In focus: Australian super funds cut ties with PwC over tax leaks
It is hard to quantify the damage done to the reputation of big four consulting firm PriceWaterhouseCoopers (PWC) in Australia, but with major asset owners and institutions now boycotting the firm, industry personnel who spoke with AsianInvestor have speculated that it will be a difficult road back from here.
PwC’s Australia business has become the centre of a scandal over its leaking of confidential government tax plans to its client base. In 2016, PwC charged $2.5 million in fees to advise 14 clients on how to sidestep new multinational tax avoidance laws.
Emails released as part of an investigation show former PwC tax partner Peter Collins, who was helping Treasury develop tax law, was passing on confidential tax plans. Nine senior partners have been put on leave, and PwC said it had identified 76 current and former partners associated with the scandal. A review, due in September, is being conducted into the firm’s governance and culture.
A LONG WAY BACK
“Rebuilding trust is hard once it’s been abused in such a way,” one legal expert told AsianInvestor last week.
Several of Australia’s largest super funds, including AustralianSuper, ART, HESTA, Aware Super and CareSuper have suspended their contractual arrangements with PwC. A
AusSuper’s audit contract alone was worth A$1.6 million a year, and the fund spent A$700,000 on non-audit services last year, according to filings.
Australian Retirement Trust (ART), which manages $159 billion for over two million members, is also suspending relations with PWC. “Australian Retirement Trust will continue to assess our engagement [with] PwC and will not be undertaking any new contracts with PwC at this time,” a spokesperson told AsianInvestor.
“This won’t affect its current contracts but will preclude it from winning new ones.”
A HESTA spokesperson said, “HESTA is very concerned about what has emerged regarding PWC and is engaging directly with them. We continually assess service providers and currently restrict consideration of PWC for any new or additional service provision to the fund.”
Compounding the issue for PwC is a boycott by federal and state governments, along with the instruction that any new business contract awards should take account of previous ethical behaviour.
A spokesperson for the Future Fund told AsianInvestor, “As a sovereign wealth fund and a government agency, we are bound by government rules and particularly those published by the Department of Finance.”
The Department of Finance has issued a procurement policy note to remind entities that a potential supplier’s performance history must be considered as part of the assessment.
“The Commonwealth Procurement Rules state that officials must consider a potential supplier’s performance history when assessing value for money. This could include consideration of any unethical behaviour and/or deficiencies in performance under prior contracts. Officials must factor these matters into the evaluation of tenderers, ensuring any decisions are documented as appropriate,” the policy note states.
This will make it more difficult in future for any firm to appoint PWC in good faith.
BROKEN TRUST
PWC’s current contract with the Australian government is worth $250 million annually. Government Treasurer Jim Chalmers suggested his department would find it difficult to work with the firm again after its current contracts expire.
The Reserve Bank of Australia said last week that it wouldn’t enter into any contracts with PwC until the issues had been resolved.
Meanwhile, PwC Australia has taken retrospective action to ringfence the provision of services to federal government departments, to prevent further conflicts of interest.
Kristin Stubbins, acting chief executive, said in a statement: “It is now clear that when we learned of the confidentiality breach and related issues, we failed to conduct an appropriate root cause investigation and thorough assessment of accountability. That was the result of a failure of leadership and governance.
“We understand that we betrayed the trust of our stakeholders and we apologise unreservedly. We know that action is critical to restore confidence in our firm and rebuild trust with our stakeholders and I am committed to taking all necessary steps to make this happen.”
Looking at the wider issue, Andrew Polson, CEO of Melbourne-based asset consultant Frontier Advisors, told AsianInvestor this development may cause businesses to think more broadly and carefully about the service providers they use.
“We would be enthused if it meant that asset owners seek more independent and specialist advice from providers that focus in and offer more depth and understanding of specific key areas, as opposed to being attracted to using large generalist firms or models that are inherently conflicted.”
“We might see businesses begin to split these contracts out – for tax, business strategy, HR and technology and governance requirements, for example - to dedicated specialist advisers free of linkages that, rightly or wrongly, create doubt or worse. It may be more internal effort but is likely to prove an economic choice and will almost certainly ensure better alignment of interests, more informed outcomes and greater transparency.”
Gordon Noble, research director at the UTS Institute for Sustainable Futures, told AsianInvestor that similar social licence breaches have in the past resulted in catastrophic impacts for the business in question.
"In Australia we only need to go back to the days of HIH, FAI and a score of other corporate collapses to understand that once trust is gone it is extremely hard to recover. What happens to PwC is up to its clients to decide. The timeline that PwC has to demonstrate that it can regain trust is, however, short."