[00:00:00] Speaker A: Foreign.
Hi, everyone. Welcome to this. Welcome to this live episode of the Cast Reacts. I'm your host, Bill Coffin. And joining us once again to unpack an ongoing story of interest in the ENC world is Ethisphere Chief Strategy Officer Erica Salmon Byrne. Erica, we have another big story to cover today, don't we?
[00:00:28] Speaker B: We sure do, Bill. You and I have been watching this one for a little while, kind of waiting for the moment where it seemed like we had a couple good lessons to pull out of it. And that moment has finally come.
[00:00:39] Speaker A: It has. It has. Before we jump into all those lessons, I'm going to give a little bit of background for folks who maybe haven't been covering or watching this story from the very beginning, because it has been going on for a fair bit of time. Yeah. It involves KPMG Australia, which has made repeated headlines over the last two years or so for an ongoing scandal involving the misuse of confidential client information, whistleblower retaliation, internal investigations gone wrong, toxic culture and wayward leadership. So this all began in May 2024, when a KPMG Australia audit director sent a detailed report of misconduct to KPMG Australia's leadership, including its head of audit, alleging that senior partners had accessed and copied restricted board papers from a client to to win competing audit work from Westpac, Dexis and Macquarie. That client in question was the property giant Lend Lease, which had been a KPMG Australia client for nearly seven decades. The restricted board papers in question included rival pitch strategies from EY and PwC.
Shortly after reporting this misconduct, the director, who had been working from an overseas office and refused to turn to return to Australia, citing bullying by senior partners and a hostile workplace environment, left the firm under a separation agreement. KPMG Australia's internal review of the allegations effectively cleared the partnership of any wrongdoing, and internal leaders described the matter to their own independent board members as simply a minor human resources issue. A second review, commissioned later by a board subcommittee and run by the law firm Allens, accepted senior partners denials at face value and found the allegations unsubstantiated. That's when matters were really, really ramped up, because they were then brought to Australian lawmakers. And in March 2026, Australian Senator Deborah O' Neill used parliamentary privilege to trigger a formal investigation by the Australian securities and Investments Commission, or asic.
Since then, things have gotten markedly more dramatic. KPMG Australia says its investigations fell short and under parliamentary questioning, admitted to further misuse of confidential client information.
KPMG Australia senior leadership, including CEO Andrew Yates, Chairman Martin Sheppers, Chief operating Officer Eileen Hoggett, head of Audit Julian McPherson and Audit Partner Paul Rogers have all resigned over the matter. Investigators would later recover physical copies of the stolen Lend Lease documents from Hoggett's office locker, resulting in her expulsion from the partnership and forfeiture of her retirement payout.
The Australian federal government has barred KPMG Australia from bidding on new Commonwealth contracts through September 30 to 2026, freezing an estimated $270 million in work. The Australian Capital Territory, Western Australia, New South Wales, Queensland and Victoria have all followed with bands of their own. Lend Lease, the client at the center of the original complaint has ended its audit relationship with the firm outright. In the fallout, KPMG Australia reports that it plans to cut nearly 1,000 jobs while reducing partner pay by as much as 20 to 30%.
The employees losing their jobs do not appear to have leaked a single document, and most of them likely learned of the details of the scandal from the same news coverage that everyone else did. Okay, Erica, with all that said, anything else you want to add to that background before we jump into some of the particulars in terms of lessons learned?
[00:04:01] Speaker B: Yeah, you know, Bill, one of the things that came up when I was doing a little bit of additional reading just to get ready for our conversation today is there's news coverage that KPMGS Global Leadership, so the KPMG International CEO and chair and Chief Operating Officer are in Australia this week as you and I record or release rather this at the Cast Live to, you know, meet with key clients and try and reset the culture in Australia.
[00:04:29] Speaker A: Yeah. Yeah. So a lot of work to be done there. A lot of work to be done there. And I hope it works out well, too. I mean this, we don't do these episodes to punch down on anybody, but we do do them to point out lessons that can be learned by everybody in the ENC space. And I think on that front I'd like to get right into the very first one which is all about whistleblower retaliation. So this entire saga began with a report of misconduct that regrettably seemed to involve an element of retaliation.
We talk about how to prevent whistleblower retaliation all the time here at Ethisphere, but I was wondering if you could share your thoughts on how this case shows that the strength of a speak up culture really depends on the strength of its anti retaliation efforts and what happens to misconduct reporting when retaliation is in the air.
[00:05:09] Speaker B: Yeah. So Bill, there are a couple lessons that I'm taking out of this particular Situation that, that I think, you know, hopefully the folks listening into you and I can use this at the cast reacts to ask themselves very similar questions to the questions that you and I are going to cover. And the first is really around process.
So what does your speak up process look like? What does your investigations process process look like? What kind of protocols have you put in place when the individuals involved in the allegations are very senior? You and I have at the cast reacted about a lot of things over the years where the people involved have been very senior and in every single circumstance. One of the things that I mention is you have to have a process that you can hang your hat on when you find yourself in this situation. Because if you have a situation where there are allegations that are made about a very well respected partner, particularly in a business like upmg, which is a decentralized partnership, you know, these are individuals who have a fair amount of autonomy, they have a fair amount of seniority, they have accumulated respect.
How are you as a compliance person supposed to conduct an investigation into those kinds of circumstances? You've got to have an agreed upon process where no one knows whether or not it's going to be applied to themselves. Right. It's our old utopian formula of let's imagine a world where we have this structure and we don't know if we're going to be the chief operating officer of KBMG Australia or we're going to be a lowly audit, you know, member of the audit team that walks into a conference room that is a war room for a bid that they're chasing because of another Big four's failure, which is what happened here. Right. Remember, part of why this whole thing happened is PwC had an issue when KPMG saw an opportunity to win business. They constructed an internal war room where there were documents that should not have been seen by people because it is a violation of the firewall that's supposed to be in place between audit and consulting. And so this really comes down to, you know, trust in the function, trust in the profession. And you've got to set your process up before you need to use it. Because if you've set your process up or you're setting your process up rather in response to an allegation involving a senior leader. You're asking so much of that review team, you're asking so much of that internal investigation team to keep pushing, you're asking a lot of a team that is relying on those partners for their jobs to continue to push to get to the bottom of something. That might have happened. So that, that's, you know, one of the big takeaways for me in this whole story from the Speak up side of the house is, you know, you have to have your processes in place. You, everyone has to agree on what those processes are going to look like so that you have them as a scaffold when you need them.
[00:08:01] Speaker A: Yeah. Well, let's move on to toxic culture, because that's a significant portion of the story, too.
The director who initially reported the original misconduct almost seemed like they were working in exile from the Sydney office because they were so concerned about toxic workplace culture back at that office and direct bullying from certain senior executives. And some of those same executives appear to have been, you know, at least aware of the misconduct at hand.
So I'd love to get your thoughts on how an organization can address the mutually reinforcing elements of misconduct and the conditions that allow it.
[00:08:32] Speaker B: Yeah. So this is where your two things that Bill, that you and I talk a lot about come into play. The first is data layering. So you, you know, you've got this allegation and you know, you're, you're, you've looked into it, you've investigated it, you've gotten a series of denials from everybody in, in, in Australia.
And then on the other hand, you have this, you know, whistleblower who's saying, no, no, no, this is, this is what happened.
What other signals do you have that would give you a sense as to whether or not there really is something going on there? Right.
There is so much information that can be aggregated to get a little predictive about where you might have some hotspots or places where potentially the speak up culture is not the way you want it to be. Managers are engaging in behavior you don't want them to be engaging in. And so, you know, and this is one of those places where I think the decentralized nature of the partnership worked against KPMG International being able to get, you know, to really understand these pieces. But if you think about it from the, from the context of an organization that's trying to get a little predictive, what are the things that you could learn that would either exacerbate your indications that something might be wrong with this particular office or mitigate them? Can you look at other issues that might have come in? Can you look at turnover? Right.
Were a lot of staff leaving? Can you look at what are the factors you can look at that are above and beyond sales performance, which I know KPMG was looking at very closely in terms of, you know, client levels and that sort of thing, what are the things that would give you a sense that there's something going on and doing that work in the absence of crisis? You know, it's, I was, I was joking with one of our colleagues, Bill, the other day, that, you know, a lot of the work that ethics and compliance does is kind of what, what I would call the low level hum of a healthy machine. So it's that sort of, you know, it's that, it's that, that day to day monitoring what's going on, what are my signals, what's, what's telling me what. And that's how you get out in front of some of these risks. If you don't have that signal, that low level signal that's telling you the machine is healthy, then you have to ask yourself, well, what other signals am I getting to indicate that the machine is not? Because, you know, before you start to get a knock in the engine, what are, what are the things that might tell you that that's happening? And for me, the fact that this particular person refused to go back to the Sydney office, I'd be asking a lot of questions as to why. Right, why, why was that happening? What's going on? Right. You know, how might we address this particular issue?
What are the concerns? Are they founded as opposed to this, you know, what, what, at least from the public reporting, and as always, Bill and I should be very clear, right, we are talking about this from the public reporting, what definitely seems like a, like a circle, the wagons around the, around the folks in, in, in Australia as all of this was happening.
[00:11:36] Speaker A: Yeah. Yeah. Well, this is not the first time that we have seen a major ethics and compliance scandal explode because the internal investigation piece failed to live up to expectations. In fact, it's not even the first ethicast we've done on that very same topic.
[00:11:49] Speaker B: Not even this year, Bill.
[00:11:50] Speaker A: Not even this year. No.
So look, we all know how crucial it is to have a strong internal investigation apparatus within your organization. But how much can you really rely on it when cultural and retaliation issues seem to be lurking right beneath the surface?
[00:12:04] Speaker B: Yeah. So again, you know, Bill, this is one of those circumstances where, you know, you, you need to think about your process before you have to use it. So at the, you know, this one in particular, I would compare and contrast it with the ethicast that you and I did earlier this year on the Nestle CEO. We where the internal investigation was done at the direction of the board with counsel that, that, that pushed until they had all of the answers.
You need to pre vet counsel to make sure that the people who are coming in who are going to do the internal investigation are going to be in a position to understand who is paying for their work, who are they responsible to, and are they going to push until they get the answers? Because I'm sorry, there were contraband documents in the chief operating officer's work locker. So to me, at a minimum, that says nobody opened the dang locker. Like we can have a sidebar, Bill, about having lockers in your office in today's day and age in the first place and having, you know, print copies. But you can't tell me there weren't digital footprints involved in all of this. You can't tell me that there weren't people who understood exactly what was going on. They just either weren't asked or they weren't pushed as part of the internal investigation. And so thinking through now, hopefully in a calm period that, you know, where you're not really in crisis mode, do I have a list of pre vetted counsel that I am confident would handle an internal investigation properly if it needed to be handled? Who is responsible for retaining those folks? Do I have, you know, do I understand what it would cost? Do. Does my board of directors have that particular list? So that, and, and have they talked to any of those people? Do we know that they've cleared conflicts? Right, all of those kinds of things. That's the work to do now. So that it, and, and look, hopefully it's like an insurance policy and you never make a claim. Right. But if you don't do that work now, then where you're going to be is you're going to be in a position where the, you know, you have to do an internal investigation, you have to find somebody quickly and you may or may not end up selecting the right person for the role because what, what, you know, at least it appears what happened here is you had a situation where the, you know, internal investigation or the external investigators came in. They sort of looked around, senior leadership said nothing to see here.
External investigators said, great, here's the bill. And off everybody went. And you know, it was. And they're dealing with the fallout so well, you process, process, process, Bill. I know it's boring.
It's boring, I get it. But like, that's what helps you in situations like this, so that when something goes wrong, Bill and I aren't at the casting reacting to you.
[00:14:55] Speaker A: Well, you had mentioned the chief operating officer before who, who got caught improperly hanging on documents pertinent to the case stored in their, in their office. And I'm not 100% sure of the chronology here. From the coverage I read, it seemed like that person had already resigned and then the documents were found afterwards and they took even further action after that part. So the fact that somebody had resigned and left behind incriminating evidence that went unnoticed is kind of striking to me. I think that's, that's actually what really got me to start really seriously looking at the story a lot, a lot harder because I had seen the story come up a couple times, but at that point I'm like, okay, we're starting to see some, some misbehavior amongst top executives. And that, that's when the story got a little sensational on my part.
But you know, we talk about tone from the top all the time.
What recommendations do you have for, for an organization to begin an enterprise wide rehabilitation when it's clear that the issues at hand either have started at the top or they have since kind of leached up that way?
[00:15:48] Speaker B: Yeah, so, you know, Bill, and, and this was one of the things that I, and I'm just looking at my side screen here because I wanted to look at a couple of the pieces of news coverage on all of this. And, and I think one of the things that, that I would encourage people who are listening to you and I to think a little bit about is this.
Where are the fiefdoms inside your organization now? Certain types of structures lend themselves to fiefdoms, partnerships, particularly giant multinational partnerships, where there are very specific regional reasons for things to be incorporated in the way that they are, where there's tremendous deference that is paid to local leadership because they're partners in the business.
Those are really challenging organizations to sort of structure and operate the way that they need to be structured and operated when it comes to ethics and compliance related matters. Because, you know, what is the line between myself as the local head of this particular business, being able to set my own sales targets, perform the way the partnership needs me to perform, talk to my employees about the KPIs that we're looking to hit things along those lines? At what point does that tip into doing things in a, you know, sort of in a, in a, in an isolated way that is inconsistent with the rest of the business?
That's what, that's the line that you as an ethics and compliance person have to figure out how to walk when you have a highly decentralized multinational organization with a lot of empowered leadership in particular regions. It's very challenging for the global organization to be able to get enough insight into what's going on, which is why they need to be reading all of the signals they can. And so ask yourself, even if you're not a giant multinational partnership with, you know, offices around the globe, ask yourself, where are my silent places? Where are the places where I'm seeing outlier activity metrics?
Is this a part of, is this a particular business where I see far fewer conflicts of interest disclosures than I should?
Is this a part of the business where, you know, I see people lagging on turning over audit partners the way that they need to? From a regulatory perspective, whatever your metrics that matter are going to look like, you need to think through kind of what are those things that I'm going to pay attention to that are going to give me a sense of what's happening with that particular part of the business before I even get set foot on a plane. Partnerships are particularly challenging because you have to get, you know, you, you, you have to get the approval of your colleagues to become a partner.
And so from that circumstance, it becomes a little bit even more akin to like a boardroom environment where everybody knows everybody and everybody trusts everybody. And so, you know, your speak up culture in those circumstances is going to be even more challenging than it might be otherwise. But you still have to try to figure out how to do it. Where are my fiefdoms? Where are my places of silence? What is my process going to look like? How potentially can I get myself ahead of these things?
Because there are, in every one of these circumstances, there are going to be signals of what was happening before it hit the front page, as, you know, as it did so so broadly in, in this particular case.
So, yeah, so that, that would be point number one.
Point number two would be, look at the delta between behaviors and words.
What are, what are people saying?
And then what are people doing at all levels to the extent that you possibly can get your arms around that information?
Because that's also going to give you a lot of insight into what might be happening on the ground in a particular part of the business that you might not be able to get to as often as you would like.
So, yeah, signal setting. What are my metrics? How am I going to get my hands on those things? Where are my weird silent spots?
What are my other control functions? Hearing from different parts of the business, and then what are people saying versus what are people doing? Those are, those are the, the kind of my key takeaways in a Situation like this.
[00:19:47] Speaker A: Well, this situation has a bit of a domino effect risk going on because it's expanded beyond the walls of KPMG Australia because now Australian lawmakers are using this particular case to discuss regulatory changes that would require big four firms to formally break up their auditing and consulting practices within Australia.
Now, while this comes on the heels of other scandals involving other firms, this is also a case where, you know, to a certain degree there are organizations ultimately paying the price for somebody else's misconduct. What are your thoughts on all of that?
[00:20:15] Speaker B: Yeah, you know, it's, it, it's so interesting to me, Bill, because, you know, you think about, you think about functions that claim to be able to effectively govern themselves.
Audit is one, lawyers are another. Right. We all, there's a, there's a, an element of the profession that lends itself to self governance arguably. And as you say, you know, this is, this situation is not the first situation in Australia over the course of the last couple of years where we have seen misconduct on the part of, of an audit firm, which is part of what is leading to not just what the Australian government is contemplating, but the local regulatory agencies are doing reviews and also thinking about, you know, making some changes to the, to the way that they, that the businesses that are subject to their oversight are operating inside the jurisdiction.
And you know, if you are someone inside of KPMG or any other one of these firms in Australia that has done nothing wrong, I can imagine that it is enormously frustrating to you to be dealing with something that is caused by someone, um, completely and totally outside of your control.
And so what I would caution everyone listening to you and I who finds themselves in that situation would be to ask, you know, what lessons can my function or my, my, my organization take from this situation so that we can learn from these mistakes. There's a, there's an element in every scandal that you and I cover, Bill. It's the reason why we do at the cast reacts. Right? There's an element in every one of these things that somebody can lear from what happened and try to keep it from happening again.
And often you can make the, the best progress in those kinds of things when you can point to very serious consequences. Right. KPM Australia right now is dealing with very serious consequences.
[00:22:12] Speaker A: Yeah.
[00:22:13] Speaker B: And so, so take this and use this to your advantage in, in trying to get the attention of the people that you need to get the attention of to be able to point out like, hey, this really is something that we have to think about and make sure that we're well prepared for it so that we don't find ourselves in a situation like this.
[00:22:35] Speaker A: Well, Erica, this is a remarkable story, both in severity and scope. I hope we don't have reason to come back to it, but for now I want to thank you very much for coming on the show and for sharing your insights with us on this. Really appreciate it.
[00:22:47] Speaker B: Oh, Bill, it's 100% my pleasure. And I know you'll link to a lot of the news coverage here.
To anybody who is out there that listening to Bill and I, I really like take this one, sit with it for a second, read some of the very good reporting that has been done by a variety of different organizations on this particular story and then ask yourself, what would it look like here? This is a, this is a great fact pattern to use for a tabletop, particularly if you are are a little nervous about your ability to investigate an issue that might be involving senior leadership. Take this one. Break it down. Ask yourself, where are my pressure points? Where are the places where I should be thinking about whether or not I've got the right scaffolding and structure in place that I could have managed to navigate this more elegantly and with better results than the KPMG Australia team did?
These kinds of fact patterns, you know, should be seen as the gift that they are. So take it, read it, take it, use it, turn it into a tabletop. Ask yourself, how would we keep something like this from happening here?
[00:23:49] Speaker A: Well, everyone, thank you so very much for joining us. We hope you've enjoyed this episode. For plenty of free ethics and compliance resources, especially around Speak Up Culture, anti retaliation, internal investigations, psychological safety, and organizational justice, please visit the Ethisphere resource
[email protected] resources. In the meantime, don't forget to subscribe to the Ethacast on YouTube, Apple Podcasts, and Spotify for new episodes each week. If you'd like to appear on the show as a guest to share your ethics and compliance success story, best practice or innovation? Drop us a
[email protected] ethiccast or feel free to message Erica or myself here on LinkedIn. That's all for now, but until next time, remember, strong ethics is good business. Bye now. See you soon.
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