Posted on: October 23, 2023
Small Business Lessons from the Recent PwC Saga
The recent PwC scandal doesn’t only affect the top end of town. There are also plenty of lessons for SMEs about how not to do business.
At the crux are the issues of contract breaches, conflicts of interest and professional indemnity. Let’s take a closer look.
An overview of the financial saga
PwC, short for PriceWaterhouseCoopers, is a multinational professional services group, which its website says offers “Trust Solutions and Consulting Solutions”. Those cover IT, cybersecurity, privacy, governance, risk transformation and tax services.
An email trail allegedly revealed PwC had shared confidential government briefings on multinational tax consultations within and outside of its business. It’s reported that unauthorised disclosures allowed US technology giants to circumvent Australian tax laws.
Government response and reforms
The scandal has triggered:
- A Federal Police criminal investigation
- Two federal and one state parliamentary inquiries
- Federal government departments ending contracts with the largest four consultancy firms as well as reviewing all professional firms
- The set up of a new National Anti-Corruption Commission
- A Federal review of its tightened procurement rules, which allowed more flexibility to end contracts for a material breach
- In August, the Federal Government said it would conduct eight reviews and crackdown on tax advisers.
Companies and advisers promoting tax exploitation schemes risk maximum penalties of $780M-plus. But which changes make it into law is yet to be seen, with a senior columnist from the Australian Financial Review saying it could be a rocky road to legislation.
Professional indemnity and breach of contract insurance
For all businesses, there has been an increased focus on protection against and management of legal liabilities from contract breaches, especially confidentiality agreements and conflicts of interest.
Professional indemnity insurance typically doesn’t cover intentional breaches or acts of fraudulent dishonesty. Despite that, a policy would cover an individual’s defence of such a claim until there’s a final decision. That is the same as the legal principle presuming innocence. If the individual is found guilty, they’ll have to reimburse their insurer the defence costs, plus any costs awarded to the plaintiff.
Lessons to be learnt
Apart from the above issues about professional indemnity, breach of contract, ethics and reputation at tighter laws on the horizon, the spotlight is on PwC’s moves when the allegations hit the news.
PwC may have acted too quickly to force partners to resign, with one subsequently cleared and considering a defamation claim. Another partner says the company did not follow due process in forcing him to resign. The lesson here is businesses should avoid reacting to allegations and standing down staff before they complete investigations and due processes.
Another take-home message about the PwC saga centres on managing risks to your business internally first. Building and maintaining trust and integrity are paramount.
Professional indemnity insurance should be part of your risk management strategy. Feel free to quiz us about this important cover.