October 05, 2011

Oral Testimony of Sam DiPiazza, Jr. - Center for Professional Responsibility

Oral Testimony of  Sam DiPiazza, Jr.,

leader for Tax Services of PricewaterhouseCoopers LLP

The next presentation was by Sam DiPiazza, Jr., leader for Tax Services of PricewaterhouseCoopers LLP, who is a CPA with over 25 years experience in tax consulting. Of PwC’s over 140,000 professionals worldwide, over 8,000 practice tax with over 6,000 of these in the U.S (over 1,000 of whom are lawyers). His written remarks focused on the preference for Model Five of the hypotheticals, the fully integrated MDP, and the comparability of the two profession’s commitment to objective and independent advice, loyalty to clients and preservation of client confidences.

Professor Daly led off the questioning. She asked about his earlier referenced direct conflict hypothetical regarding representing Client A bidding for a FCC license and then being approached by Client B to help prepare a bid on the same license. If Client A consents (without disclosure of Client B) firewalls are created and representation of both proceeds. Mr. Piazza said if the first client refuses, the Client B engagement is declined. Dropping the first client like a hot potato in order to accept a new representation that is potentially more lucrative, the ‘hot potato gambit’ the courts frown upon in the legal profession, is not an issue for accountants who would continue to represent Client A and honor client loyalty for ethical and business reasons. In the instance of an indirect conflict Mr. DiPiazza might view it more as a business than an ethical conflict as the accounting firm recognizes the client expects (and wants) the firm’s knowledge in the practice area such as telecommunications or pharmaceuticals as well as its loyalty. They build firewalls between teams and share a staff person only with client consent; if there’s a question of a partner’s particular knowledge and involvement with the first client they ask the second client to help them work through it. Assuming a separate legal services division within the MDP Professor Daly asked what problems he foresaw with the existence of two kinds of lawyers within the same institution. Mr. DiPiazza emphasized clarity as to what the person does and each person holding him or herself out in different ways with a legal services division that people opted to be in (not on a project-by-project basis but over an extended period) serving this purpose. Asked how PwC structures its lawyer relationships outside the U.S. Mr. DiPiazza said it’s very complex and it varies. In the Netherlands PwC lawyers operate in a fully integrated MDP, Model 5, while in France they are in a separate partnership that includes a tax division, much like Model 4, with contracts back and forth with the professional services firm. They connect law firms across borders through a series of networks to bring to the market a global law firm. Mr. Traynor asked how they would handle new Client A wanting to pursue a communications frequency and then Golden Client B wanting to pursue the same asset and refusing to consent to the prior representation. In this instance of direct adversity they would tell Golden Client B they are already in the game (could not disclose identity of Client A) and the best PwC can offer is an environment where they represent both applicants, assuming the first client also consents, with two separate teams - Golden Client B likely would not get the first string team because they are already committed. This is the only result their ethics, business sense and concern for liability would allow. He responded ‘yes’ to Ms. Lamm’s inquiry whether all lawyers in the legal services division of the fully integrated Model 5 firm would be subject to bar regulation, comparable to the governance of an independent law firm lawyer, and lawyers in the other nonlegal service provider divisions would not be subject to bar regulation. It is the accounting profession’s view that a direct conflict requires client consent and an indirect conflict does not. He considers litigation the highest form of adversity and considers it very unlikely that many clients would waive conflict in that context. Mr. Rosner followed up with a question about existing Golden Client A being the tender offer target of an engagement in which Fortune 50 company, as Client B, wants to involve the accounting firm. There is direct adversity and the accounting firm cannot get consent because it can’t disclose Client B’s intent to Client A. Mr. DiPiazza said it is the point at which the parties become adverse that the accounting firm must exclude itself. He said there must be full disclosure to the Fortune 50 company that the accounting firm has a relationship with Client A and that there are not many services they may provide to analyze Client A, their services are likely to be more strategic in nature. Because PwC has a strong industry-driven practice its head of that industry likely has knowledge, absent the conflict engagements, of potential conflicts. It is senior management in the firm that makes the calls to ensure the teams only do certain things to avoid ending up in a direct conflict. It may happen that the team of the target will not even know that PwC has been approached by a takeover bidder. Mr. Rosner asked how, assuming the Commission recommendation favors some form of MDP, to deal with the situation of purely commercial firms such as American Express acquiring the non-audit practices of accounting firms, where there are no professional values to serve as lodestar guides for the cultures of their firms. Mr. DiPiazza said that faced with the prospect of American Express as a competitor the leadership of the accounting profession focused on the profession’s values and the individual’s obligation of confidence, integrity, objectivity, no matter what the ownership of the firm. Asked about a regulatory scheme that might discipline or impose some kind of sanction on the firm, qua firm, as an appropriate preventative measure, Mr. DiPiazza said regulating the firm rather than the individual was a huge leap and something he would take personally. He confirmed that he thought the marketplace and liability suits should be the ultimate sanctions. Asked by Dean Powell about persons eligible to be in a MDP relationship with lawyers, other than an accountant, Mr. DiPiazza said there are compatible and incompatible professions and that most people know them when they see them. He said care was required when talking about professions and licenses as, for instance, tow truck drivers have licenses whereas a Nobel laureate may not. Pressed for more guidance he said (recognizing that professional service firms are in the business of providing professional services) that he’d provide examples of incompatible professions (he thinks a tow truck driver is incompatible). Asked about ownership limitations on CPA firms he explained that the original 100% ownership by CPAs requirement was in recognition of the public duty of the attest function, that the duty of the attest function could only be satisfied in a firm that’s a CPA firm. In less than a decade the institutional view has changed (there is currently a 50% CPA ownership requirement) with the percentage CPA ownership declining and the focus being directed to the activity of the firm. Asked by Mr. Mundheim how he would recommend lawyers practicing in a Model 5 firm be organized to enhance professionalism and independence Mr. DiPiazza agreed those holding themselves out as practicing law should operate within an identifiable law unit headed by a lawyer. Asked whether the firm should have a responsibility to establish reasonable procedures to maintain the professionalism and independence of those people who are holding themselves out to practice law Mr. DiPiazza thought if such a management requirement were placed on nonlawyer management across the board the professional service firms should be obligated as well. That is, if the firm doesn’t establish these types of procedures it can’t provide legal services. Mr. DiPiazza said that institutional culture and process supports maintenance of integrity and ethics and described his firm’s published procedures in this area: a five-hour training session on the way PwC does business covering conflicts, harassment, coaching and obligations of confidentiality, an anonymous ethics hotline for any firm member who has an issue regarding anything he or she has been asked to do, and the availability of outside professionals with whom to consult. Asked the question of what a Model 5 firm holding itself out as offering legal services needs to do so clients know they’re getting legal services as opposed to financial services provided by a person who happens to have a law degree, he said care needs to be taken that no impression is created, outside the legal services division, that the person at the table is there as a lawyer. He agreed that the burden is on the firm to clearly designate to the client whether they’re being provided legal services or being provided something that is not legal services and with respect to which they ought to consult their own lawyer who will provide them legal advice; he acknowledged the difficulty in defining legal and nonlegal services. Mr. DiPiazza responded to the Chair that in his firm lawyers do not prepare documents for clients as, he agreed, it looks too much like the practice of law. In response to the pro bono death penalty case request he said PwC understands that with the rules changed a lawyer within its legal services division would hold himself out as a lawyer and would be bound by the same requirements as if he were in a law firm and if he’d have an obligation under the professional rules to do pro bono he’d get credit for his work. Asked about the possibility of not only the lawyer but the firm being disciplined Mr. DiPiazza said his firm would object to being disciplined by the Bar for the actions of lawyers individually, but would take a more measured perspective if the same obligation were imposed on every law firm in the country. The obligation would have to be accepted as part of being in the business. The accounting firms don’t want to be singled out simply because they have a different set of owners.