Can we trust our consultants?

What are we to make of the conclusion of the Galleon case? In case you missed it ― a hugely successful hedge fund manager ended up convicted in New York of paying huge sums of money to, among others, a director of McKinsey & Co for insider information.

Although Raj Rajaratnam seems to have had informants in a wide range of US firms, it is the McKinsey connection that has drawn the most comment, partly because of the firm’s towering reputation, but also because of the wealth of sensitive information available to someone with intimate access to so many top level clients. The question has arisen: Can we trust our consultants?

But surely the most damaging thing for the McKinsey brand is not the ethical lapse of an individual, but the revelation that a McKinsey director considers half-a-million dollars to be a large sum of money? I mean, all the terrible things you have to do and to suffer to get to that position and you throw it all way for a paltry bribe. (By the way, I’m not saying I would consider $500,000 to be a paltry bribe. Just in case, you know.)

To me that puts a lot of the earnest debate about whether we should reveal vital information to our consultants in context. If you can’t trust people who might reasonably be expected to have more money than God, you can’t trust anyone.

To my mind, the real question is why hasn’t this happened before? A consultant is such an obvious person to approach for all sorts of hints and tips about a company’s future performance. Either consultants really are pillars of integrity or analysts are missing something.

I’ve often wondered why analysts are so indifferent to the consultancy industry, given the impact that these projects have on their business. You can trace, for example, the lead that Tesco’s established over Sainsbury’s to many factors, but a lot of it initially came down to projects and systems implementations that went badly for the latter company. And a lot of this information is either in the public domain, or can be worked out from hints and tips in “anonymized” case studies.

So why aren’t analysts monitoring what’s going on in consultancy more carefully? A simple answer is that that would require some effort. One should never underestimate the power of human laziness. Look at the Galleon case - it is, I assume, possible to make money in a hedge fund by using your superior intellect and general mastery-of-the-universe. Or you can just bribe people to give you the insider dope, which means you don’t have to be very smart at all. Well, smarter than Bernie Madoff, at least, who will be slapping his forehead in his cell as he realises there was a way for him to be equally fraudulently successful without all his ex-clients wanting to kill him. In fact, if I was a wealthy client, I’d be actively seeking out people who were cheating in this way, rather than people who were actually trying to outwit the market using their puny human brains.

The irony of this case is that while it points out the rarity of consultants lapsing in this manner, it also means that the risk of future breaches of confidentiality now has to be considered. Such is McKinsey’s positioning in the consultancy food chain that brand alone is no longer a sufficient guarantee.

It’s a sad fact that consultants do live in a bit of a moral vacuum. That’s not to say that they are immoral or behave unethically, but that the conditions they are brought up in don’t exactly constitute a moral education. Training tends to be very technical and takes place inside a single firm. Mentoring and coaching programs exist, but they are ad hoc and with little consistency across the industry. Consultants learn on the job, just as in the House of Commons where new entrants play follow the leader, so the risk becomes systemic.

It’s been a long time since I studied moral philosophy, and I can’t claim to be any good at it, but my tutor (the great Jonathan Glover) did leave me with the strong impression that ethics is a highly practical discipline that can’t be learned in isolation from stories about the real world. In the 1990s when I was editing Management Consultancy magazine, we ran a series of articles by Paul Lynch, a former president of the Institute of Management Consultants (now the Institute of Consultancy) which tried to do just that. Paul deliberately picked grey areas, where consultants might find themselves in conflict with clients or peers - or facing other dilemmas - and attempted to solve them using the IMC’s code of conduct.

I believe this sort of exercise, and particularly the reference to some sort of external structure, is vital. You don’t really need a very sophisticated moral compass to tell you what’s going on when someone stuffs a brown paper envelope full of cash in your pocket and you hand over an illicitly copied file. But you do need to be able to tell your clients and the world at large in very explicit terms that you run an organisation where not only is unethical behaviour not tolerated, but that the sort of self-questioning and education that underpins good practice is actively encouraged.

Just like statements of corporate social responsibility and environmental concern, this sort of claim increasingly requires outside validation. Many consultancy firms have values statements that go far beyond anything any professional body could require of an industry as a whole. But on their own they are frankly as useful as a note from your mum saying you’re the handsomest boy in the school.

The consultancy industry has successfully managed to avoid regulation, and is, as I mentioned last week, making huge strides in demonstrating the quantitative value it provides to clients. But outcomes are as much about risks and ranges as single figures, and if “ethical integrity of consulting firm” comes up in the equation against any firm as an unquantified risk, then the balance tips against them.

Subjecting yourself to external rules and constraints goes against the grain for consultants: they like to do their own thing, because they always believe they can do it better. But now that a cloud hangs over the industry, more needs to be done. Consultancy doesn’t need to be cleaned up, but it needs to be seen to be clean: ironically, we can only assure others that we will respect their confidentiality if we are more transparent ourselves.

All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.

Contact Mick with your views or suggestions at: mick.james@top-consultant.com

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