Touting a move toward more independent leadership at the top, a KPMG board appointment spotlights just how little independence there is across Big 4 boards compared to the public companies they audit.
KPMG recently said it is bringing on Janet C. Wolfenbarger, a retired general with the U.S. Air Force, as its first independent member of KPMG’s U.S. board of directors. The firm is looking for Wolfenbarger's insights on management, leadership, and uses of technology to bring new perspectives to board conversations. The firm says it will name “additional independent directors in the coming months.”
Lynne Doughtie, chairman and CEO for KPMG in the United States, said adding Wolfenbarger, with her qualifications and independence, will ensure “a broader range of constructive viewpoints” among board members. Doughtie is also counting on Wolfenbarger to add “impressive credentials and character” to the board that will “benefit and further strengthen our firm.”
KPMG suffered a serious blow to its reputation in 2017 when the U.S. Department of Justice and the Securities and Exchange Commission unveiled charges of fraud and conspiracy surrounding the firm’s regulatory inspection process, taking out the highest levels of audit leadership at the firm. KPMG has turned out some of the highest audit deficiency ratings across major firms from the Public Company Accounting Oversight Board, despite the alleged efforts to subvert the inspection process.
While KPMG proactively announced the addition of Wolfenbarger to its board, the firm does not disclose how many board members it currently has, which might indicate how much weight a single independent voice might carry. KPMG does not publish a board roster.
The firm did not answer questions from Compliance Week regarding its current board composition; nor does it publish any such information on its Website. “We’ve never disclosed the current number of internal board members or who they are,” a KPMG spokesman said.
PwC leads the Big 4 in adding independent directors to its board, appointing Carol Pottenger and Carlos Gutierrez in July 2017. The firm identifies 21 “elected partners, principals, and external directors” as members of its “U.S. Board of Partners and Principals” setting strategic direction for the firm. Timothy Ryan, U.S. chairman and senior partner at PwC, said at the time the firm expected the perspectives and expertise of its new outside board members to help the firm become more diverse. "We know corporate boards that lack diversity can develop groupthink as a result of shared biases and blind spots, which in turn can seriously hurt its decision-making process," he wrote.
Deloitte & Touche and EY also provide biographies for their boards on their firm Websites, although neither firm has any independent directors, or directors who are not otherwise tied to the firm. Deloitte’s U.S. board, consisting of 21 individuals, is made up of its top executive leaders as well as functional and regional leaders from throughout the firm. EY’s Americas board is similarly composed of 19 individuals. Both firms issued written statements to indicate they are taking steps to add independent perspectives to their firm leadership.
“Deloitte is committed to strong and independent governance,” the firm said. “We have benefitted from formalized external stakeholder input since 2013, when we established the Deloitte Audit Quality Advisory Council, comprised entirely of outside experts, to provide ongoing advice and perspective on ways in which we can continue to elevate audit quality to the benefit of the capital markets.”
EY said: “EY in the U.S. is establishing an independent committee to advise us on audit quality. As a part of our global commitment to sustainable audit quality, EY also has a group of independent non-executives who serve as EY’s Global Public Interest Committee and members of EY’s Global Governance Council. The two groups are designed to work closely together so insights can be shared across the EY organization.”
The public companies audited by the Big 4 and other accounting firms are generally required to have a majority of the board composed of independent directors.