Visited a $2 shop lately? Maybe you can buy a division of an international advisory business for $1 – wedged on the shelves between Kit Kats, washing powder and dog toys.
PwC’s negotiation to sell for $1 to a private equity player the once-lucrative division that looked after its government work says everything about the near- to medium-term chances of the firm getting work from any Australian government or their agencies – zilch.
Rather, this was a sell-to-save exercise – a risky attempt by a private equity firm, Allegro, to sequester a division, rebadge it, and hope that over time it will be sufficiently distanced from PwC’s tax scandal that it will win fresh government contracts.
Housed inside PwC, this division has a very bleak future – if any future at all. From PwC’s perspective it reeks of desperation.
This acquisition is only worth the risk for Allegro if the contracts that various governments and agencies have with PwC are moved across to the new company, which has the working name of Bell.
And the deal will need the PwC partners and senior staff working on these government contracts to move across to Bell. What entitlements come with them to the new firm, and how or whether they would be compensated for leaving the PwC partnership is unclear. But these folk will be desperate enough to plunge into the unknown, given the future they currently face.
For Allegro, the rationale behind creating a consulting island that deals only with government work is that those conflicts of interest disappear.
Bear in mind that most of the professionals inside the government consultant division had nothing to do with the tax confidentiality scandal – they are just collateral damage. And any who did won’t be part of the people package being acquired by Allegro.
For Allegro, the rationale behind creating a consulting island that deals only with government work is that those conflicts of interest disappear. No more blurring of the lines between government and private company work.
It’s a neat solution, and one that may be the start of a longer-term industry-wide overhaul.
Folks at Allegro are also saying that housing Bell in a corporate model overcomes many of the governance issues that go along with a partnership model. Rather than being managed by a team of partners, Bell will have a chief executive and an independent board of directors.
The notion that this new model frees it of conflicts has merit in the longer run.
But the suggestion that the corporate model, rather than the partnership model, mitigates governance missteps is a big swing.
Corporate history is littered with governance disasters, many due to board inertia or unwillingness to deal with management mistakes. When boards appoint management, sacking them is an admission of their own mistakes.
To the extent that boards have moved to undertake governance spring-cleaning, it has more often than not been at the behest of shareholders who have forced the hands of directors.
Under the Bell structure, Allegro would be the major shareholder and various partners would have an equity stake.
Selling the government advisory business, however, is a distraction from what is to happen to PwC in Australia.
The global network parent has now belatedly swooped in to take control of its Australian trouble child, appointing a new chief executive from outside the country to clean up the mess in the hope it won’t spread beyond our border.
On Sunday, PwC named Kevin Burrowes, a longtime PwC partner and currently the global clients leader, as the new chief executive for the Australian business.
His first job was to issue yet another apology on behalf of PwC and distance the global firm from the mistakes made by the local outfit.
“Under past leadership, PwC Australia failed to meet the network’s code of conduct and uphold the network’s professional standards and values. Its past actions are not representative of the work and behaviours of PwC around the world, and I am deeply sorry to our clients, our broader stakeholders and our people,” he said in a statement.
But in a business where relationships are king, bringing in an outsider has risks. Burrowes doesn’t even have a visa yet – and he certainly won’t have a passport to Canberra.
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Source: Thanks smh.com