Outrage Ensues as Deloitte CEO Justifies Lavish $3.5m Pay Amidst Demands for Professional Services Overhaul and Royal Commission Investigation

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In a climate of mounting demands for reform and transparency within the professional services industry, the Deloitte CEO’s defence of his extravagant $3.5 million salary has ignited a wave of outrage, fueling calls for a comprehensive overhaul and a royal commission investigation.

During a Senate inquiry, Deloitte’s CEO, Adam Powick, expressed concerns about the consulting sector’s lack of apparent oversight and misconduct reporting rules. In a heated exchange, he acknowledged that his salary is seven times that of the prime minister’s was questionable.

The inquiry, which also included former competition chief Allan Fels and whistleblower Brendan Lyon, advocated for the breakup of the big four consulting firms and called for a royal commission into the sector, respectively.

Furthermore, a former PwC director, Tracey Murray, alleged that certain aspects of the firm’s tax leaks scandal would have been widely known within the tax practice.

Big Four Firms Under Scrutiny: Regulatory Loopholes And Lack Of Oversight Raise Concerns

Initially triggered by the PwC tax leaks scandal, the inquiry has now expanded to encompass not only the big four firms but also Deloitte, KPMG, EY, McKinsey, and Boston Consulting Group.

A recurring theme in the discussions is that the partnership structure of the big four firms allows them to evade the regulatory oversight and disclosure required of other large private companies. Self-regulation within the sector has proven ineffective, and the firms, particularly the strategy consulting ones, have been reluctant to divulge operational details to the Senate committee.

Responding to Labor senator Deborah O’Neill, Mr Powick concurred that there needed to be more regulating the big four accounting and consulting firms.

During the hearings, Senator O’Neill confirmed that the firms’ auditors fell under the purview of the Australian Securities and Investments Commission and Chartered Accountants ANZ. At the same time, the Tax Practitioners Board covered tax professionals.

Regarding the firm’s consultants, Senator O’Neill raised questions about regulatory requirements. Deloitte Australia chairman Tom Imbesi acknowledged gaps in the regulatory oversight of some professionals within the firm. 

Mr Powick admitted that the regulatory oversight and reporting requirements for consultants were unclear, saying, “There’s certainly a lack of clarity.”

Tax Leaks, Confrontations, And Jaw-Dropping Salaries: A Regulatory System Exposed!

Senator O’Neill, who played a significant role in revealing the extent of the PwC tax leaks, remarked, “I believe what you have demonstrated is a compartmentalised regulatory system, a complex and ineffective regulatory system, and a complete absence of accountability within the sector for identifying those who violate its principles.”

This exchange was one of several contentious moments between Mr Powick and Mr Imbesi from Deloitte, Senator O’Neill, and Senator Barbara Pocock from the Greens.

Mr Powick defended his $3.5 million salary against criticism, asserting that his compensation resulted from the “free market.”

In response to Senator O’Neill’s question about whether he genuinely deserved a salary seven times higher than the prime minister’s, Mr Powick answered, “No.” 

Senator O’Neill justified her question’s relevance by pointing out that approximately a quarter of Deloitte’s revenue for the 2022-23 period was derived from public sector work.

Mr Powick explained that comparing salaries between the consulting and political realms was challenging due to their operation within distinct systems.

“It’s a difficult argument to make. It is not my position to discuss professions and different systems,” he stated. “We operate within a free market… I have never determined my salary, and it is set to align with others who fulfil similar roles in our profession… I consider myself incredibly privileged and fortunate to earn what I do.”

Deloitte Clears Its Name, But Questions Remain

Regarding the investment scheme involving former partner Amberjit Endow, Mr Powick declined to disclose it to Senator Pocock when he initially became aware of it. He repeatedly maintained that this information about the scheme’s timing was “private and personal.”

Mr Endow, a former senior Deloitte partner, allegedly ceased communication with some investors in a fund he established around December, causing concerns about the potential loss of their investments.

Mr Imbesi clarified that Deloitte had investigated and determined that Mr Endow’s scheme “was not endorsed or sanctioned” by the firm or any partners who invested in it. The chairman emphasised that the firm had a robust system to track partner investments but that it was not their responsibility to evaluate individual partners’ assets.

Senator Pocock criticised the lack of evaluation, highlighting the absence of a genuine safeguard for the public interest. “Your organisation’s leadership was investing in this scheme, and you paid no attention to its implications for the firm’s reputation. I am astonished,” she expressed.

Challenges To The Partnership Model’s Integrity

Professor Lyon summarised the operations of the big four consulting firms within existing regulations, describing their approach as a “bastardisation of the partnership model” that enables them to create a “risk-free, tax-free, and consequence-free model.”

He stated, “[The] big four firms function as pseudo-corporations; however, by structuring themselves as partnerships, they avoid paying Commonwealth company tax. They are exempt from state payroll tax and are not subject to directors’ and officers’ duties. Additionally, as discussed during the committee hearing, they do not disclose executive remuneration reports, provide audited financial statements, and ASIC lacks the power to regulate or prosecute them.”

He recommended the government appoint a federal auditing regulator, initiate a royal commission into the big four consulting firms, and establish a public sector consultant rotation scheme.

Furthermore, he expressed dissatisfaction with the performance of the professional body Chartered Accountants Australia & New Zealand (CA ANZ) in regulating the big four consulting firms. He suggested that CA ANZ keep its professional scheme until it expires next year.

CA ANZ: Where Self-Regulation Falls Short And Controversies Abound

CA ANZ is an accounting body representing, training, and disciplining its members. Members of the big four accounting firms must adhere to its codes and standards.

According to Professor Lyon, CA ANZ “has little motivation to oversee its largest and most influential member firms effectively. This heavy reliance on self-regulation distinguishes Australia from other contemporary peer economies, as most countries have transitioned to independent public regulation due to the failures of self-regulation.”

He also criticised CA ANZ for providing conflicting information regarding its investigation into his allegations concerning the involvement of KPMG partners in developing the controversial Transport Asset Holding Entity in New South Wales.

CA ANZ has previously faced criticism from its members for a perceived delay in taking action regarding a previous cheating scandal involving KPMG. The organisation intends to propose new rules to strengthen its disciplinary process through voting.

Former PwC director Ms Murray stated that she wrote a letter to emphasise that the tax leaks scandal would have implicated numerous individuals within PwC. Ms Murray’s tenure at PwC concluded in 2005.

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