In a scathing report, a parliamentary committee has called for sweeping changes to Australia’s big four consulting firms, exposing a culture that “thrives on conflicts of interest” and a “relentless pursuit of profit at any price.” The joint committee on corporations and financial services, which investigated the industry in the wake of the damaging PwC tax leaks scandal, has recommended dramatic reforms to enhance accountability and reduce conflicts of interest at the influential firms.
Separation of Audit and Consulting
Central to the committee’s recommendations is a call for the operational separation of audit and consulting services at large multidisciplinary firms. This would prevent firms from simultaneously auditing an organization’s accounts while providing potentially conflicting services such as research, restructuring, project delivery, or management. Labor Senator Deborah O’Neill, who chaired the inquiry, emphasized the importance of this reform:
This is a crucial recommendation which will ensure that firms aren’t perpetually caught in conflicts of interest and compromised in the provision of audit services by a desire to retain clients in more profitable other sections of their firm.
– Senator Deborah O’Neill
However, the committee stopped short of demanding full structural separation, which would require audit and consulting services to be registered as separate legal entities. Greens Senator Barbara Pocock unsuccessfully pushed for this more rigorous approach.
Capping Partner Numbers
Another key proposal is to slash the number of partners at big four firms to a maximum of 400, bringing them in line with caps already in place for law firms. Currently, partner numbers at the big four range from around 650 at PwC to over 1000 at Deloitte. The committee argues this reform would help ensure joint and several liability is more operable.
The government has been urged to allow a transition period of up to five years for firms to implement the partner reductions. Senator Pocock backed the partner cap in principle but advocated for an even lower limit of 100.
Political Donation Ban Rejected
Notably absent from the committee’s recommendations was a ban on political donations by the big four, a reform championed by the Greens but opposed by the government. Over the past decade, the firms donated over $6 million to the major parties while securing $8.5 billion in government contracts. The government maintains these donations do not influence outsourcing decisions made by public servants.
Strengthening Oversight and Penalties
To further bolster accountability, the inquiry called for:
- Tougher penalties for misconduct
- Resumption of random audit inspections by the corporate regulator ASIC
- A new government body to register consultants
- A code of conduct for consultants
Bringing Work Back In-House
The federal government has already moved to reduce spending on consultants, cutting nearly $900 million since taking office. Finance Minister Katy Gallagher announced a further $527 million of “core work” usually outsourced to consultants would be shifted back to the public service this financial year, including developing cabinet submissions, drafting legislation, and leading policy formulation.
The parliamentary report marks a watershed moment for the embattled consulting industry, laying bare endemic conflicts and a toxic profit-driven culture. With the government poised to legislate stronger guardrails around the big four’s operations, the onus now falls on the firms themselves to embrace meaningful reform – or risk even more dramatic intervention down the line. As Senator O’Neill declares, the days of treating conflicts of interest and professional ethics as optional are well and truly over:
We have documented a broad and relentless pursuit of profit at any price, with the revelation of practices that jettisoned even the most basic principles of ethics and professional accountability.
– Senator Deborah O’Neill
The big four now find themselves at a critical juncture – adapt to the new regulatory reality and re-earn public trust, or face being cut down to size. With their vast influence over corporate Australia and government in the balance, the stakes for the industry juggernauts have never been higher.
