How China stops big corporations screwing with the people
In the aftermath of the revelations of the parliamentary inquiry into the PwC scandal and the report "PwC: A Calculated Breach of Trust", Australians became aware of how large corporations given the mission of providing services to the government, rather than public servants, has screwed Australians over, but made little change in the culture in our government. This article traces the events of Jack Ma and how, in complete contrast to the Australian mode of bowing and scraping to large corporations, China put him in his place.
PwC and the scandal
Since the ascent of neo-liberalism as the dominant mode of Australian governments, more and more government services have been "shopped out" to large corporations. At the same time, those companies exploiting Australian resources have been given free rein to pay what royalties or tax they feel and then launch belligerent attacks on government when the 'money tree' is pruned.
On of the most 'celebrated' of this phenomenon is the contracting of government services to the "big 4" accounting firms PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young (EY) and KPMG. Giving government services to transnational firms? The average person might sarcastically quip "What could possibly go wrong?" ...
PwC
After revelations of misconduct, a review of government contracting by a Senate committee was set up. They made inquiries into the management and assurance of integrity by consulting services and commissioned a report. This was called the Switkowski review and resulted in a report "PwC: A Calculated Breach of Trust". The report made clear how ethical standards had simply been ignored in pursuit of profit [1].
The Switkowski review revealed that the PwC scandal was rooted in a corporate culture that prioritised revenue and profit above ethical behaviour and compliance. Under the management at the time, success at PwC was measured primarily by the ability to increase revenue within its business units. Financial performance was the top priority, while regulatory compliance and ethical conduct were treated as secondary concerns, if they were considered at all. This focus on revenue over integrity created an environment where compliance failures and misconduct became inevitable.
The review found that certain PwC partners were willing to disregard confidentiality agreements, likely because the potential financial rewards outweighed the risks of being caught. If any cost-benefit analysis was conducted regarding the consequences of non-compliance, it appears the potential for greater fees and revenue overshadowed the risks. Additionally, the widespread distribution of internal emails suggested that some partners felt immune to internal censure. The self-congratulatory tone of these emails indicated a belief among certain individuals that they were untouchable and would never face reprimand or accountability.
These ethical failures and the apparent lack of consequences raised serious questions about PwC's leadership, internal culture, and risk management practices. The review suggested that internal management and audit controls either failed or were ineffective. Even the best risk management systems are only as strong as the internal culture and leadership allow them to be. In PwC's case, the prioritisation of revenue relegated risk management to a lower priority. Ultimately, a firm's internal culture depends on strong leadership and governance that consistently commit to fostering a robust culture of integrity and ethical behaviour, which was clearly lacking at PwC during this period. The scandal highlighted the consequences of a toxic culture that placed profit above all else, enabling misconduct to flourish [2].
The failure of regulating authorities
It is easy to think that Switkowski review and the Senate committee had got to the bottom of the problems. Fix the culture and we are fine. Yet, years later, nobody has gone to jail, regulatory scrutiny has barely changed, high-profile partners exited without any transparency in regard to the real financial consequences to them and the "big four" seemed to have suffered little reputational damage or truncation of their business.
The government suspended PwC's aged care contract and other contracts. It extended PwC's ban from bidding on new federal contracts until mid-2025. A survey found that almost half of Australians support a long-term ban on PwC from government contracts [3].
What Australians think of this
The incredibly high percentage of Australians who support a permanent ban on PwC (45%) [4] is indicative of what Australians think of this kind of behaviour from large corporations. It indicates that the Australian ethos of "fair go" dictates that corporate exploitation of Australians is "on the nose". Despite evidence to the contrary, successive governments persist in the myth that outsourcing is always efficient and cost-effective.
It is fair to say that Australia expects better of government, but government seems unwilling or unable to act to prevent the kind of unethical or often fraudulent behaviour.
Jack Ma gets his wings clipped
Jack Ma is a Chinese business magnate, investor, and philanthropist. He is the founder of Alibaba Group, a leading e-commerce company. Ma's journey to success was not without its challenges. He failed the national college entrance examination twice before finally being admitted to Hangzhou Normal University. After graduating, he struggled to find employment, facing numerous rejections before landing a job as an English teacher.
Ma's entrepreneurial spirit emerged when he encountered the internet during a trip to the United States in 1995. He recognized the potential of the internet to revolutionise business in China and founded Alibaba in 1999. Under his leadership, Alibaba grew into a global e-commerce giant, transforming the way people shop and do business online.
Ma stepped down as chairman of Alibaba in 2019 but remains a significant figure in the Chinese business world. He is also known for his philanthropic endeavours, focusing on education and environmental causes.
Jack steps outside the regulations
Jack Ma founded the Ant Group, a Chinese 'fintech' giant. Ant Group was poised for a record-breaking IPO (Initial Public Offering, is the first time a private company sells shares of its stock to the public on a stock exchange) of $35bn. However, the Chinese government abruptly halted the process, citing regulatory concerns. China's primary concerns over Ant Group's capitalisation stemmed from worries about systemic risk and the potential for uncontrolled growth within the financial sector. Given that the spectre of the Global Financial Crisis still looms.
Ant Group's business model relied heavily on leverage, meaning it borrowed heavily to finance its operations. This raised concerns about potential risks to the broader financial system, similar to the issues that contributed to the 2008 global financial crisis. The group collected vast amounts of user data, raising concerns about data privacy and security. Regulators were concerned about the potential for misuse of this data and the need for stricter controls. Concerns were raised about the potential for predatory lending practices and the need to protect consumers from excessive risk [5].
The Chinese government prioritised maintaining financial stability and preventing the rise of "too-big-to-fail" institutions. They were concerned that Ant Group's rapid growth and influence could pose a threat to the stability of the financial system. These concerns led the Chinese government to impose stricter regulations on Ant Group, including limits on its lending activities, increased capital requirements, and a restructuring of its business model.
Some western media commentators [6] assert that the trimming of the Ma's wings followed Ma's public criticism of China's financial regulators. The government's intervention sent shockwaves through the financial world, highlighting China's willingness to exert increasing influence over the private sector and supposedly raising concerns about the potential impact on foreign investment in China.
The hysteria in western media reached fever pitch when Ma was supposedly 'disappeared' (a frequent accusation against China, almost inevitably without grounds) when, in fact, he had moved to Japan to avoid the public attention, returning recently to continue his philanthropic work [7].
More sober analysts noted that regulators and Ant Group have worked to resolve matters. But the message to large corporations in China is loud and clear. And, globally, regulators have yearned for "more teeth". In November 2020, the UK’s Competition and Market authority (CMA) fined price comparison website Compare the Market over GBP17 million for the inclusion of most-favoured nation clauses with insurance companies. These clauses restricted insurers from offering better rates on other comparison websites and were found to deter insurers from lowering their prices.
More recently, the European Commission opened an investigation into an online marketplace that prominently displays only certain sellers of products to the detriment of others, and the criteria by which the company allowed retailers to sell their products to a selected group of customers [8].
And Alibaba is still in the firing line.
Sources
This chapter is part of the Second PwC Report published on the Australian Parliament House website. It examines allegations that PwC engaged in a cover-up that exacerbated the underlying issues within consulting services. The chapter outlines the committee’s concerns regarding PwC’s handling of critical matters, discusses the implications of these alleged actions, and explores how the purported cover-up has impacted public trust and the broader consulting industry..
This chapter is part of the Second PwC Report published on the Australian Parliament House website. It examines allegations that PwC engaged in a cover-up that exacerbated the underlying issues within consulting services. The chapter outlines the committee’s concerns regarding PwC’s handling of critical matters, discusses the implications of these alleged actions, and explores how the purported cover-up has impacted public trust and the broader consulting industry..
Claims
Author
Andrew Westerman
I am a retired teacher who has an interest in geopolitics and preventing a war between the US and China