In last week’s post we discussed how the academic system has essentially given rise to a bunch of liars and cheaters, spurred on by the latest ‘Gino-saga’ with Data Colada showing that at least 4 papers by the academic were based on fraudulent data. I did not mince words when describing the many issues in academia. Issue is, corporate is no better.
At the same time that behavioural science is having (yet another) crisis in terms of result falsification, PwC Australia is currently under fire for ‘double-dipping’ into the cookie jar. They tend the one thing they’re not supposed to be doing: breach confidentiality. Oops.
For those not in the know, the Australian Financial Review and the Guardian have done excellent articles on this. If that’s TLDR for you, here’s the summary: several people who were helping the AU government redesign a specific part of corporate tax law (multinational tax law to be precise, trying to avoid loopholes where companies are sending money through (and back to) different countries to avoid taxes anywhere!). If you’re helping the government, of course, you are under a whole bunch of NDA’s and other confidentiality agreements. Obviously. So you need to keep your mouth shut. Obviously. What you shouldn’t be doing is letting other colleagues who are not affiliated with this project know so they can start looking for the loopholes in your own recommendations. Build an entire service offering around this. And then start recruiting new, very lucrative, clients on the promise of getting them out of these new tax laws that ‘could ruin them’.
You’re probably thinking: escandalo! Good thing we caught it in time. But here we see the same thing that we saw with the academic counterpart: it took years to get here. And while there is damage, so much benefit and profit has been gained from it. The nonsense with PwC started in 2015. That’s 8 years ago. And it only got dug into this year. That’s 8 years of schmoozing and boozing. And billions of dollars that could have been spent on something to actually benefit the taxpayer. Now you can make the argument that at least they got caught, people are getting fired and there’s so much reputational damage it’s going to be (almost) impossible to come back from. With this much news attention, it being a global scandal, and with a lot of people demanding a proper review of the PwC (corporate) culture, PwC doesn’t really have much of a choice besides getting its act together. But as a behavioural scientist, I’m just not buying it.
I severely doubt PwC is still going to struggle, say, 2 years from now. I severely doubt that the people affiliated with this scandal will never work again. A temporary setback, sure. Life altering, earth shattering and moral bearing changes, no, I don’t expect to see them. And I’m not the only one who’s not holding their breath.
What has happened is that “the issue has sparked debate over conflicts of interest between auditors, accountants and consultants, and whether one firm can work across all areas, as PwC and other major accountancy groups do.” And there we have the crux of the problem. Because as little as I know about ethical decision-making, morality and behavioural risk in general, that seems like a pretty dumb idea.
Behavioural Risk is not a field I know much about, but it is a field that is becoming increasingly popular, especially in the financial sector. If you’re interested, key players in this field would be Alex Chesterfield (NatWest), Jessica Exton (Macquarie Bank) and Christian Hunt (Human Risk).
The field essentially looks at risk (surprise) and compliance: “Behavioural risk is the possibility of undesirable risk outcomes caused by poor workforce behaviours (or conduct) and the cultural factors that drive them.” And that quote, highly ironically, comes from a PwC Australia publication.
Let’s look into culture then. It seems that a lot of people were involved in the PwC email chains. Both highly placed seniors, and more junior folk. Do you think the Australian corporate culture is hierarchical? What about its consulting culture? From a COM-B perspective, do you think the social opportunity exists to speak up, critique more senior colleagues, face that kind of backlash?
What about motivation driven by the incentive structure? Consultancies are known to be pressure cooker environments. With lots of highly insecure, highly driven people who don’t really have a healthy grip on reality, or at least a work-life balance competing for more senior positions that really aren’t a plenty. People who’ve operated in that system for a long time tend to get entitled and greedy. Those who are new to it look to their seniors to see what behaviour is advised, and what isn’t. It’s the bad leading the bad.
And when there’s millions or even billions on to the table, that is bad indeed.
In the end, the rotten apples spoil the whole harvest. Which is what happened. And given the structure of how a lot of firms like PwC can operate both across government and private, you can wonder how it has happened before. Or rather, how we haven’t really heard of it happening before, which I genuinely think is more likely. You might now be wondering: so how did this see the light of day? The reason this even became known (and has been suspected since 2016) is not because someone spoke up against the ‘ring leader’. No, it’s because the Australian Tax Authority (ATO) got suspicious as “a handful of multinationals “suspiciously and quickly” sought to restructure operations in response to new tax avoidance rules.” All very hush-hush indeed. As the events in both corporate and academia point out, there is a rather large role to play for Behavioural Risk. Something as simple as just applying COM-B reveals that the incentive structures are skewed towards the promotion of no-ethical behaviour, because there is such a strong gain to be had from it, with the risk of being caught being present, but somehow also negligible. The average behavioural scientist should be able to explain the perception of the weighting of probabilities to you, and how no human being can do this properly. That’s the end of this ‘mini-series’ of sorts. Just all round disappointing behaviour, doing damage to entire sectors (behavioural science, consulting) for the sake of greed. But quite frankly, with the system set up the way it is, what did we expect?