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PwC is asking audit regulators around the world to reconsider strict rules on conflicts of interest to allow it to hire more independent board members, as the Big Four accounting firm seeks to improve its governance following a scandal at its Australian business.
The firm has promised to install an independent chair to oversee its Australian business and is also trying to expand its recruitment of outside board members elsewhere in the world.
However, it is running into problems finding experienced candidates who are unaffiliated with clients of the firm’s audit business or are prepared to commit to limiting their other engagements to comply with independence rules.
“By adding independent, external voices to our boardroom discussions, it not only makes debate less insular, but ultimately enhances the performance of the boards themselves,” PwC global chair Bob Moritz told the Financial Times.
“Given some of the structural complexities and the varying regulatory requirements on a country-by-country basis, our industry faces some inherent challenges in bringing in a sufficient number of qualified independent candidates,” Moritz added.
Unlike public companies that are typically expected to have a board that includes a majority of independent directors, the Big Four firms are structured as a network of locally-owned partnerships with governance arrangements that vary from country to country. Only some national audit regulators demand any independent board members at all, but those that do typically require them to be unaffiliated with any of a firm’s clients.
Under Moritz, PwC’s global leadership has for the past six years encouraged its local partnerships to increase their use of independent board members. The firm also has a governance board at the global level that is responsible for overseeing strategy and major investment decisions, where two seats out of 20 are reserved for outside members — although only one of the two is currently filled.
In September, PwC’s Australian business said it would hire three independent members to its local board, including a new chair, after a damning report into the culture and management of the firm. The report was commissioned after revelations that a partner had shared tax policy secrets gleaned from his work advising the Australian government.
PwC discussed its plans for improving governance in Australia on a call with audit regulators from around the world on November 27. The event, co-ordinated by the International Forum of Independent Audit Regulators, was a “factual information session”, according to IFIAR executive director Carl Renner.
Negotiations on making it easier to recruit independent board members will have to be conducted with IFIAR members individually, however, Renner said, as regulations are set on a national level.
“One of the things we’re raising with some of the regulators is could you do anything different so that we look at those rules country by country?” Moritz told the FT.
“PwC is committed to engaging with our stakeholders, including investors, academics and regulators, to seek ideas that lead to an increased presence of outside voices in our boardrooms,” he added. “We continue to believe this is very doable.”