Are audit and tax next in inadvertent PwC Australia break-up?

With the planned divestment of its government consulting business, will PwC Australia inadvertently achieve what EY and government regulators couldn’t at the global level, breaking apart the Big Four?

In one of its first steps toward public redemption after jettisoning former CEO Tom Seymour, embattled professional services firm PwC last month stated that it would ‘ring-fence’ its government consulting practice in response to its scandalous tax policy breach. The firm will now throw the lucrative business overboard as well, with interim CEO Kristen Stubbins saying the earlier approach didn’t go far enough. But many questions remain.

The decision to ditch its government consulting business for just $1 to turnaround specialist Allegro Funds, even amid the current circumstances, is a bold one. Last year, the practice contributed one fifth of the firm’s overall revenues, which are now pushing toward the $3 billion mark.

PwC has long frustrated its closest current rivalDeloitte – not so long ago at the bottom of the local ranks – by having remained stubbornly out of reach. It will now voluntarily cede top spot.

Indeed, such a revenue hit could see PwC drop to the bottom of the local Big Four pile, an unprecedented status hit compared to almost any other advanced economy in the world, in a locale with one of the consistently highest per capita consulting spends. Naturally, global chairman Bob Moritz is highly unimpressed, noting the firm’s past leadership failures in a press release announcing UK partner and outsider Kevin Burrowes as PwC Australia’s next CEO.

The same press release declared PwC’s intended sale of its government consulting business for a proverbial packet of crisps (or less, considering the current rates of inflation). The firm hopes its latest, most drastic move will draw a line under the scandal and ease the public furor, with the majority of those recently polled agreeing that the firm should cop a permanent ban from government contracts. But the move might open up a whole other can of ‘Pringles’.

Once you pop you can’t stop

While “protecting the jobs” of the 130 or so partners and 1,750 staff of its government consulting practice might sound like a noble cause, it’s highly likely the sale is being driven by those on the inside, backed by the caliber of consultants rumoured to be crossing to the new entity, which is currently code-named ‘Bell’.

Then there’s the firm’s Tax business, which may never get government-related work again, and its core Audit division, which seems to be losing contracts by the week.

Compounding the issue is the likely disenchantment felt by the 50 or so intended new partners who have had their mid-year admissions delayed, along with those who are likely looking to leave and others who will now never come amid a massive skills shortage and fight for senior talent. If Audit looks to break away as well, as Tax dissolves, PwC may just unintentionally achieve what EY's global operations couldn’t, breaking the business into crumbs.

Last year, PwC topped $50 billion in global revenues, up by around 13.5 percent in local currency terms, on the back of what it says is its ‘New Equation strategy’ built on the concept of ‘trust’. Assurance, which covers audit, contributed $18 billion to that figure, while Tax & Legal was worth over $11.5 billion. Advisory has however been the firm’s biggest growing market and number one money-spinner for a number of years, now worth over $20 billion alone.

Government response

As has been the case to date, one of PwC’s most prominent prosecutors in the Australian Senate – Labor’s Deborah O’Neill – has again been unmoved by the firm’s latest efforts to score some sort of reprieve, stating; “PwC has been very, very slow with very resistant responses to public inquiries and yet we have this unseemly haste, with a profit-driven motive, to try and phoenix itself back into some sort of connection with the government.”

In an ominous warning for the proposed new entity, O’Neill continued; “Let’s face it, people who have been on the partner track for most of their life have been [indoctrinated] into the ways of PwC, which have now been revealed as contemptuous. There is a very big bridge between where PwC currently stands and any modicum of trust that a government might have with services provided to them by a company still dominated by a majority of PwC staff.”