PricewaterhouseCoopers LLP (PwC), a major accounting firm, was engaged in unethical billing practices that generated millions of dollars in additional revenue to the company. PwC was charging its clients the full price of airline tickets and other travel expenses, such as hotel rooms and car rentals, while it was actually expending only a small percentage of the full amount billed to its clients due to applied rebates and discounts it received under travel agencies and airline contracts and negotiations. Therefore, the company was “overcharging… clients and pocketing the difference without revealing the practice” (AccountingWeb). However, since Neal A. Roberts, a PwC employee, discovered his employer’s travel billing practices, PwC found itself in a very difficult situation. Mr. Roberts wasn’t in agreement with his company’s billing method and made several attempts to address the problem while working for his firm without much success. He reached out to the company’s ethics department and to an in-house PwC lawyer, but only managed to have the company’s policy revised, not corrected. A group of people (mostly the company’s partners) decided that under the new policy, PwC would have to disclose most of the discounts to its clients but still keep 8 percent of the rebates as a “cover our costs” fee while retaining the “millions… collected previously on the earlier rebates” (Carroll and Buchholtz 630).
Despite these policy changes, Neil A. Roberts remained dissatisfied and decided to file a False Claims lawsuit against PricewaterhouseCoopers LLP. The False Claims Act is a federal legislation that was established to make sure companies were not circumventing the government. Under this legislation, anyone who knows about “companies that are defrauding the government may sue on the government’s behalf and share in the proceeds of the suit” while being protected from workplace retaliation under the qui tam (also known as a whistle-blower) provisions of the Act (Carroll and Buchholtz 630). In December 2003, Mr. Roberts won the False Claims lawsuit against PwC after much investigation, and “the accounting firm agreed… to a settlement valued at $54.5 million” although it denied the fraud allegations (Weil 1). Considering this travel expense billing controversy, the company failed to obtain integrity and professionalism by carrying out this unethical practice for its own benefit. It was selfish, only seeking profit, and neglected its reputation in front of clients and the market. In addition, the firm also failed to elaborate important policies and regulations in regards to this unethical practice in order to prevent employers from attempting this illegal action. Moreover, the accounting firm was lacking an effective stakeholder management and important principles that could have helped build stakeholder relationships.
Since the company’s primary and secondary social stakeholders are the employees, managers, clients, ethics committee, management committee, travel companies/airlines, and federal government, PwC should develop a strong stakeholder culture and stakeholder management capabilities. They can effectively address stakeholder issues and relationships, analyze the stakeholders’ power, monitor their interests and needs, communicate with them regularly, and stay engaged with them. In doing so, the company would be able to identify strategies for dealing with the key stakeholders and consider the relative power of different stakeholder groups along with their importance to the issues confronting the organization. PwC desired to be seen as an ethically responsible company by having an ethics committee, but instead, it was only trying to be ethically responsible through legitimation, which is “a dynamic process by which business seeks to perpetuate its acceptance” (Carroll and Buchholtz 95). The firm wanted to continue to obtain financial gain even though Mr. Roberts and other partners had already questioned its practices. For instance, modifying its policy to offer discounts of 28 percent while still keeping 8 percent as a service fee.
As a result, all these issues influenced Neil A. Roberts’ decision in filing a False Claims lawsuit against the accounting firm. The False Claims Act is good in its sense, which allows an individual to report a company whenever it is engaging in illegal activities, but Mr. Roberts could be using this Act to gain financial gain as he also participated in the False Claims lawsuit against IBM that settled in 2007. Consequently, these allegations create some concerns in regards to Mr. Roberts’ intentions. Was he acting ethically to overturn unethical companies or was he just acting to simply obtain financial gains, as the Act awards individuals a share of the winnings when they seek fraud damages on behalf of the government?
All things considered, PricewaterhouseCoopers LLP could have avoided this multimillion dollar lawsuit and scandal if only it had maintained its corporate legitimacy by observing all laws and regulations, and practicing good ethical principles towards its stakeholders.
AccountingWeb. PwC to Settle Travel Expenses Lawsuit for $54.5 Million. 23 December 2003. Web. 28 September 2014. Carroll, Archie B and Ann K Buchholtz. “Corporate Governance: Foundational Issues.” Business & Society ; Ethics, Sustainability, and Stakeholder Management. South-Western Cengage Learning, 2012. 94-120. Paper. Carroll, Archie B and Ann K Buchholtz. “The Travel Expense Billing Controversy and False Claims Act.” Business & Society ; Ethics, Sustainability, and Stakeholder Management. Ohio: South-Western Cengage Learning, 2012. 628-31. Paper. Weil, Jonathan. “Court Files Offer Inside Look At Pricewaterhouse Billing Clash.” The Wall Street Journal Online (2004): 1-4. Web. 28 September 2014.