processes are intended to develop the best law possible in the public interest and any breach of trust of this nature impairs the ability of politicians to get the best feedback from experts.

The knowledge obtained during these processes is not meant to be used to offer companies advice on restructuring corporate affairs to minimise the impact of tax changes proposed by a government, one that has trusted those same people to provide feedback in good faith.

The question perplexing me today, however, is not just how many people were involved in the chain of events at PwC, but precisely what they were thinking.

It is now more than two decades since the royal commission into the collapse of HIH Insurance, but the words of royal commissioner Neville Owen in his report on that corporate calamity still ring true, and partners in consulting firms thinking naughty thoughts might benefit from some revision:

In an ideal world the protagonists would begin the process by asking: is this right? That would be the first question, rather than: how far can the prescriptive dictates be stretched?

This article was first published by Crikey.