Bending the Consulting Moral Compass
In the last few years, there have been more than one account of conflicts of interest from some exorbitantly paid, and famous consulting companies. Has happened with many an MNC accounting firm as well, of course.
Most accounts of these conflicts of interest and dishonesty are troubling in nature, at the least. There are accounts of these companies advising their clients on business strategies and also, at the same time, making investments in related avenues to multiply their wealth. There are enough account of these companies advising their clients not so clean ways of moving money around. However, this type of behaviour seldom steers an MBA from a top notch management school away from these consulting companies. Same holds for people looking for lateral transition inside the consulting industry.
The trigger for writing this article is the current $600mn settlement that McKinsey is going through because of its role in the opioid crisis. This article isn’t about McKinsey, but points at the management consulting industry as such, and hope it raises questions about the fundamental ethics of doing large business. The industry that I am a part of, my company is a part of.
Over time, and gradually, management consulting grew to become a respected and well paying profession. Business school graduates, selected by the leading strategy firms, got the highest salaries. Organizations paid a pile to the strategy firms for valuable business advice.
Having been in the industry for a while now, have seen the secular form from heady days, stocks skyrocketing, the dotcom boom (a vendor of my client spent a mil, on a yatch party one night) and also have seen busts and crashes.
I won’t delve into the history of management consulting industry, which you can read in “The Witch Doctors: Making Sense of the Management Gurus” by John Micklethwait, Adrian Wooldridge. I have written about this book earlier in this article. But, will mull over where did dishonesty start creeping in.
The challenge, that consulting companies have faced is that of stagnation, of plateuing. All the successful one have reinvented themselves many times over. By adding new skillsets, by adding new service line and some by learning to be (and teaching) creative so that their clients could gain more. Some consulting companies learned to work around extending their engagement with the clients for long periods. The greed grew, the inflow grew and there was a need for creating investment vehicles for their partners. That created structures and webs of ventures and therein started the tangle with ethics.
Of course, in capitalism, one expects a company to make profits, and increasing shareholder value. That is its purpose, no doubt. But when people start considering this to be its only goal, does it lead to finding innovative mechanisms to make more money, by giving a certain kind of advice to their clients, or indulging in money making schemes away from consulting.
That changed mission strengthens greed, and undermines the consulting company’s bassic mechanism of getting paid for the value of their advice. The diversion from this mission is where things go south. We have seen this happen with Arthur Little, in the past. For the accounting majors, happened to Arthur Andersen. And each of Deloitte, EY, PwC have escaped with slaps on their wrist, many times. McKinsey has gotten caught doing this a few times now. You might remember the hedge fund case from a couple of years ago, the opioid case now and then the infamous insider trading of Rajat Gupta. They just have not been able to convince courts in terms of mainting elbow distance. The focus on being trusted advisors has become blurry.
This is what socialists and communists harp about. Different matter that in socialism and communism, anarchy will prevail, you will stand in a line mile long for a cake of soap and everything will go to to s**t anyway.
But then there are the other types too. Faced with the opportunity to win a contract by sharing a minor part of the revenue, from that contract is not uncommon. I remember, my the then employer walking away from a large tender for a public sector bank contract in the mid 2000s. But, another consulting /IT services company did participate and win.
I think this is also about how success is measured, in the company or in the society at large. Using an analogy from a different industry – Would a physician /surgeon at a hospital earn more and more money for the hospital by keeping the patient engaged, or cure the patient and sending her away? This question of ethics arises because the doctor, the trusted adviser, is compensated per the “sales” that she drives. Same holds for other professions too, journalism is a topical case in point. And for management consulting.
The quandry is, then, whether management consultants should focus on raising their clients’ well being or create more financial returns for themselves. This is a tight rope to walk, but the answer is ‘both’. Integrity becomes susceptible when the consultant finds nefarious ways for her client to make money. It becomes susceptible because the size of revenue (and profit) becomes the sole measure. The original purpose of the company gets compromised, the value system eventually crumbles. This is what encourages even social security funds to invest in a Madoff’s ponzy scheme.
At some point, business schools had started teaching business ethics as a credit course. Wonder what happened there, if this is the outcome. In contrast, the rest of the MBA program teaches how creating financial value for shareholders is the only measure of success. Well, business schools are rated by the salaries offered during placement time. And those high salaries are paid by organizations which subscribe to the same culture of revenue growth. Clearly the behaviour which shows up on ground is safety, or physiology driven.
Allow me to now question something fundamental. Does a corporation have to become large? Does it have to constantly grow? Can it not be healthy, profitable, sustainable and not have an ever growing revenue? Somewhere in this race lies the key to losing ethical bearings, losing the social responsibility (and I don’t mean CSR) and social connect.
Leaders must take the first few steps, look inwards, rediscover the reason for their organization’s existence and reboot the measures of success.
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