From an ethical crossroad to moral collapse at PwC
The ethical failure at PwC sent shockwaves through business and government. During my current travels, where I’ve engaged with leaders from Europe, the UK, and the US, the topic has surfaced in nearly every conversation, always met with a mix of disbelief, despair, and dismay.
In case you are not up to speed, here are the cliff notes: Peter Collins, a partner in the Australian firm, was advising the Government on new legislation to ensure multinational firms paid their fair share of local tax. Meanwhile PwC was advising clients on strategies to lessen the impact of this same legislation, and winning new clients on the back of this inside information.1 Perhaps I haven’t quite captured the nuance of this, however I’m sure you can readily grasp the problem. Imagine paying your doctor for unbiased medical advice, while they secretly benefit from promoting specific medications. In fact, you don’t need to imagine, because that is what opioid manufacturers did in the US.2
The repercussions for PwC were swift and severe: Collins faced termination, the local CEO resigned, and a number of partners have been stood down.3 PwC has had to excise its Australian Government consulting business—which had generated up to 20% of the firms revenue4—to protect itself from the fallout as the Government blacklisted the firm.
PwC sought answers to this disaster, including commissioning an investigation by Dr Ziggy Switkowski, a highly regarded executive and director. The comprehensive 80-page analysis laid bare the systemic issues within the firm. Here are the cliff notes on what went wrong and how to fix it: PwC prioritised profit over values, so give people values training and link their behaviour to their remuneration. (As an aside, can you see this continued use of money to drive behaviour? What could possibly go wrong?) The underlying sentiment is clear: self-interest overshadowed the company's proclaimed values.
The broader problem: another in a long line of ethical failures
The PwC ethical failure is just the latest in a long list of corporate misconduct. Most leaders recall the Enron and Arthur Andersen scandals, and most others have probably seen the case studies. These incidents gave rise to Authentic Leadership theory, that argued authentic leaders act in accord with their values, assuming those values were inherently ethical. Yet, the relationship between ethical competence and authentic leadership remains somewhat tenuous. Despite extensive leadership research and countless leadership training programs, the tide of ethical failures shows no signs of ebbing.
At the heart of numerous corporate ethical lapses is a pervasive tension: a clash of cultures. A clash between the organisation's profit-centred values and the personal values of its people.
Why is that: because we overlook transformation
But why this recurring pattern, among each new generation of leaders? The answer is because of a pervasive misconception that equates ethics training with self-mastery, with deep-rooted personal transformation. Attendance at an ethics course, and gaining a high distinction on the exam, does not make one more ethical, more honest, or more trustworthy. As my late son, Joseph, insightfully noted after doing such a course: “it just showed me who not to do business with.” He was quietly observing that, in the absence of personal transformation, people will use supposed ethical arguments to justify their desired outcome.
The central dilemma: Personal v Corporate values
Here is the nub of the issue. While the Switkowski report calls for training in values, it fails to identify the deeper drivers of poor behaviour and the remedy required. At the heart of numerous corporate ethical lapses is a pervasive tension: a clash of cultures. A clash between the organisation’s profit-centred values and the personal values of its people. Nowhere is this tension more evident than in the recent case of PwC.
However, PwC’s Code of Conduct paints a picture of a firm standing in a deep ethical and moral grounding. Regarding values, the PwC Code of Conduct says:
Act with integrity: Speak up for what is right, especially when it feels difficult. Expect and deliver the highest quality outcomes. Make decisions and act as if our personal reputations were at stake.
Make a difference: Stay informed and ask questions about the future of the world we live in. Create impact with our colleagues, our clients and society through our actions. Respond with agility to the ever changing environment in which we operate.
Care: Make the effort to understand every individual and what matters to them. Recognise the value that each person contributes. Support others to grow and work in the way that brings out their best.
Work together: Collaborate and share relationships, ideas and knowledge beyond boundaries. Seek and integrate a diverse range of perspectives, people and ideas. Give and ask for feedback to improve ourselves and others.
Reimagine the possible: (on this one PwC excelled themselves) Dare to challenge the status quo and try new things. Innovate, test and learn from failure. Have an open mind to the possibilities in every idea.
The Code clearly emphasises integrity, collaboration, innovation, and care, although it is difficult to discern a compelling moral theme in the values. When Collins and his colleagues decided to “reimagine the possible”, their choices appeared to be grounded not in the broader good, but in self-interest. While PwC’s code urges individuals to “speak up for what is right”, it appears those who did so were shouted down.
This raises a fundamental point: ethical decisions and moral action should be intuitive. No reasonable person, when acting in good conscience, should require a code of conduct to grasp the inherent conflict in advising both the government on legislation and clients on circumventing it. Yet, even well-intentioned individuals, when caught in the crosswinds of corporate incentives and personal morality, can find ways to justify inherently immoral actions.
This shift, from an action to post-rationalisation of that act, hints at a deeper, systemic issue in how we approach ethics in the corporate world. We rarely change our mind about something. We first change our behaviour, and then change our mind to justify it. And here lies the solution to the problem.
No reasonable person should require a code of conduct to grasp the inherent conflict in advising both the government on legislation and clients on circumventing it
From collapse to conversion: climbing out of the ethical abyss
The moral dilemmas we see, like the PwC scandal, underline a profound tension between integrity and incentives, the personal and the profitable. In a subsequent article we will turn our attention to the question of what can be done, and highlight how some companies, like Ritz-Carlton, integrate values into daily practices, and so create a shared ethical culture. While the Switkowski Report underscores the significance of these challenges, it overlooks a missing ingredient: the need for deep, genuine personal transformation. As we've seen, a code of conduct or even a list of values isn't enough. But how do we embark on this journey of profound change, both as individuals and organisations? Keep an eye on your inbox for the next instalment, where we will delve into the essence of true transformation and the strategies that can nurture and sustain it in the corporate world. In short, you will learn how to avoid the abyss.
https://www.abc.net.au/news/2023-06-05/pwc-pricewaterhousecoopers-government-tax-leak-scandal-explained/102409528
https://www.cnn.com/2018/03/11/health/prescription-opioid-payments-eprise/index.html
https://www.abc.net.au/news/2023-06-05/pwc-pricewaterhousecoopers-government-tax-leak-scandal-explained/102409528
https://www.abc.net.au/news/2023-06-05/pwc-pricewaterhousecoopers-government-tax-leak-scandal-explained/102409528
I so agree that written values don't translate into a way of being unless the culture is permeated with them. In my experience the question of ethics and desire for self-transformation is undermined by our deep human belief that we're good on the inside. We can therefore equate an aim for self-transformation to an affront on this belief. I also think it is always easier to see unethical behaviour as an outsider, or with the benefit of hindsight, but to see it as we act - and moreover do something about it - requires a higher power. This is why I believe that the tone of the culture and the values of an organisation are the biggest influencers of ethical behaviour in an organisation. And that tone of course is set right from the top. In other words, the idea of training people on how to be more ethical is perhaps an exercise in futility; the aim should be to replace those 'fallen angels' with people who live and breath those values.
Trying to change the ingrained and established practices in an organisation of this size is I think analogous to treating addicts. It needs more than intent and willpower, it needs a firm, shared belief in something bigger than profit.
And that is not likely to happen here.