KPMG (B): Risk and Reform

Under the leadership of Tim Flynn, Chairman and CEO of KPMG, the firm made a number of changes in compensation, governance, and culture in order to address the underlying reasons for actions that occurred prior to him becoming CEO that led to the accounting giant paying $456 million to the federal government over allegedly selling illegal tax shelters. These changes included a common compensation bonus pool for the entire firm and rewarding people for professionalism as much as for business development; strengthening governance by adding a lead director to the board, removing the chairman and deputy chairman from board member selection, and creating separate committees for professional practice, ethics, and compliance and operations; and enhanced its ethics and compliance program through human resource processes (e.g., recruiting, orientation, training, and exit interviews), implementing periodic and required ethics courses, active firm leadership in these courses, and establishing multiple channels of communication for employees to raise concerns with an explicit "no retaliation" policy. In January 2007, 86% of the employees were proud to work for the firm, compared to 60% in 2005. Employee turnover was at an all-time low. And the Tax Practice, the source of the problems, was the fastest growing such practice in the Big Four accounting firms at 18%.