Imagine being responsible for billions of dollars, yet no one can keep you accountable. That’s the dangerous reality PwC, one of the world’s largest accounting firms, faces today. Their recent scandal in China, involving Evergrande’s $80 billion fraud, has rocked the industry and revealed a growing problem—have the Big Four become too big to manage?
The Scandal that Shook PwC
On September 13th, Chinese regulators hit PwC with a record-breaking $62 million fine and suspended the firm for six months after discovering that its audit of Evergrande, the property developer that collapsed in 2021, missed billions in fraudulent revenue. This isn’t just a bad day at the office—it’s part of a disturbing pattern.
From 2010 to 2023, PwC has faced roughly $450 million in fines and settlements for failing to detect or prevent financial misconduct. What’s even more alarming is that all of the “Big Four”—PwC, Deloitte, EY, and KPMG—are caught up in similar scandals. This raises a critical question: how do you hold companies accountable when their size makes them nearly ungovernable?
Growing Too Big, Too Fast
PwC and its rivals are giants in the world of professional services, but their rapid growth might be their biggest weakness. Between 2017 and 2023, their revenues skyrocketed from $134 billion to $203 billion. PwC alone hired 130,000 new employees in 2023, doubling its workforce from the early 2000s.
The problem? With so many employees coming and going, long-term commitment to maintaining the firm’s reputation often takes a back seat. As young hires move on quickly, the risk of cutting corners grows. As a result, these firms are struggling to maintain the level of oversight needed to prevent missteps—and the consequences are piling up.
Would you trust a company where so many people are just passing through, with little stake in the firm’s long-term success?
A Broken Structure?
One of the most significant challenges the Big Four face is their decentralized structure. PwC, like its peers, operates as a network of independent partnerships across different countries. This makes it incredibly difficult for global leaders to maintain control over every corner of their sprawling operations. With more business coming from emerging markets, where corporate oversight is often weaker, it’s no surprise that problems are becoming more widespread.
But here’s the kicker: fixing this decentralized structure might be impossible. Local laws in many countries require accounting firms to be owned by local citizens, which makes it hard to centralize governance. So, what’s the solution?
Can Splitting the Business Save Them?
One idea gaining traction is for firms like PwC to split their fast-growing consulting arms from their traditional audit services. By doing this, the audit divisions could focus solely on ensuring financial accuracy, while the consulting arms could raise money to invest in new technologies like artificial intelligence. EY tried this split last year, but the plan fell apart when some American partners balked. Still, with these governance challenges, it might be the only way forward.
A Call for Independent Oversight
Another possible fix is bringing in independent oversight. Current regulations make it difficult for auditors to bring in independent directors with ties to their clients, but relaxing these rules could introduce fresh eyes and much-needed accountability. After all, these firms audit some of the world’s largest companies—shouldn’t they be held to the same standards?
The Bigger Question: Can Trust Be Restored?
When trust in a company is broken, the consequences ripple far beyond the boardroom. Investors, employees, and entire industries suffer. PwC’s crisis is a wake-up call, not just for the company, but for the entire industry. The question is, will they act before another scandal rocks the financial world?
What do you think? Can companies like PwC regain the public’s trust, or have they grown too big to be accountable? Share your thoughts below—because the next headline could be just around the corner.
Authors
Don Noble, a Partner at the Florida CFO Group and a technology expert, has an extensive background in financial leadership and advisory roles. Leveraging his wealth of experience, he collaborates with businesses to optimize their financial and technological strategies, fostering growth and resilience in a dynamic marketplace. Don is also a doctoral student studying CFO leadership. You can also visit Don’s LinkedIn Profile for more information.
John Cruickshank is a partner of the Florida CFO Group with extensive experience spanning international and domestic public companies, private equity ventures, family-owned enterprises, and successful IPOs and MBOs. John is also an accomplished International CFO/VP of Finance, recognized for his proven track record in building and positioning companies for sustained long-term growth and profitability. Here is John’s LinkedIn profile.
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Reference
PwC needs to rethink its global governance. (2024, September 21). The Economist, 452(9415), 61.