Annual report 2016: Governance and transparency

At PwC our culture is built on acting ethically, responsibly and with integrity to do the right thing. These principles provide the strong bedrock for other aspects of our culture, innovative thinking, entrepreneurial behaviour, responsiveness to client needs and demands and an ability to solve complex problems. Building and embedding this culture is a major focus of the Executive Board. It underpins so much that is important to us: our reputation, our ability to deliver high quality work and our credibility with our key stakeholders.

In this section, you can find out more about how we govern ourselves, our ethical code and how we manage risk to our business.

Executive Board

The Executive Board is responsible for developing and implementing the policies and strategy of the firm, and for its direction and management.

The Executive Board was chaired by Ian Powell until 30 June 2016 when Kevin Ellis was elected by partners to serve as Chairman and Senior Partner. From 1 July 2016, Kevin introduced a new, leaner structure to the Executive Board focused around our key strategic areas and aligned to our vision of agility, talent and technology. This includes the new role of ‘Head of Technology and Investment’. Our Executive Board will work closely with the newly created Clients and Markets Executive (CME), who will focus on delivering the very best assurance, consulting, deals and tax services to our clients with an appropriate industry and market overlay. Separating strategy and operations in this way enables us to respond better to market opportunity and market changes.

There are a number of committees who report exclusively to the Executive Board. The International Committee, with responsibility for the UK firm’s strategic alliances and some network matters and the Partner Matters Committee, which is responsible for certain partner HR matters.

You can meet our Executive Board and find out more about their areas of focus here. Our CME is comprised of:

  • Head of Clients and Markets: Kevin Burrowes (Chairman of the CME)
  • Head of Assurance: Hemione Hudson
  • Head of Consulting: Marco Amitrano
  • Head of Deals: John Dwyer
  • Head of Tax: Kevin Nicholson
  • Head of Market Initiatives and Industries: Dan Schwarzmann

Supervisory Board

The Supervisory Board provides the Executive Board with guidance on matters of actual or potential concern to the partners and represents the interests of all partners. As such, it is a core part of our governance structure. Supervisory Board members hold regular meetings with partners to get their views on the Firm’s overall strategy and any other issues that may be of concern.

This year, the Supervisory Board have overseen our senior partner elections and approval of the Annual Report. You can find out more about the 12 partners who make up our Supervisory Board in our Transparency Report.

There are also a number of committees which report into the Supervisory Board. The Partner Affairs Committee is responsible for making sure that the firm’s policy on partners’ remuneration is being properly and fairly applied. It also has oversight of partner admissions and retirements. The Audit and Risk Committee monitors and reviews the effectiveness of the Group’s internal control and risk management systems, the appointment, remuneration and effectiveness of the firm’s external auditors and reviews the firm’s financial statements and Annual, Transparency and Corporate Sustainability reports. You can read more about the work of the Audit and Risk committee here. The Strategy and Governance Committee provides oversight of both the development of the UK firm’s strategy and any material acquisitions or disposals.

Public Interest Body

Our Public Interest Body (PIB) is comprised of five independent non-executives whose role it is to enhance confidence in the public interest aspects of our firm’s strategy and decision-making plus two Executive Board members and two Supervisory Board members. The PIB plays a key part in ensuring public interest is at the heart of our stakeholder management and reputational risk management. The PIB also has a role in ensuring we are considering the way Our Purpose links to our strategy.

This year, the PIB considered a wide range of issues including the impact of Brexit on the firm, reforms to the audit market, managing reputational risk around providing tax advice, the provision of hospitality to the political world and the evolution of the international PwC network.

You can find out more about the members of PIB and the work they’ve been doing on these and other issues in our Transparency Report.

Executive remuneration

Individual profit per partner is based on a number of factors including responsibility, individual performance and the overall profitability of the firm. We have tracked our average profit per partner in relation to how it compares to our average UK employee salary for a number of years. This enables us to ensure we are balancing being fair to our people with rewarding strong performance. This year, we are disclosing that number for the first time. 

We have also shown the profit share of our FY16 Chairman and the total profit share of the 12 members of the FY16 Executive Board to increase transparency over our executive pay.

Executive remuneration
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Building Trust and being transparent

An important part of the Executive Board’s responsibility is ensuring the right tone from the top and overseeing the implementation of our purpose. This is vitally important for our firm where our reputation is based on quality and trust. Our core values are integrity, independence, professional ethics and competence. We expect our people to take personal responsibility for bringing these values to life so that we can rightly claim to be the high quality, trusted advisors we all aspire to be.

We have many stakeholders including our people, over 21,000 of them, our thousands of clients, our regulators, the communities in which we live and work and many others beside. We need to be trusted if we’re to maintain our reputation as the market leading firm. Transparency, openness and honesty are at the heart of our engagement and interaction with key stakeholders. Stakeholders want to understand the work that we do, the value we generate and the contribution we make to society. We explain on our website the different ways we engage with our stakeholders and key issues they’ve raised with us in the year.

Assurance is a key part of our business. It’s principally governed by the ICAEW and the FRC. As a firm we seek to maintain constructive relationships with our regulators and we adhere to professional standards and codes of ethics that are set by them. We recognise their important contribution in helping us build trust and confidence in the market.

We have a continuous improvement approach to our policies and procedures, reviewing them regularly in light of internal priorities or changes in the market.

 

 

 

How we work with Political parties

We seek to build professional and ethical relationships with the major political parties such as providing support on a non-cash basis – mainly in the form of secondments. We are the market leading firm and our stated purpose is to build trust in society and solve important problems. Part of this is to make a constructive contribution to public policy debates. Our insights can support and inform good policy making, strong opposition and better government.

In FY16, we provided a total of 1,164 hours of free technical support to political parties (2015: 9,091). The value of this work, which is reported to the parties using principles established by the Electoral Commission, was £0.1m (2015: £0.7m) and comprised 150 hours of support to the Conservative Party, 160 hours to the Labour Party and 854 hours to the Liberal Democrat Party. This year, the firm also spent £18,000 on sponsorship of business related events at the Conservative Party Conference, 2015 and made a contribution to the official Remain campaign in the EU referendum of £7,509.

Our principal risks

Managing risk is a strategic priority for PwC. Delivering high quality work clearly benefits our clients, but it’s also critical to ensuring we minimise risk to the firm. So risk management and high quality work go hand in hand.

The Executive Board takes overall responsibility for establishing systems of internal control and for reviewing and evaluating their effectiveness and we have a Risk Council which reviews our risks and approach to risk management regularly. We have risk and quality teams working across our business, guiding our people so that a culture of risk awareness and quality focus is firmly embedded throughout PwC.

On the tabs on the left, you can explore the risks faced by our business and the steps we’re taking to mitigate them. We’re very focused on the risk to our reputation, information security, independence and regulatory compliance, many of which we also measure and share with our stakeholders through our sustainability scorecard.

Read our statement on managing risks and internal controls

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Quality

Risk: Significant quality failure in the UK firm or the PwC network due to either engaging with an inappropriate client or inadequate delivery of services leading to a potential service failing, litigation and/or regulatory action.

Response: Our internal quality management systems, which are designed to maintain and enhance quality, include:

  • Recruitment standards and staff development procedures.
  • Client engagement and acceptance processes.
  • Client engagement standards supported by methodologies and tools.
  • Quality reviews of PwC network firms, including the UK firm.
  • Monitoring and review of key performance indicators by the Executive Board.
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Instability caused by the result of the EU referendum

Risk: Uncertainty faced by our clients and our people caused by instability and uncertainty as the economic, legal & regulatory implications of exit from the European Union become clearer.

Response:

  • Executive board will manage the impacts based on contingency planning undertaken pre-referendum.
    • Work with our clients closely to help them adapt to, and thrive in, the new environment.
      • Provide support and practical advice to European Economic Area (EEA) staff working in the UK and UK staff on overseas assignments in the EEA.
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People and talent

Risk: Failure to fully engage with and support our people, impacting our ability to attract, develop and retain the best talent and provide quality services.

Response:

  • Regular reviews of the market for student and experienced talent to understand the firm’s relative competitive position ensuring agile management of resources.
  • Use of various communication and discussion channels to engage with our people.
  • Monitoring and review of key performance indicators by the Executive Board, including staff surveys, external Brand Health Index and regular client feedback.
  • Appointment of external Wellbeing advisors, an internal Mental Health leader and champions as part of an overall wellbeing programme.
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New business

Risk: Failure to manage risks created by new business and other innovations in service delivery.

Response:

  • Firmwide process for reviewing new business so that relevant risks are identified promptly and addressed.
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Digital disruption

Risk: Failure to use advanced technology to underpin new business models and cost structures for existing services.

Response:

  • Significant investment in new and innovative technology solutions for existing services.
  • Commitment to new platforms to allow efficient delivery of quality services.
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Public perception and reputation

Risk: Failure to respond in a transparent manner to issues raised by the 'public interest' debates.

Response:

  • Embedding a culture of 'doing the right thing' for our people, our clients and our communities, as a matter of strategic intent.
  • Open and active engagement in serious debate with relevant stakeholder groups on trust-related and public interest issues to inspire change.
  • Sharing of knowledge and insights on trust to sustain, widen and enrich the discussion.
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Independence and regulatory requirements

Risk: Failure to comply with relevant independence, legal, ethical, regulatory or professional requirements.

Response: Established compliance and independence management systems including:

  • Clear policies, procedures and guidance.
  • Mandatory annual training for all partners and staff.
  • Client and engagement acceptance procedures.
  • Annual independence and compliance submissions for all partners and staff enforced by penalties for non-compliance.
  • Regular monitoring and reporting to the Executive Board.
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Data compromise

Risk: Failure to safeguard confidential information.

Response:

  • Information Protection Governance Group, chaired by a member of the Executive Board, which provides overall strategic direction, framework and policies for information security.
  • The firm operates an ISO/IEC 27001:2013 certified information security management system which includes:
    • Governance and policies for client data and other information.
    • Physical, technical and human resource controls.
    • Incident response capability.
    • Regular monitoring and independent review systems.
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Regulatory change

Risk: Failure to manage effectively the impact of changes in the multiple regulatory regimes, both UK and non-UK, under which the UK firm operates.

Response:

  • Regulatory affairs team which leads the firm’s efforts to track all changes in applicable regulatory regimes, of whatever origin, under which the UK firm operates.
  • Regular updating of firm processes and procedures to ensure compliance by all our people, on all our clients, with all applicable regulations.
  • Regular direct interaction, where possible, with applicable regulators to understand detailed provisions of changes and the implications for our businesses.
  • Regular/continuous monitoring of the cumulative impact of changes in the regulatory environment on the firm’s ability to provide services to audit clients.
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Client assets

Risk: Failure to appropriately manage client assets, including major client administrations.

Response: Well-established procedures for dealing with client assets and related matters including:

  • Portfolio diversification policy.
  • Daily monitoring of credit and related ratings and maturities.
  • Internal controls and procedures.
  • Monitoring and independent review.
  • A Treasury Committee which receives regular updates on the above.
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Physical security

Risk: Failure to safeguard the physical security of all our people wherever deployed on the firm’s business including within our own premises in the UK.

Response:

  • Firmwide travel policy and processes for all our people, incorporating 24/7 tracking and, where appropriate, consultation with a dedicated security team.
  • Comprehensive security infrastructure covering all our premises.
  • Continuous monitoring of threat levels and issues in overseas travel destinations, and potential threats to our premises.
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What a pair of heels taught us

All organisations face public scrutiny and we’re no different. We recognise that sometimes we fall short of our ambitions. Where we make mistakes we seek to acknowledge them, learn from them and take steps to improve. Equally where there’s a misperception we need to explain our position and be heard.

In this short video, our Head of Corporate Purpose, Gaenor Bagley shares an example of this in a story around a temporary member of staff and an outdated dress code policy.

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