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PwC has lost social licence to self-regulate: Senator Pocock

Regulation

The reforms PwC plans to adopt in response to the tax leaks scandal have no teeth and will not see a significant shift in behaviour, the Senate inquiry heard.

By Miranda Brownlee 10 minute read

PwC’s planned reforms in the wake of the Switkowski Report have no teeth and the firm has now lost its social licence to self-regulate, Senator Barbara Pocock told CEO Kevin Burrowes at the Senate hearing into consultancy work yesterday.

Ms Pocock said the recommendations by Dr Ziggy Switkowski in his report essentially promoted self-regulation as the way forward for PwC, allowing the firm to continue to govern itself “far from the prying eyes of the Corporations Act”.

In response to the report’s recommendations, PwC had committed to appointing three non-executive independent directors, planned to publish audited financial statements and apply the ASX corporate governance principles.

But Ms Pocock said the changes lacked bite.

“They are motherhood statements about how good governance should look. But isn’t it the case that as things stand, there are no regulatory consequences if you don’t do any of these things, they do not have teeth, they do not constitute a significant shift in your regulatory framework?” asked Ms Pocock.

“You are offering further self-regulation, which we as a Senate and the Australian public no longer trust you to apply.”

“You have lost your social licence to self-regulate and the self-regulations you offer are completely inadequate to the challenges and the disaster that you presented to the Australian people.”

Mr Burrowes and two other PwC executives appeared before the Senate Finance and Public Administration References Committee to answer questions about misconduct within the firm centred on the sharing of tax secrets by former partner Peter Collins.

Ms Pocock said that the established regulatory frameworks had failed in response to the misconduct at the firm, with PwC essentially existing in a “regulatory haven”.

“You do not have the duties of directors and officers under the Corporations Act, including the duty to exercise reasonable care and diligence and the duty not to improperly use information to gain an advantage. You avoid criminal liability and civil penalty liability for unlawful conduct, including offences under the Criminal Code and the Competition and Consumer Act and the Privacy Act and ASIC cannot make an independent investigation as I understand it into your conduct,” she said.

“These are all major regulatory gaps which create regulatory havens for you. None of the propositions you put to us deal with those regulatory gaps.”

PwC chief risk and ethics leader Jan McCahey said the firm would be open to the government strengthening the regulatory framework in any way it decided was appropriate.

“We know that the Treasury has a review underway and we will cooperate very closely with Treasury to share whatever information they would like and to make sure that we uphold the regulatory framework that is put in place, we've already shared our comments in relation to that with some individuals,” said Ms McCahey.

“The PJC (parliamentary joint committee) is in the midst of considering some of those issues as well. And we have our response to that committee and I'm looking forward to having some further discussions.”

At the same hearing, Senator Deborah O’Neill questioned the independence of the Switkowski Report, describing it as an “internal review” rather than “independent review” with PwC setting the terms of reference for the review.

“Dr Switkowski was paid to do this job by PwC, it is an internal review that has been made public and the terms of reference have never been made public. On page 10 of the report Dr Switkowski describes the limitations that were placed on him,” said Ms O’Neill.

She said the review failed to include interviews with several former PwC partners who were unavailable as a result of retirement or exit from the partnership during the course of the review.

She said the report used the term “CEO” on 71 occasions but failed to name any of the CEOs who were responsible.

“I urge you to resist trying to frame this as an independent report. It is an internal document, commissioned by PwC, paid for by PwC, with significant limitations, that tells a story captured at a particular moment of time.”

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