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KPMG UK’s audit chair to join board of ex-client BHP

Corporate governance updates

The chair of KPMG’s UK audit division has been appointed an independent director at miner BHP, a recent client that has paid the firm hundreds of millions of dollars over the past two decades.

Michelle Hinchliffe, a member of the firm’s UK board, will leave in February to join the Anglo-Australian company, where she will also sit on the risk and audit committee.

BHP’s annual reports show that between 2003 and 2019 it paid KPMG’s member firms in Australia and other countries $293m for auditing its financial statements and $64m for other advice. EY replaced KPMG as auditor from July 2019 under rotation rules.

Hinchliffe’s move has prompted questions from accountants and investors both about KPMG’s independence as an auditor and whether she could be truly independent as a director of BHP.

She will be the third former KPMG executive to sit on BHP’s board since it was appointed the company’s auditor in 2003. KPMG Australia ex-chair David Crawford was a BHP director from 2001 to 2014 while its former chief executive Lindsay Maxsted was on the board from 2011 until 2020.

Ken MacKenzie, BHP chair, said on Thursday that “Michelle’s extensive experience in financial risk management and her broad international perspective will further strengthen the BHP board and complement the expertise of existing directors”.

A senior auditor at another accounting firm said that while Hinchliffe’s move “technically complies” with the two-year cooling off period for UK auditors joining their former clients, such appointments “always smell”.

The BHP audit was led by KPMG Australia, where Hinchliffe was a board member until 2015. KPMG UK said Hinchliffe had never worked on BHP’s audit.

However, she had oversight of the team working on the UK portion of the audit in her roles as head of KPMG’s UK audit practice from 2017 to 2019 and subsequently as chair of the division, people familiar with the firm’s structure said.

UK auditors have been taking steps to improve their independence after a string of scandals in the industry, including by restricting the sale of consulting advice to companies they audit and by ringfencing their audit functions from other business lines.

Hinchliffe’s appointment also raises questions about her independence as a non-executive director, according to a corporate governance specialist at one top 30 BHP shareholder.

Under the UK’s corporate governance code, a non-executive director’s independence could be impaired if they had a material business relationship with a company in the previous three years. KPMG last signed off on BHP’s accounts in September 2019.

The code applies to companies with a premium UK listing but BHP will leave the FTSE 100 and move to a standard listing if shareholders back plans to unify its dual-corporate structure by shifting its primary stock market listing to Australia.

The question of independence “comes down to perception as well which is subjective and a matter of opinion”, said the governance expert.

A corporate governance expert at another top 30 shareholder said the appointment was “not ideal”, but added that it was “probably not a huge issue for us at this stage”.

BHP said it was “satisfied” that the appointment of Hinchliffe met its policy on the independence of directors.

“We rigorously assess the independence of all our non-executive director appointments. This is an established and robust process that is re-tested every year,” the company said in statement. “KPMG are no longer BHP’s auditor, there was no direct involvement in BHP audit or client work and the appointment meets auditor independence criteria.”

Hinchliffe’s departure will create further upheaval on KPMG’s board as it battles a series of regulatory investigations and adapts to leadership shake-up following the resignation of Bill Michael as chair and chief executive over comments he made on a staff video call in February.

 

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