An opinion piece in The Telegraph titled ‘The consultancy racket can’t survive any more lawsuits’ piqued our interest, partly because of its direct and critical stance, but mostly because of the radical change that is being called for. So, we thought we’d ask for your views on the subject.
Do you believe that major consulting firms take advantage of their position in the market and have you experienced any challenging ethical or cultural issues with your ‘collaborative partners’?
Within this article, we shall be discussing:
- What The Telegraph article said about the issue with large consulting firms
- 8 considerations from the article
- 10 ethical behaviours you’d hope to see from your consulting partners (not just the larger ones)
- How to gain an insight into the way your consultants are likely to approach your project
- Conclusion
Telegraph article: ‘The consultancy racket can’t survive any more lawsuits’
This is a highly critical piece from author Matthew Lynn. The article starts with the assertion that a “Slew of scandals prove the culture of major firms is rotten to its core” and that “It is becoming painfully obvious to everyone that there is something rotten in the culture of the consultancy industry.”
Mr Lynn indicated that he had backed up his claim with three examples of major consulting firms, including McKinsey, Bain & Company and PwC, that have fallen below expected ethical standards and, as a result, have been severely penalised in some way. One firm claimed nothing unlawful had been done but was reportedly required to pay out a massive sum to settle outstanding claims for its part in boosting sales that contributed to a national ‘opioid epidemic’.
Another firm he suggests may have had individuals who used insider information to attempt to gain a commercial advantage in their client acquisition activities. And the third firm, even more worryingly, had been accused of playing a part in a state corruption scandal.
Mr Lynn evidently had very little confidence that the changes in personnel and protocol that these organisations had promised to apply due to ‘lessons learned’, would actually happen or make any difference even if they did. Instead, he had a rather more radical solution in mind for those major consultancy firms that do not live up to ethical expectations – “Governments and all the major corporations that make up the Fortune 500 should impose a blanket ban on all the major consultancy firms for at least five years. Simply stop working within them under any circumstances.”
8 considerations from the article
The article in The Telegraph looks to make clear a number of concerns and learnings regarding contemporary culture and practices within the consultancy sector, particularly amongst larger, more established, firms.
The key considerations identified in the article, are:
- Endemic Ethical Issues: Larger consultancy firms are portrayed in the article as being riddled with ethical issues, as evidenced by lawsuits identified by the author and his perception of a lack of a genuine desire for reform despite promises from these firms.
- Financial Repercussions: High-profile lawsuits, like the ones faced by McKinsey, which add up to settlements of hundreds of millions of dollars, have often had significant financial repercussions on consultancy firms, hinting at a costly lack of adherence to ethical practices within the sector.
- Poor Quality of Advice: Years of falling quality in the advice provided by these larger consulting firms, means advice now all too often lacks innovation and is simply a repackaging of cliches. It’s a long way from the pioneering insights that once were the hallmarks of the industry.
- Conflict of Interest and Overcharging: The article criticises large consultancy firms for conflicts of interest, overcharging and pushing unnecessary services onto clients, which undermines the professional ethos that should see them prioritising clients’ needs over consultancy profits.
- Short-term Profit Focus: In a similar way, a strong emphasis on short-term profits and fee maximisation at the expense of delivering genuine value or quality of service to clients, is highlighted as a pervasive issue.
- Failed Reforms: Despite numerous ‘attempts’ at reforms and promises of change, the article argues that these consultancies have failed to address their inherent issues, with problems worsening over time instead of improving.
- The Industry Boycott Solution: Mr Lynn suggests a radical solution, imposing a blanket ban on major consultancy firms by governments and major corporations for a five-year period, to perhaps reset the industry dynamics and allow for the emergence of smaller, more ethically driven consultancies.
- Need for New Ethical Entrants: Mr Lynn’s narrative posits that there could be room for new organisations in the market that are more focused on upholding stronger ethical standards and providing high-quality, valuable advice, in contrast to the established players in the sector.
The article states that these lessons and observations underscore a call for a significant overhaul of the larger consulting firms’ practices and culture, advocating for a shift towards ethical, client-centric and value-driven consultancy services.
What behaviours should clients expect from their consulting firm?
The ethics at the heart of these client–consulting firm relationships are critically important. When organisations turn to major consulting firms for objective insights and strategic guidance, the integrity and moral standards upheld by these consultants are not just vital for the credibility of their advice, but also for the real value that clients gain from this partnership. Below are ten ‘normally expected’ ethical behavioural standards clients should reasonably hope for from any consulting firm, not just the larger ones:
Top of Form:
- Transparency and Honesty. Firms should provide clear, accurate and honest information to clients, ensuring that all objectives, methodologies and outcomes are communicated transparently.
- Objective Advice. Providing unbiased, objective advice that is solely in the best interest of the client and free from any conflicting interests.
- Professionalism. Upholding a high level of professionalism in all interactions, demonstrating respect, competence, and courtesy.
- Confidentiality. Protecting client information and ensuring discretion in all dealings is crucial for building trust.
- Responsibility and Accountability. Firms should take responsibility for their actions, especially when errors occur and work diligently at their own cost and time to rectify any issues.
- Adherence to Legal and Ethical Standards. Complying with all applicable laws, regulations and ethical guidelines pertinent to the client’s industry.
- Client-Centric Approach. Placing the needs and interests of the client at the forefront of all decisions and actions.
- Quality Assurance. Delivering high-quality services and ensuring that the delivered work meets or exceeds the agreed-upon standards.
- Continuous Improvement. Seeking feedback from clients and employing it for the enhancement of services and processes.
- Conflict of Interest Disclosure. Disclosing any potential conflicts of interest and addressing them appropriately to maintain the integrity of the advisory relationship.
These behaviours form the bedrock of any normal ethical culture within the consulting sector, fostering a mutually beneficial and trustworthy relationship between consultants and their clients.
Suggestions for greater insight into and monitoring of consulting firm behaviours
It is reasonable for clients to expect ethical behaviour from their consultancy partners. However, should you be in any way unsure of the motivations of your consulting firm, there are a number of proactive measures you can engage in to ascertain their adherence to these principles. The points below identify the crucial lessons we’ve gleaned from industry observations, providing an evidenced-based approach for clients to review the ethical protocols of consulting firms, thereby fostering a culture of integrity and mutual respect. Some of the points are suggestions for change within the industry, others can be enacted right now, but all look to improve the way client organisations can reveal more about the way the consulting firm they wish to instruct might work with them going forward.
| ITEM | INFORMED INSIGHT | HOW CLIENTS CAN EVIDENCE POTENTIAL ADOPTION OF INSIGHT | |
|---|---|---|---|
| 1 | Regulatory Oversight | Regulatory bodies could enhance oversight of the consultancy industry to ensure adherence to ethical practices and professional standards. | Request proof of compliance with relevant laws and regulations and check for any regulatory actions or sanctions against the consultancy firm in public records. |
| Introduction of more stringent laws and regulations to penalise malpractice and unethical behaviour, creating a deterrent for firms. | |||
| 2 | Ethical Reformation | Firms should embark on an ethical reformation journey, re-evaluating and strengthening their code of ethics and conduct. | Always review the firm’s code of ethics, conduct policies and any public statements or reports regarding ethical practices and corporate social responsibility. |
| They should also promote a culture of accountability and transparency to rebuild trust with clients and the public. | |||
| 3 | Client Education | Clients should be educated on their rights and what to expect from consultancy services to make informed decisions. | Review and assess the clarity and transparency of the firm’s proposals, contracts and pricing structures. |
| Transparent pricing models and clear deliverables could also be established to ensure clients receive value for money. | Look for educational resources or advisory services provided by the firm to help clients make informed decisions. | ||
| 4 | Industry Self-Regulation | The consultancy industry could develop a self-regulatory body to enforce standards, investigate malpractices and promote ethical conduct. | Check for memberships in industry associations, certifications, or adherence to industry self-regulatory frameworks. |
| Sharing best practices and lessons learned from past mistakes across the industry can help firms improve their services and ethical standards. | While the adoption of these is voluntary, it will give you an insight into their intentions (as opposed to their behaviours). | ||
| 5 | Third-Party Audits and Reviews | Regular third-party audits and reviews of consultancy practices can help identify and rectify issues before they escalate into scandals. | Request access to third-party audit reports and always look for publicly available reviews regarding the firm’s practices and ethical standing. |
| Independent reviews can provide an objective assessment of a consultancy firm’s adherence to industry standards and ethical practices. | |||
| 6 | Diversification of the Consultancy Market | Encouraging the growth of smaller firms with high ethical standards can create a more competitive and diversified market. | Clients can look for a variety of consultancy options in the market and compare their offerings, ethical standards and client testimonials. |
| This diversification can also provide clients with more options and potentially higher-quality, personalised services. | |||
| 7 | Professional Development and Training | Continuous professional development and training on ethical practices for consultants can help instil a strong sense of professionalism and integrity. | Clients can request information on the firm’s training programmes, certifications and continuous professional development initiatives for its consultants. |
| Firms should invest in training programmes that promote ethical decision-making and client-centric service delivery. | |||
| 8 | Communication and Conflicts of Interest | Firms should maintain open and transparent communication with clients regarding the progress, outcomes and costs of their services. | Clients can evaluate the transparency, frequency and clarity of communications received from the firm during the engagement. |
| They could also develop a framework for managing conflicts of interest to ensure they act in the best interests of their clients at all times. | |||
| 9 | Feedback and Continuous Improvement | Establishing channels for client feedback and a culture of continuous improvement can help consultancy firms better meet the needs of their clients and address issues proactively. | Clients can look for established feedback mechanisms, client satisfaction surveys and evidence of how feedback has been used to improve services. |
| Engaging in periodic internal and external evaluations to assess performance, client satisfaction and adherence to ethical standards can also be beneficial. | |||
| 10 | Public–Private Partnerships | Collaborations between the private sector, government and academia could foster the development of new standards and best practices in consultancy. | Look for public records or announcements of partnerships, collaborative projects or joint initiatives between the firm and public or academic institutions. |
| Such partnerships could also promote research and innovation in consultancy practices, driving the industry towards more ethical and effective service delivery. | |||
Conclusion
The ethical breaches cited in the Telegraph article relating to prominent consulting firms serve as a stark reminder of the imperative for stringent ethical adherence in the consultancy–client dynamic. The distilled lessons outlined above underscore the importance of proactive measures by clients to ascertain the ethical robustness of their consulting advisories, thereby fostering a culture of accountability, transparency and genuine partnership.
By meticulously evidencing the enactment of ethical guidelines, clients not only mitigate risks but enhance the value and integrity of the consultancy engagement. Conversely, the reputational ramifications for clients found to be involved with consulting entities embroiled in ethical issues are profound, potentially undermining stakeholder trust and brand equity.
The nexus between ethical conduct and consultancy efficacy is incontrovertible, underscoring the mutual benefit of an ethically anchored consultancy–client relationship in navigating intricate business operations.
Should you wish to read more on the subject, including the behaviour of the larger consulting firms, we’d recommend David Craig’s books, ‘Rip-Off!’ and ‘Plundering the Public Sector’, or Peter Smith’s ‘Bad Buying’ and ‘Buying Professional Services’ (co-authored with Fiona Czerniawska).
If you are interested in developing a robust new strategic partnership, or if you have concerns about one you are already engaged in, don’t hesitate to contact our team for guidance and support.
