Former KPMG CEO rejects 'bad apple' label during Senate inquiry grilling

Reading from the 29 May resignation announcement of KPMG chief executive Andrew Yates and national managing partner audit and assurance Julian McPherson, Chair of the Parliamentary Joint Committee on Corporations and Financial Services, senator Deborah O’Neill, quoted McPherson’s statement – “Matters have arisen for which I am responsible, and I take accountability” – to him, and asked whether he took responsibility as well.

“I do,” McPherson agreed.

Noting the description of alleged perpetrators of misconduct within KMPG as “bad apples” by John Mullen, chair of KPMG client, Brambles Limited, O’Neill asked: “Are you the bad apples?”

“You two have been sacrificed, or you have stepped forward to take the blame, but everybody else at KPMG, they’re all hunky dory”.

“The question is, are you the bad apples, or is the whole barrel rotten? What’s going on, Mr Yates?”

Yates said: “I don’t see myself as a bad apple, Senator ... I took accountability for things that went wrong, and nor do I see the firm to be full of bad apples.”

The former chief executive was also questioned about the responsibility of the firm's partners regarding the matter.

The concept of a partnership, Yates said, is that “we’re in things together, and that has always been the way that partners have operated.”

The nature of responsibility regarding the alleged misconduct was also called into question by senator Barbara Pocock.

She said: “Explain a little more about what that means in the context of the very serious, egregious uses and sharing of confidential information, the cheating on exams, and the many issues that the whistleblower and whistleblowers have raised … you are in things together, how does that translate when things go wrong”?

“Decisions have been made repetitively in relation to whistleblowing alone, which have been extremely damaging to the whistleblower and to accountability across our capital markets in terms of its implication for trust in audit. You share responsibility with your partners, do you not?” Pocock said.

“Is it time that partnerships like KPMG were covered by corporate law”?

“There is no doubt that partnerships of this size have moved ... from a governance point of view to try and be more reflective of what you’d expect to see in a corporate structure” Yates said, highlighting the impossibility of having every decision be voted on within a partnership of 680.

Despite Yates claiming he couldn’t comment on whether KPMG’s structure should be reflected in such a way, Pocock said: “You are in a position where you are leading in a way that a corporate CEO does, you have taken the fall, and you are here post that experience: what are your reflections on structure? Is the partnership structure now non-functioning in this circumstance?”

“I don’t know the mechanism by which it can be done,” Yates said.

“Now that I’ve left the profession, partnerships of this size bring some fantastic benefits … but they are challenging in terms of the management.”

While acknowledging that the dissemination of information to this number of people is difficult, O’Neill added that, by its nature, the structure demands that: “Everyone who’s a partner is responsible for what is being discussed here today. They cannot separate themselves”.

Moving onto the specific conduct of senior leadership, including Yates, during past committee dealings with PwC from 2023 onwards, Pocock said Yates “did not give us any information, you were not forthcoming about matters which were clearly known to you at the time that affected the ethics within KPMG”.

Noting the similarity of the events “which clearly parallel” what is occurring now, Pocock asked: “Did you have knowledge of allegations by whistleblowers within KPMG of unethical behaviour when you appeared before the Senate”?

Yates said: “I genuinely can’t recall … I was aware and I think we discussed it in the committee sessions, of issues that we would deal with in the firm around behaviour, around ethical behaviour, and I was aware, of course, in general, of issues we were dealing with, I cannot remember those specifics”.

Pocock said: “Did you sit there, Mr Yates, and think, 'PwC are in the spotlight today, but I’ve got matters in my backpack that I should be bringing forward that are of similar nature'”.

Yates said that there were many things he had to answer on behalf of KPMG during this time.

However, Pocock remained firm and pointed out that PwC’s “primary sin - and there were multiple sins - was to use information provided confidentially in pursuit of economic benefits, so that the business model of PwC trumped ethics at the first hurdle”.

She asked whether Yates agreed that was the same situation KPMG faces now, to which he said: “I don’t believe that is the way the firm operated”.

Yates characterised the issue as a potential misunderstanding “around what was KPMG IP … in respect to the Lendlease matter”.

“These were senior people who leapt over any ethical consideration in pursuit of information that would assist revenue in KPMG. Is that the case - yes or no?” Pocock said.

“It’s more complicated than that, and I think those individuals made serious errors of judgement. They have taken accountability,” Yates replied.

When asked again whether the current KPMG misconduct mirrors that of PwC, Yates said: “I can see that would be the perception.”

While Friday’s (19 June) hearing is the only scheduled, dedicated inquiry into KPMG's ethics and professional accountability, further revelations – and questions around accountability, responsibility and transparency – are anticipated as internal and external investigations, and the oversight of ASIC, the takeovers panel and the corporations legislation, continue.