Chairman’s departure is just one of a thousand cuts
There’s a familiar beat to the proceedings of the KPMG scandal, which involved the firm misusing confidential client information to help acquire new clients.
Tuesday’s announcement of the departure of KPMG chairman Martin Sheppard and two senior partners fits neatly into a string of such scandals.
History shows that the way these events unfold (most recently the disaster at PwC) amounts to death by a thousand cuts, but the firm’s first response was to appeal to optics and claim that this was a cure.
After several suboptimal attempts to solve the problem, the firm eventually resorts to the nuclear route of acceptance and accountability. But this takes time and causes more pain.
So why doesn’t a firm like KPMG just cut to the chase and start with a major board and management overhaul?
Because those who make this decision are the ones in the line of fire. Self-preservation trumps everything until there is no other option.
KPMG started with general denial. In this case, it appeared that the behavior alleged by the whistleblower was either unverifiable, untrue, exaggerated, or resulted from a complaint at the workplace.
It sounds familiar to those who have been following the innards of the PwC scandal. It was the media that exposed this firm as using confidential government information about upcoming tax changes to market its services to new customers.
The playbook answer was to conduct an internal investigation – in KPMG’s case, two different external law firms were contracted to review the allegations – both of which found there was nothing to see there.
But it wasn’t until the allegations became public and the temperature rose that the scandal snowballed into reality, and customers, the government and the media demanded consequences.
First, the company’s chief executive officer and head of audit resigned, while the officer in charge of operations accepted the demotion. But as additional intelligence was gathered, the temptation to retaliate further grew.
Now, a month after Labor senator Deborah O’Neill exposed KPMG’s alleged breaches of client privacy, we are entering a new phase of the long-tail scandal.
This is the point where insiders came out and detailed their concerns about KPMG behavior.
Former managers, including Mike Baird, admitted that they had placed too much trust in KPMG management; But his departure from the company’s board was related to a professional planning issue rather than the treatment of the whistleblower, which he himself was upset about.
Before resigning, Baird said he was reassured by management that there was no basis for a whistleblower’s allegations that senior KPMG staff shared data on blue-chip clients, including Lendlease, to win business.
Ashhurst, the law firm investigating, distanced itself from KPMG, with law firm partner Jane Harvey telling the Senate inquiry that it was never asked to investigate the whistleblower’s allegations.
Thanks to the whistleblower’s allegations, Friday’s Senate investigative hearing was as damaging for KPMG as one could imagine.
Just four days later, Sheppard and two senior audit leaders at KPMG announced their departure.
The whistleblower said in a submission to a Senate committee that KPMG moved to fire and discredit him within a month of him raising concerns about the use of confidential client files.
What about the pain in the tail? The treatment he was subjected to led him to declare that he would never go public again.
Whether a firm like KPMG will make the same mistakes is another question.
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