PwC Australia recommended the firm be broken up to avoid conflicts of interest and address concerns about declining audit quality in 2018, but was blocked by the global executive, its former chief executive Luke Sayers has told an inquiry.
Sayers told a Senate inquiry that the firm’s Australian leadership had launched “Project Kookaburra”, a process aimed at having its consultancy business sold. Management was also concerned about the then ongoing royal commission into financial services, he said.
“As the chief executive officer of PwC Australia, I had significant concerns about the conflicts of interest inherent in a large professional services firm and said so,” said Sayers, who led the organisation from 2012 to 2020.
“In the final two years of my tenure, I strove to mitigate the risks associated with that and deliver fundamental structural reform. But I was unsuccessful.”
Sayers, who again denied any knowledge of his firm’s misuse of confidential Treasury information during his tenure as chief executive, said he was also “concerned about the audit quality” at the time.
After seeking advice from the inquiry chair about a non-disclosure agreement he signed with PwC Australia, Sayers said the executive team spent about 12 months considering a possible sell off to address their concerns.
“One of the recommendations that came out of that specific project was to divest the consulting business – not just the public sector consulting business, but the entire consulting business,” Sayers said.
The proposed sell-off would have allowed money from consultancy divisions to be redirected to its audit services. Sayers told the inquiry that he and a team had flown to New York to discuss the proposal with PwC’s global chairman, Robert Moritz.
“The decision was taken by global that, whilst understanding the complexity and the risks and so on and so forth, it was not pragmatic to sell a piece of global consulting here in Australia and not divest that elsewhere in other jurisdictions around the world,” Sayers said.
PwC Australia ultimately divested its government consultancy businesses to the private equity firm Allegro Funds for just $1, after a reputation crisis led to many government departments refusing to give it more work. Its private sector consultancy business has continued.
On Thursday, the federal finance department gave permission for PwC Australia contracts to be transferred over to the new spin-off company, Scyne Advisory.
The revelation is likely to add to calls to break up the big four consultancy firm, as advocated for by the former chair of the Australian Competition and Consumer Commission Allan Fels.
The Labor senator Deborah O’Neill told the inquiry that PwC Australia had, in previous submissions to the Senate, argued that “such a breakup was not a good idea and should never occur”.
“That makes me very much question the interactions of PwC with the Senate under your leadership,” O’Neill said.
“This was going on in one part of the business [while] the public documentation to the Senate was a denial that such a thing should ever occur because it would make the business unable to basically operate.”
The culture and practices of PwC Australia during Sayer’s tenure as chief executive have been criticised by senators running the inquiry. On Thursday, Sayers offered another apology.
“The breaches of confidence and the failure to properly identify and address them happened on my watch and I sincerely apologise,” Sayers said.
PwC Australia’s current chief executive, Kevin Burrowes, also apologised to the Senate while confirming six international partners were facing investigations for not raising the alarm when they received confidential government information.
“Six of our partners around the world were found to have not asked the questions they should have done in connection with the confidentiality breaches,” Burrowes said. “The firms in which they reside are taking appropriate action against them.”
The inquiry’s chair, Liberal senator Richard Colbeck, said he was personally offended by PwC Australia’s conduct and expressed alarm about an internal investigation led by former Telstra executive, Ziggy Switkowski.
“It was almost depressing every time I started a new section of the report because it basically reinforced at each level how crap things were inside your business. I mean, it was just terrible,” Colbeck said during the hearing.
Burrowes did not dispute Colbeck’s assessment and said: “The situation is deeply disappointing and Dr Switkowski’s review is very difficult for us to read.”
