What on Earth were they thinking?

“The key pillars that underpin trust in our profession are our Code of Ethics, our By-Laws and our professional standards. Our focus is on ensuring the continued strong standing of the CA designation and that the profession’s trust and integrity are upheld. Any violation of these pillars will be pursued vigorously by CAANZ.”

These uplifting words are contained in a letter sent recently to all members of Chartered Accountants Australia and New Zealand (including this writer). It followed the disclosure of the PwC conflicts of interest scandal allegedly involving that firm profiting from the disclosure to clients of highly sensitive and confidential information obtained through multinational tax reform consulting with the Australian government.

Clearly, this letter was designed to reassure members and a horrified Australian public that the organisation is taking the matter seriously and will act to uphold the profession’s reputation. I’m not exactly sure what these words will mean in practice, but I assume some members may be stripped of their professional designations and will suffer considerable reputational and financial damage (at the very least).

Commentators and politicians across the political spectrum are quite right to ask how this could happen. What on earth were they thinking? After all, aren’t these people elite university qualified professionals who constantly tell themselves, their staff, their clients and the public that they adhere to the highest ethical standards and can be trusted to act with absolute integrity at all times?

Central to those standards is the requirement to avoid (not just to disclose) conflicts of interest. This is the foundational standard upon which unconditional trust is built in any true profession. Without it, a profession cannot exist. In the context of the financial advice industry, this is why Standard 3 (which some people would prefer to dilute) is in the mandatory Code of Ethics and is vital to its effective operation.

Therefore, a key question that must be answered in the enquiries that will inevitably follow this scandal is whether the apparent failure to avoid conflicts of interest is a systemic problem within PwC and more importantly, within the accounting profession as a whole.

We can be sure that some participants will try to play down the scandal as an isolated historical act of a few “bad apples” who have since been stood down. Nothing to see here. Problem solved! Predictably, we’ve already heard from another large accounting firm that “there is no joy in watching the reputations of talented and capable PwC partners and people being tainted by the actions of a few”. This sounds familiar in the context of the Hayne Royal Commission’s examination of the financial advice industry in 2019.

Sadly, the ability, credibility and sincerity of the professional accounting bodies to properly deal with this scandal is open to considerable doubt. That’s because they have constantly failed to deal with the damaging conflicts of interest that many of their members continue to have in offering financial advice to the public.

In fact, for nearly twenty years, the accounting bodies have supported the conflicted practices of those members by regularly delaying, obfuscating, resisting and rejecting permanent and comprehensive ethical reform. Concurrently, they have made reassuring public statements (using words like those in the latest letter from CAANZ) which claim to always support the highest ethical and professional standards, when in fact, they don’t do that at all, at least in the discipline of financial advice.

This is especially serious because financial advice is one of the most public facing professional services in which accountants are involved, arguably more so than international tax consulting which is not exactly an area to which the average Australian citizen can easily relate.

So why do the professional accounting bodies act in this way? I suggest it’s because they have gradually transformed themselves into financial services industry lobbyists, with the principal objectives of growing membership numbers and protecting members’ commercial interests. This has happened to the detriment of their traditional and foundational roles as defenders of the public interest.

Let me illustrate this transformation. I have been told on several occasions in recent years by senior leaders in the accounting profession that while ethics are important, of greater importance is for the accounting bodies to not set ethical standards at such a high level that members of the accounting profession who offer financial advice services are placed at a commercial disadvantage to other participants in the industry. This says it all really.

What these people are ignoring is that the accounting profession can’t have it both ways. It cannot “walk both sides of the street”, claiming to be a true profession, but not acting like one. This ethically compromised approach leaves the accounting profession wide open to claims of hypocrisy and it creates serious doubts about the trustworthiness and ethics of its participants. The same analysis applies to the profession of financial advice.

Here’s another illustration of this point. I’ve often been asked by members of the public during my financial education work whether they can trust a licensed and qualified accountant to offer personal financial advice that’s in their clients’ best interests. In a word, the answer is ‘no’, however, a more nuanced answer is that it depends on the ethical standards and practices of each individual accountant. This is hardly a resounding endorsement of the ethics of a cohort of people whose professional bodies claim that they can be relied upon to act with “trust and integrity”.

The fact that the accounting profession continues to allow its participants to offer financial advice services to the public while under the influence of such conflicts of interest causes considerable damage to the designations of the profession and to the personal and professional reputations of those who hold them.

The same analysis applies in this latest scandal. While the facts are quite different, the same conclusion must be reached. The PwC scandal is symptomatic of a failure of ethical leadership in the accounting profession over many decades. There is fault at many levels, including amongst individual members of the profession, the firm itself and the professional accounting bodies. This must not be reduced to the actions of a few misbehaving people. That it was, but it goes much deeper than that.

A true profession must genuinely believe in the substance of its ethical standards and it must require its members to live by them on a daily basis, sometimes to the members’ commercial detriment. These ethical standards are much more than fine words on a website or in a media release, designed to impress the public. And they are much more than a set of laws or compliance rules to be interpreted or avoided as members’ commercial requirements dictate with the quiet acquiescence of their professional bodies.

The lessons offered to the aspiring profession of financial advice from this latest conflict of interest scandal are stark. If it fails to learn from them, its designations will be devalued and the financial advice profession will never be trusted to deliver the outcomes that Australians desire and deserve.

I should add that my first job in the accounting profession was as an audit clerk at Coopers and Lybrand (now PwC). I loved it there and was well and truly convinced by that experience of my vocation as a chartered accountant serving the public interest. How times have changed.