The firm’s current and former partners worry this might eventually oblige the former PwC partners to disclose the size of payments to avoid the perception of a conflict of interest. A key worry is how it will look if the level of the PwC payments eclipses the payments the former partners receive from the board or commercial positions.
PwC declined to comment when asked about the retirement payments.
Meanwhile, listed telco Vocus has acknowledged non-executive director and former senior PwC partner David Wiadrowski, receives the firm’s retirement payments but said he did not take part in a decision to change auditors from Deloitte to PwC after he became chairman of the company’s Audit and Risk Committee.
A Vocus spokeswoman said Mr Wiadrowski “does receive a fixed retirement payment from PwC, but it is not dependent on the financial performance of PwC.”
She said Vocus issued a Request For Proposal for external audit services in September 2018, with two firms invited to present “after which management made a recommendation to the Audit and Risk Committee and Board that PricewaterhouseCoopers (PwC) be appointed as external auditors to Vocus.”
The spokeswoman said Mr Wiadrowski, who earned $174,940 from Vocus last year, “is a retired partner of PwC and was accordingly recused from the decision-making process at both Audit and Risk Committee and Board level.”
Vocus declined to provide any board minutes that recorded Mr Wiadrowski’s recusal. The telco also did not respond when asked if Mr Wiadrowski had declared the payment and its quantum to the board.
Shareholders were never told about Mr Wiadrowski’s ongoing PwC payments or that he had recused himself from the auditor tender decision.
Instead, in a statement made to the ASX just before Christmas, Vocus stated: “Following a review and receipt of a number of [auditor] submissions, the Company’s Board, on the recommendation of the Audit and Risk Committee, selected PwC on the basis of their reputation and experience, particularly with similar sized companies to Vocus in the telecommunications industry.”
Deloitte earned $1.6 million in fees from Vocus in 2018, made up of $1 million for statutory audit work and more than $560,000 for non-audit work. Deloitte is now acting as the telco’s internal auditor.
Governance groups and experts were split on whether the retirement payments were an issue that required disclosure.
The board of Vocus should have told shareholders that Mr Wiadrowski had not taken part in the auditor selection process, said accounting academic Amanda White of the University of Technology Sydney.
“Shareholders should definitely be told that he recused himself. It also bring up familiarity issues and the potential for unconscious bias when discussing audit matters,” Dr White said.
Speaking in general about a director’s potential conflicts, board members should “err on the side of caution” and disclose as much as possible, said Megan Motto, the CEO of Governance Institute of Australia.
Also speaking in general, Angus Armour, the head of the Australian Institute of Company Directors, said board members were required to disclose “material personal interests” to fellow directors and “manage conflicts of interest appropriately in accordance with the law and relevant company policies.”
…or not to disclose
Elizabeth Johnstone, the chairman of the ASX Corporate Governance Council, said the PwC payments were not a conflict for former partners as they were set up as part of a previous partnership agreement.
“It’s always a matter for the individual director to consider if they are in a situation of actual or perceived conflict,” she said.
“In my experience, what happens nowadays is directors are fully aware of the potential for conflict and they leave the room when such matters are discussed.
“I thought it would be an unusual proposition to say they have to disclose the amount of the payments to shareholders. I can’t see any legal reason. I don’t think this is the issue people are making it out to be.”
The existence of the payment plan was revealed after former senior PwC partner Bill Edge, the head of the government’s audit quality advisory body, confirmed to the Financial Review last week he was receiving the income.
Mr Edge, who earns about $100,000 as chairman of the Financial Reporting Council, said there was no conflict of interest over the payments, and Assistant Treasurer Stuart Robert agreed saying the PwC payments were declared to the government and were “not relevant”.
In contrast, Labor MP Julian Hill said the payments could lead to a “perception of a conflict” while Greens senator Peter Whish-Wilson said Mr Edge had to “make a choice” between the FRC and the PwC payments.