At Legal & General’s annual meeting in May 2022, a shareholder took to the floor to air some grievances — not about the performance of the FTSE 100 insurer but that of KPMG, its auditor.
“Don’t we as a company with an enormous reputation deserve to have auditors of the very highest reputation too,” he asked the group’s board. Referencing press coverage of KPMG’s multiple audit failings, he also questioned whether L&G should “ditch them and get someone else to do that work”.
The remarks generated applause in the room and illustrated the extent to which the reputation of the accounting and consulting firm had been damaged by a litany of scandals in the preceding years.
KPMG is one of the four largest accounting firms in the world, operating in 143 countries. Its UK unit, which employs 18,000 people and checks the books of 22 of the country’s largest listed companies, is second only in size to its US business. Several prominent business leaders and public servants have passed through its doors, including Sir Jonathan Symonds, chair of FTSE 100 drugmaker GSK, Sir Mike Rake, the former BT chair and president of UK business lobby group, the CBI, and Claire Coutinho, a former energy secretary.
But its British business was in chaos when Jon Holt, a lifer at the firm, took the reins in April 2021. The collapse three years earlier of Carillion, an outsourcing company heavily involved in delivering public services, had resulted in an investigation that found multiple failings in KPMG’s auditing.
“They weren’t challenging management and they weren’t deploying professional scepticism,” a senior audit regulator says of the general culture in KPMG’s audit business.
Carillion was a reputational and financial catastrophe, resulting in a record regulatory fine and contributing to a temporary withdrawal from bidding on government contracts.
At a parliamentary committee hearing in 2018, Labour MP Peter Kyle told the firm’s then head of audit, Michelle Hinchliffe, and Peter Meehan, the lead auditor on Carillion, that he “wouldn’t hire KPMG to audit the contents of my fridge”.
Now, three and a half years into Holt’s tenure, regulators, partners at rival firms and industry executives believe he has steadied the ship and engineered a successful turnaround of KPMG’s scandal-hit audit business. The 52-year-old has been handed an extension to lead KPMG’s UK business until 2029.
“They are genuinely different to deal with now,” says the senior regulator. “If you think back to 2018-20, and you look at the position that KPMG was in, it’s almost unrecognisable today.”
But some argue that his job is only half done. The firm’s consulting and advisory business — a juggernaut for growth at rival firms in recent years — is widely seen in the industry as underweight and has suffered from slower growth than its Big Four competitors.
This has left some to speculate that Holt is merely managing the decline of KPMG relative to its three main competitors, a claim he rejects.
“KPMG is falling behind,” says a former senior consultant at a rival firm. “Sector analysts gave the same view to us over several market reports. They can always surprise on a one-off pitch and have always been good on client relationships, so can win unexpectedly.
“[But] they have not really scaled on tech or working globally.”
The approaching crisis was not readily apparent in December 2020, when Queen Elizabeth appeared on a video call with KPMG’s then boss, Bill Michael, to mark the firm’s 150th anniversary.
The late monarch lauded the firm’s efforts during the pandemic. “It sounds like it’s all going very well in spite of all the difficulties,” she said.
Just two months later, Michael was gone. The sharp-tongued Australian left abruptly after telling staff during a virtual meeting to “stop moaning” about pandemic work conditions and dismissing the idea of unconscious bias as “complete and utter crap”.
His departure came just as the fallout from the collapse of Carillion — which left two hospitals partially built and 3,000 people out of a job — was reaching a peak.
It was Holt who had to deal with the consequences. Nine months into the role, he was forced to admit that KPMG’s auditors misled the regulators who inspected the quality of their work at Carillion.
The firm was fined a record £21mn by the Financial Reporting Council, the UK’s accounting watchdog, for “textbook failures” in its auditing. It was separately fined £14.4mn for deliberately misleading the FRC and also settled a £1.3bn lawsuit brought by Carillion’s liquidators for an undisclosed sum.
“It felt at times a bit like we were cycling uphill over the past three years,” says Holt in an interview with the Financial Times. “I’m hoping that we have some flat ground ahead of us.”
Holt, who was paid £2.7mn in 2022, started his turnaround by targeting KPMG’s culture. He says there were “things we had to address” when he took over. Michael’s blunt remarks followed a number of reports alleging misconduct by senior partners at the firm, which resulted in several departures.
During the summer of 2021, Bina Mehta, KPMG’s chair, commissioned a review led by Holt into the firm’s culture, which resulted in fresh diversity and inclusion targets and tied them to partner remuneration in some cases.
But the audit business was a particular issue for Holt, who had run the division after Carillion’s collapse. The FRC’s 2021 review of KPMG’s audit quality — a closely watched report in the industry — admonished the firm for its “unacceptable” failure to meet required standards in its audits of banks for a third year running.
“The firm does not currently provide its banking audit teams with sufficiently clear expectations and guidance as to the minimum procedures to be performed,” the watchdog said.
In response, the FRC took the unusual step of establishing a specific “project team” dedicated to overseeing KPMG’s approach to its banking audits, says the senior regulator. “There was an intensive period of supervision . . . the results were not good enough so we targeted their banking [audit] culture, their banking resources, their banking methodology.”
The shortcomings at Carillion were laid bare in excruciating detail during a five-week industry tribunal in early 2022. Meehan defended himself by claiming he was “let down” by juniors in his team and that he could not have been involved in preparing forged documents because he was on a shopping trip with his wife. He was subsequently fined and banned from the industry.
Holt and other senior partners at the firm tried to keep clients on board, inviting chief financial officers and audit committee chairs for breakfasts to explain how they were attempting to improve the audit business, one person familiar with the matter says. Holt even gave a presentation to Legal & General’s audit committee to highlight the improvements made to its audit business.
He tells the FT the firm “focused carefully on culture and consistency” and “developed a ‘high support, high challenge’ culture” that would expect partners to challenge audit clients and would back them up when they did.
Those efforts have borne fruit in recent years. In July, KPMG received its third consecutive positive annual audit quality report from the FRC, coming second only to Deloitte, with 89 per cent of its audits receiving the highest quality rating.
Sarah Rapson, executive director of supervision at the FRC, says KPMG’s recent improvements were “testament to the work of Jon Holt [and] all partners and staff at KPMG who have invested in improving audit quality”.
Revenues at the division also grew 30 per cent between 2021 and 2023 to £879mn, and the unit is expected to be KPMG’s best-performing service line when it reports its 2024 results early next year.
“We did see them as being in a different position to the other three of the Big Four, but I don’t think like that any more,” says the senior regulator.
In large part, the FRC puts KPMG’s audit turnaround down to Holt’s leadership, with the senior regulator describing him as an “absolute breath of fresh air”.
“If you could package what they’ve done for some of the other firms, we would see more progress in the market,” the person says.
Holt is still hammering home the audit-quality point. At an internal conference for KPMG’s audit partners last month, he said he had six priorities for KPMG’s audit business, according to a person familiar with the matter. One related to improving technology. The other five were all about audit quality.
Holt joined KPMG as a trainee in the firm’s Leeds office in 1994. He led the firm’s Manchester office from 2013 to 2017.
He is well liked and respected by rivals and other industry players. One person who has worked with him describes him as “very straightforward to deal with — bright and very likeable. He says it like it is.”
His contract extension will provide the firm with valuable continuity of leadership. “KPMG has suffered from changing its leaders too frequently,” says one industry executive. “It doesn’t allow them to execute their strategies. So giving [Holt] until 2029 will be good for the business.”
But Holt’s background as an auditor and his intense focus on improving that business have left some questioning whether he has the required experience to improve the performance of KPMG’s advisory business lines.
These include consulting on business operations and performance, advising on deals, and providing tax and legal advice. Such services are generally more lucrative for professional services firms than their audit practices.
Overall KPMG is also the smallest of the Big Four in the UK, reporting total revenue of £2.96bn during its 2023 financial year, although Holt points out that the comparison is distorted because some rivals include revenue from other regions. For instance, Deloitte and PwC report sales from Switzerland and the Middle East, respectively, as part of their UK revenue.
More concerning is that its consulting offering has lagged behind its Big Four peers in recent years. “Their strategy capability lags the competition,” the former consultant at a rival firm adds. “The others have hired extensively at senior levels since Covid. I have no sense KPMG has been on a similar path.”
A recruiter who works with all of the Big Four adds that the quality of partners is not high enough. “If you present [KPMG advisory] CVs to other Big Four firms, they don’t really see them as direct competition any more.”
KPMG declined to comment.
Between 2021 and 2023, the firm’s consulting revenues grew by a third to £1.01bn, amid a booming market for advisory work during and after the pandemic. But sales at EY’s consulting business jumped 57 per cent to £1.05bn during its comparable financial years. EY’s UK numbers include its Channel Islands unit, which is only a small contributor to its overall results, making it the closest comparable Big Four firm to KPMG.
Again, Holt argues that KPMG and EY’s different year ends distort comparisons. “If we were in very flat years it wouldn’t matter,” he says. “But because we’ve had some years which were quite different, three or four months of a year can make quite a difference — particularly during the Covid and post-Covid years when the market was not consistent year on year.”
He adds that the firm has “great opportunities in consulting”. A plan to combine the UK business with KPMG’s Swiss operations — mirroring Deloitte’s structure — will enable it to better service large international clients across borders.
Like its rivals — Deloitte, EY and PwC all reported meagre revenue growth for their 2024 financial years as businesses spent less on corporate advice — KPMG’s UK unit is expected to report a slowdown in sales growth when it publishes its accounts. Its global growth has also struggled in recent years, underscoring its position as a laggard of the Big Four.
Holt says he expects that for 2024, “our profitability will be up, but our revenue will be in line with our competitors.”
Its number of equity partners has also shrunk by nearly a fifth since Holt took over in 2021, making it significantly smaller than its rivals’. This has allowed the firm to keep average profit per equity partner — a key industry metric — higher.
But the introduction of an “income partner” grade has in effect extended the time required to be elevated to equity partner status, widely seen in the industry as a golden ticket that gives individuals status and a voice in how the business is run. KPMG’s UK partners were handed average pay of £746,000 in 2023, the lowest of the Big Four that year.
Asked if he wanted to bring the size of the partnership closer in line with that of its rivals by 2029, Holt says: “I think partner numbers will drift upwards but do I think there will be a dramatic change in our partner numbers? No.”
Despite the concerns raised by one of its shareholders, Legal & General has stood by KPMG for its auditing, work that earned the firm £23.1mn during 2023.
At that year’s annual meeting, the insurer’s chair, Sir John Kingman — who separately led a review into regulation of the UK’s audit sector — told investors that “if we had any doubts, we would not hesitate” to seek a new auditor. “But that is not the situation we are in.”
Asked what else he wants to achieve by 2029, Holt is reluctant to give any measurable metric. “We’ve laid the foundations for a successful future,” he says.
“My aim for the next five years is for people to look at the firm and say, ‘We’re in a fantastic place.’ And that my years of stewardship have been a success.”
Additional reporting by Ian Smith and Michael O’Dwyer
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