Annual report 2017: 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: reimagining the possible, working together and making a difference to help solve our clients' most complex problems - all underpinned by caring for each other. 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.

How we govern ourselves

Executive Board

During the year the Executive Board was responsible for developing and implementing the policies and strategy of the firm, and for its direction and management.

The Executive Board is chaired by our Chairman and Senior Partner, Kevin Ellis, and is structured to bring focus to our strategy, operations, talent and technology. Our Clients and Markets Executive (CME), work with the Executive Board focusing on delivering the very best assurance, consulting, deals and tax services to our clients with an appropriate industry and market emphasis. This structure has enabled us to focus on our clients' needs, market opportunity and changes in FY17.

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

In July 2017, the Management Board was formed, comprising the members of both the Executive Board and Clients and Markets Executive (CME) (which became committees of the Management Board), to ensure strategy and operations are aligned. At the same time, Stephanie Hyde left the UK Executive board to take on a Global client role and Paul Terrington became the Head of Regions and joined the Clients and Markets Executive (CME).

Meet our Executive Board and find out more about their areas of focus

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: Marissa Thomas
  • Head of Tax: Kevin Nicholson
  • Head of Market Initiatives and Industries: Dan Schwarzmann
  • Head of Regions: Paul Terrington

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.

Our Supervisory Board members are partners at our firm and are: Dave Allen, Chris Burns, Pauline Campbell, Bill MacLeod, John Minards, Mary Monfries, Teresa Owusu-Adjei, Zafar Patel, Anne Simpson, Jim Stidham, Claire Stokes and Heather Swanston. It also includes Duncan Skailes and Kevin Ellis as Ex officio members. You can find out more about the members of the Supervisory Board in our Transparency Report.

There are also a number of committees of 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 Senior Management Remuneration Group has delegated decision-making powers from the Supervisory Board in respect of the reward of the UK Senior Partner, the Executive Board, the CME and any UK partners on the Global and EMEA Leadership Teams, and the determination of whether the firm’s remuneration policies have been appropriately applied to them. 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.

“Alongside the ongoing governance roles the Supervisory Board undertake, this year we focused on the implementation of the firm’s new strategy and the review of our operating model and ensured the views of the partners were understood throughout. We have reinvigorated engagement with partners and links with other network firms governance forums. We have also undertaken reviews of the annual assessment of risks and our engagement with external stakeholders such as regulators. Looking forward we have started a review of the governance of the UK firm, which will be a key focus for FY18 for the SB, MB and PIB.”

Anne Simpson, Chair of the Supervisory Board

Public Interest Body

In FY17, our Public Interest Body (PIB) was 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.

In FY17, the Public Interest Body was represented by five independent non-executive members: Lord O’Donnell, Dame Helen Alexander, Sir Ian Gibson, Justin King and Paul Skinner. The FY17 firm members of the PIB were: Kevin Ellis, Margaret Cole, Anne Simpson, Pauline Campbell. Our Head of Assurance, Hemione Hudson, has a standing invitation to attend PIB meetings.

You can find out more about the PIB and the work they’ve been doing on these and other issues, including a case study on audit quality in our Transparency Report.

“Speaking for the Independent Non-Executives, we find the relationship between the firm’s executive management and the PIB to be a very open and constructive one. The PIB has the freedom to set its own agenda – matters with the potential to impact the public interest are brought to the PIB by executive management, but often the INEs will add to the agenda items which we consider need examination and challenge. Matters we have particularly focused on and discussed with the firm’s leaders in the last year include: planning for Brexit and beyond, people, diversity and the impact on the firm’s reputation, how the firm manages the reputational risks around providing tax advice, contingency planning around ensuring the continuity of high quality audit services and limiting the threats to information security and cyber security.”

Lord Gus O’Donnell, Chair of the PIB

*Up until the time of Dame Helen Alexander’s death on 5 August 2017, the Public Interest Body comprised of five Independent Non-Executives, two members from the Firm’s Executive Board and two members from the Supervisory Board. Following Dame Helen’s death, Pauline Campbell stepped down from the PIB in order that the PIB comprised a majority of Independent Non-Executives in accordance with the Members Agreement and Audit Firm Governance Code. The Public Interest Body currently comprises four Independent Non-Executives, two members from the Firm’s Management Board and one member from the Supervisory Board. The Head of Assurance has a standing invitation to attend Public Interest Body meetings.

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 salary for a number of years. This enables us to ensure we are balancing being fair to our people with rewarding strong performance. This is our second year disclosing that number.

We have also shown the profit share of our FY17 Chairman and the total profit share of the 12 members of the FY17 Executive Board and CME to increase transparency over our executive pay. 

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 salary for a number of years. This enables us to ensure we are balancing being fair to our people with rewarding strong performance. This is our second year disclosing that number. We have also shown the profit share of our FY17 Chairman and the total profit share of the 12 members of the FY17 Executive Board and CME to increase transparency over our executive pay.
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 salary for a number of years. This enables us to ensure we are balancing being fair to our people with rewarding strong performance. This is our second year disclosing that number. We have also shown the profit share of our FY17 Chairman and the total profit share of the 12 members of the FY17 Executive Board and CME to increase transparency over our executive pay.
Executive remuneration
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Our stories: Governance and transparency

At PwC our culture is built on acting ethically, responsibly and with integrity to do the right thing. Our stories around the work we've been doing with our Citizens' Jury, the St Giles Trust and responsible technology highlight how we're creating value and making a difference.

 

 

 

 

 

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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 - to build trust in society and solve important problems. This is vitally important for our firm and we recognise that our reputation is based on quality and trust. Our values are to act with integrity, make a difference, care, work together and reimagine the possible. 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 aspire to be.

We have many stakeholders that include our people, our thousands of clients, our regulators, the communities in which we live and work and many others beside. We recognise the 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.

Our Assurance business is a fundamental part of our firm and it is 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. We recognise their importance 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

Politicians and policy-makers are important stakeholders to business and we believe it’s natural that we build relationships with them in areas of joint interest. We believe that our insights can support and inform good policy making, strong opposition and better government. We maintain a strict policy of political neutrality.

Throughout FY17 the firm engaged with policy-makers in a variety of forums, including attending the major party conferences. We’ve hosted Education Secretary Justine Greening and London Mayor Sadiq Khan in our London offices. And as our political engagement is becoming increasingly regionally focused to reflect the new balance of power across the UK, our offices in Scotland have been visited by Ruth Davidson MSP, Leader of the Scottish Conservatives and her then Shadow Health Minister, Miles Briggs MSP, as well as SNP MP Callum McCaig; and we also hosted meetings with the two main West Midlands Metro mayoral candidates.

We engage with politicians, officials and regulators outside of the UK to reflect the international dimension of our firm’s work and in Brussels we hosted events in the European Parliament on gender equality issues and addressing the skills gap across the continent.

We’re often asked to share our expertise on policy matters. Our Head of Immigration Julia Onslow-Cole sits on the London Mayor’s Brexit Expert Advisory Panel and gave evidence at a public hearing in the European Parliament on the rights of EU citizens in the UK. Over the year four of our partners gave evidence to UK parliamentary committees.

We do not provide cash donations to the main political parties although we may sponsor targeted events and we seek to ensure that our activity is balanced over the political cycle. This year we provided two junior secondments to the Liberal Democrat Policy Unit. The secondments totalled 1,287 hours and the non-cash support was fully disclosed by the party, in line with principles agreed with the Electoral Commission.

You can read more here

Tax strategy

Learn how we manage PwC's tax affairs.

Find out more

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 Group 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. 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 as the economic, legal & regulatory implications of exit from the European Union become clearer.

Response:

  • Executive Board will review regularly the impacts of uncertainty on the business and take appropriate action.
  • 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 students 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:

  • Cyber Security Committee, 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.
  • Continual investment in established cyber security controls
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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 Group 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 Group’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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Strategic change portfolio

Risk: Failure to manage the changes implicit in the UK's strategic change portfolio.

Response: Inbuilt into strategic change portfolio programme:

  • the need for careful sequencing especially where automation may change the end result.
  • the potential need for additional dedicated resources to ensure delivery does not impact business as usual.
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Click here to explore how what we do brings our strategy to life
Our new strategy filter shows how our strategy has come to life in FY17.
The five key components of our strategy are: delivering exceptional client value; sustainable, profitable growth; empowering our people; technology enabled; leading by example.
This section explores each component individually to highlight the impact our client work has had in creating trust and respect in society to solve important problems.
Click an element of our strategy to see our client stories and reports from FY17 in detail.

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