There’s a familiar cadence to the path of the KPMG scandal involving the firm’s misuse of confidential client information to help with recruiting new clients.
Tuesday’s announcement of the departure of KPMG chairman Martin Sheppard and two senior partners fits neatly into the sequence of this kind of scandal.
History shows that the way these events – most recently the disaster at PwC – unfold amounts to death by a thousand cuts, but that the firm’s initial response is to the optics and to pretend it’s a cure.
Once several sub-optimal attempts have been made to deal with the problem, the firm ultimately takes the nuclear path of admissions and accountability. But this takes time and inflicts more pain.
So why doesn’t a firm like KPMG cut to the chase and start with a massive board and management overhaul?
Because those making that decision are those in the firing line. Self-preservation trumps everything else until there are no other options.
KPMG began with general denial. In this case, it was that the behaviour alleged by a whistleblower either couldn’t be confirmed, wasn’t true, was exaggerated or stemmed from a workplace grievance.
Sounds familiar for those who followed the entrails of the PwC scandal. It was the media that exposed this firm’s use of confidential government information around impending tax changes being used to market its services to new clients.
The playbook response is to undertake an internal investigation – in KPMG’s case it contracted two different external law firms to supposedly examine the allegations – both of which found there was nothing to see there.
But it was not until the allegations became public and the temperature rose that the scandal began its real snowball and clients, the government and the media demanded consequences.
First, the firm’s chief executive and audit head resigned while its chief operating officer accepted a demotion. But as additional intelligence was garnered, there was a greater thirst for more reprisals.
Now, a month on from Labor senator Deborah O’Neill exposing KPMG’s alleged client confidentiality abuses, we are entering a new phase of the long-tail scandal.
This is the point at which insiders are coming out of the woodwork and detailing their concerns about KPMG behaviour.
Former directors including Mike Baird have fessed up to having been too trusting of KPMG management, although his departure from the firm’s board was more about a professional scheduling problem than the treatment of the whistleblower, which he was also uncomfortable with.
Baird said that before he resigned, he had been assured by management that there was no substance to claims from a whistleblower that senior KPMG staff had shared data from blue-chip clients including Lendlease to win business.
Investigating law firm Ashhurst has also distanced itself from KPMG, with the law firm’s partner, Jane Harvey, telling the Senate inquiry that it had never been asked to investigate the whistleblower’s allegations.
Friday’s Senate inquiry session was about as damaging for KPMG as could be imagined, thanks to the whistleblower’s claims.
Just four days afterwards, Sheppard and two top audit leaders at KPMG announced their departures.
In a submission to the Senate committee, the whistleblower said KPMG moved to fire and discredit him within a month after he raised concerns about the use of confidential client files.
And the sting in the tail? The treatment he endured made him declare he would not go public again.
Whether a firm like KPMG would make the same mistakes though, is another question.
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