PwC adds ex-SEC commissioner as outside director and forms Assurance Quality Advisory Committee
PricewaterhouseCoopers is adding a third external director to its board, former SEC commissioner Troy Paredes, and establishing an Assurance Quality Advisory Committee where the firm will bring in more outside voices to help improve its audits.
Paredes (pictured) will be joining two other outside directors whom PwC added to its board in 2017: former Commerce Secretary and Kellogg CEO Carlos Gutierrez, and former U.S. Navy Admiral Carol Pottenger (see our story). The move will make PwC the first Big Four firm in the U.S. to have external directors on its board in addition to an independent advisory committee on audit quality.
“The reason we’re committed to that external governance and having three outsiders on our board is — while we’re a private partnership — we recognize the importance of having increased independence and objectivity,” PwC US chair and senior partner Tim Ryan told Accounting Today. “We’re particularly excited to add Troy as that third director.”
PwC’s partnership agreement allows the firm to have up to three outside directors, but there was a nearly three-year time lag after the addition of Gutierrez and Pottenger to the board. “To be clear, the decision to fill that third board set was several years in the making,” said Ryan. “It takes a long time to find the right person. The last two years, we were looking to fill that third seat. You need to find the right person.”
In Paredes, Ryan and the other board members at PwC feel they have found the right person. Paredes was an SEC commissioner from Aug. 1, 2008 until Aug. 1, 2013. He later started his own consulting firm, Paredes Strategies LLC. He will now serve as an external board member at PwC, with his term expiring June 30, 2023.
“He not only is a former SEC commissioner,” said Ryan. “He served during the financial crisis, and the implementation of Dodd-Frank, and he brings a unique experience just around the important role of financial reporting in the overall system. His experience in rulemaking and regulation will help quite a bit. He also is the founder of his own consulting firm, and he’ll bring a unique perspective just around what other stakeholders are thinking about. His combination of government compliance, enforcement and regulatory is a real plus to have on our board in bringing that perspective, and it’s going to help us with our continued focus on audit quality as we look to continuously improve, so we’re thrilled to have him.”
“PwC is a leading firm and the addition of external directors to its board is impactful in driving its groundbreaking strategy and the quality the firm is known for,” Paredes said in a statement Friday. “I’m excited to be elected to the board as the third external director and to draw from my extensive governance, compliance, and regulatory experience. Joining Carlos Gutierrez and Carol Pottenger as an external director, as well as the formation of the independent Assurance Quality Advisory Committee, reflects the firm’s commitment to building trust in society, enhancing its governance and advancing its focus on audit quality.”
Along with Gutierrez and Pottenger, he is expected to bring a fresh perspective to PwC. “Our partnership agreement allows us to have up to three independent directors,” said Ryan. “We have now filled that. When I look at the expertise that Carol and Carlos have brought, and we add Troy, I’m excited as a senior partner to get those perspectives. It helps me do a better job in fulfilling the mission of senior partner, and I think the rest of the board is equally as excited.”
Advisory committee formed
The firm is also planning to add more outside voices in the new Assurance Quality Advisory Committee it is forming, where it plans to gather up to three people who have backgrounds as financial statement preparers, investors, standard-setters and regulators. Members of that committee will all be outsiders, but they will also report to Wes Bricker, a former chief accountant at the SEC, who rejoined PwC’s U.S. firm last year and became vice chair and U.S. and Mexico assurance leader.
“Myself and Wes Bricker, our assurance leader, agreed quite some time ago when he joined the firm in July to establish an advisory committee for the assurance practice,” said Ryan. “That will report directly to Wes as the assurance leader. I also will benefit from that. We will have up to three members in that group, and we’re specifically looking at people who have preparer, investor, standard-setting and regulatory expertise. We are in active discussions with people about joining that committee, and I expect that in the second half of 2020, we will be ready to announce the names on that committee.”
Between the three external directors on the board, and the three outside people who will be on the new committee, Ryan expects the firm will benefit from their input. “When I look at both the combination of having three independent directors, and also a committee to advise the assurance practice, that collectively is a major step as we look to continuously improve our audit quality,” he said. “To the best of my knowledge, the U.S. firm is the first firm across the globe to have both independent board members and an advisory committee to the assurance practice. I’m very excited about that, and it will help us get better and better, and fulfill our purpose in improving audit quality. When you look at Troy and the other independent directors, they have full voting rights and equal rights to our board members. Troy can serve on up to three board committees, the same as our internal board members.”
The new committee will meet with Bricker regularly, as well as Ryan and other PwC assurance leaders. “It will be outsiders who meet with Wes, myself and other members of our assurance leadership team,” said Ryan. “Wes will formally meet with them a number of times throughout the year, but informally on an as-needed basis. They will report to Wes, and through Wes they will get exposure, and they meet with our assurance leadership team, and that will then better position them to give us advice on how to drive continuous improvement.”
The move comes as regulators seem to be considering the loosening of auditor independence and quality control requirements, with the Securities and Exchange Commission considering changes in its longstanding independence rules, and the Public Company Accounting Oversight Board proposing changes in its quality control standards (see our stories here and here).
“What I would tell you is one of the major things that’s near and dear to our profession is independence and objectivity,” said Ryan. “We fully support that, because that’s what builds the trust that investors have in our profession, which is independent, objective auditors. I fully support anything that helps us maintain our independence and objectivity, because at the end of the day, the public trust and investor trust in our profession is paramount.”
PwC and other Big Four audit firms have come under criticism in the U.S. and abroad for being too cozy with clients, and moves are afoot in the European Union and the U.K. to impose stricter separations between the firms’ audit and consulting practices. In the U.S., PwC audit client Mattel announced this week that the SEC and the U.S Attorney in the Southern District of New York are looking into an internal investigation that the toy maker conducted of accounting issues involving its “Thomas & Friends” products, and how PwC was involved, according to The Wall Street Journal. Ryan was asked if the new advisory committee at PwC and the independent board members would help the firm deal with these kinds of situations.
“What I would say is we are constantly looking to improve our overall audit quality, and every one of the steps that I’ve talked about today,” Ryan responded. “Adding our third independent director and putting in the committee will be key steps among many others that we take regularly in our system of controls to make sure we’re driving independence and objectivity. When I look at our profession, I am very proud of the quality of the work that we do, but I’m also humble enough to know there’s always room for improvement, and these two things will help us drive improvement.”
So far, PwC’s experience with the independent directors it added in 2017, Gutierrez and Pottenger, has been positive. “Carlos and Carol have been on our board for over two years, and they’ve had a very significant impact in our boardroom,” said Ryan. “Just to have outside perspectives — people who don’t work at our firm — and to have those outside perspectives in the boardroom, who are all privy to our strategy, who are privy to the steps that we’re taking to improve, who are privy to how we’re serving our different stakeholders, their perspectives have been immeasurable in not only helping me as the senior partner think differently but also help other board members think a little bit more broadly and a little bit more differently as well. I am incredibly proud and glad we made that change and began to have independent directors at the table two years ago. It’s really helped our firm.”
The full board meets formally five times a year face to face, he noted, and also holds a board retreat. “What’s great about our directors is — and this is deliberate — we wanted a broad set of experiences, so they all come at the world with different perspectives: Carol with her military background and her expertise, and Carlos with his international expertise as a former CEO, and Troy, it’s his broad expertise around regulatory. What I’m most excited about is how investors and other stakeholders whom Troy would interact with throughout his career, how they look at us and what they expect of us, to bring that expertise. In his former role as a commissioner, he would have been meeting regularly with stakeholders such as investors and other policymakers. To have that insight to better advise me and my team to do our job better is going to be very welcome.”
Right now, there are no plans to increase the number of external directors beyond three, but the new Assurance Quality Advisory Committee will help bring in more outside voices. Each of the external directors, like the internal directors, can serve up to eight years on the board.
“Each of the three independent directors can serve up to two four-year terms, which is consistent with our internal board members,” said Ryan. “We are a big believer in making sure we have fresh insights, so each of the three — no different than our internal board members — can do two four-year terms, and we’re excited about where these changes can take us.”