Opinion
The big four are on the nose, but the stench is coming from elsewhere
Parnell Palme McGuinness
Columnist and communications adviserIf you felt savage delight watching the Deloitte boss Adam Powick humbling himself before senators Pocock and O’Neill when challenged on his salary, this column is not for you. Powick the individual is irrelevant. Fat cats are easy and obvious targets for public ire, but if they are allowed to become the focus of the Senate inquiry into the management and assurance of integrity by consulting services, the senators will miss the opportunity to dismantle the structures that have enabled the big consultancies to feel invincible.
Credit: Matt Davidson
The partners and bosses at the big four aren’t worth millions of dollars because they deliver fabulous insights and superlative results to their government clients – that much has become clear in the course of the Senate inquiry – but because they know how to enmesh themselves into the structures of government. They have, as I wrote a fortnight ago, used ethics policies to throw up hurdles around government projects which only they can clear.
In order to tender for government work – as my small firm does – companies have to present policies on sustainability, Indigenous procurement and employment, modern slavery, and more. These become a minimum requirement for participating in government tenders and only big consultancies have the wherewithal to clear the hurdles.
This is not a unique evil concocted by PwC, Deloitte, KPMG and EY. Australia’s economy is sclerotic with companies which exploit government’s penchant for regulation to keep out competitors and fatten their own bottom lines. The regulation that delivers this result is invariably introduced to “protect consumers” and deliver “social good”.
Deloitte CEO Adam Powick admitted to a Senate committee his position is not worthy of a salary seven times that of the prime minister’s.Credit: Martin Ollman
It is just over four years since Kenneth Hayne handed the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to then-treasurer Josh Frydenberg. This week, Assistant Treasurer Stephen Jones acknowledged at a Financial Services Council breakfast that demonising all financial advisers because some provided poor service had not served the public well. As more and more Australians retire with a superannuation balance, expert advice on structuring retirement to meet their needs and goals is crucial. Individual financial advisers, many of whom quit after the Hayne royal commission, are harder to find. Meanwhile, the big advice firms available to the well-to-do are doing fine.
Labor Senator Deborah O’Neill says there are “yawning chasms” in the regulatory oversight of some consultants.Credit: Alex Ellinghausen
This is a cautionary tale for senators Deborah O’Neill, Barbara Pocock and Richard Colbeck as they conduct their inquiry into consulting. There were structural issues with financial services that led to poor consumer outcomes, but targeting service providers hurts individuals and consumers while sparing institutions.
That a consultancy boss earns seven times the wage of the prime minister of Australia makes for a great headline, but his pay packet is ultimately irrelevant. The question the senators should be asking is why he can command such a majestic fee. The answer is that the consultancy bosses are worth millions because they know how to devise, grow and maintain hurdles which lock out competitors and funnel work into their firms.
Former KPMG consultant Brendan Lyon told the inquiry that the big consultancies are “four big rotten barrels with some good apples”. Maybe there are many bad apples, but it’s the rotten barrels which spoil the fruit. If the Senate inquiry ends up targeting the practice of consulting instead of the structural rot, government agencies will lose more than the taxpayer gains.
There is a good argument for strengthening the public service. But the belief that consultants should be replaced entirely misunderstands the purpose that consultants serve when used properly. As Treasurer Jim Chalmers has acknowledged, consultants can contribute expertise on a given topic. They can bring in a fresh, outsider perspective on a problem, to help a department identify new risks or opportunities, based on the consultant’s experience and insight into similar or analogous problems. Often consultants will bring new ways of doing things into a department – and leave their intellectual property behind when the contract ends. They have not only delivered a service but transferred knowledge and sometimes relationships.
Quite the reverse of these consultants being parasitic on the public service, this type of consultant is used and discontinued when the knowledge transfer is complete and internal agency staff can replicate the consultant’s services.
Given the value that consulting can add, the objective of the Senate inquiry should be to identify which consulting adds value and which does not. The aim should be to lock in the first and avoid the second. That requires being clear-eyed.
Public anger is rarely clear-eyed. When it was revealed that PwC had completed a report on robo-debt, which the responsible government department refused to receive because it exposed the flaws in the scheme, another wave of outrage was unleashed on the consultancy.
PwC even decided to return the fee it was paid to analyse the scheme and deliver its findings. But in this case, the anger was misdirected: PwC did faithfully what it was tasked with doing. The big four too often stand accused of telling clients what they want to hear, allowing government departments to outsource accountability for something it would have done anyway. Punishing the consultancy for discovering the truth will only encourage it to choose to hire consultants who will not be so reckless next time. It would remove the incentive to be a good apple, while carefully keeping the rotten barrel intact.
It should not have taken a scandal to reveal the misuse of consulting within government agencies. It should not now require another before we recognise the red and green tape that binds governments into using the big four. This isn’t about apples, good or bad, but about barrels – the structural distortions to competition dressed up as ethics, which are rotten at the core.
Parnell Palme McGuinness is managing director strategy and policy at award-winning campaigns firm Agenda C. She has done work for the Liberal Party and the German Greens.
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