Ethics in Management Consultancy

As a proud management consultant that has over a decade of experience in the profession and two decades working in financial services, I have often heard comments on whether consultants really add any value to organisations. Those comments are both positive and negative.

I have first-hand seen and been part of projects the produced amazing levels of collaboration and change across hundreds of people in global market leading financial institutions. Historically, we can look back to the Egyptians as the first project managers who built breath-taking pyramid structures that required equipment and resource management for up to 50,000 people. In recent centuries, the American mechanical engineer Frederic Taylor, whose ‘principles of scientific management’ quantified workflow processes and labour capacity in a revolutionary, although controversial, way, made a significant impact on the steel industry.

Conversely, many of us may recall that McKinsey Consulting Company settled for nearly $600 Million in the 2007 lawsuit where documents proved McKinsey worked to drive pharmaceutical sales of Purdue Pharma’s OxyContin painkiller amid an opioid crisis in the United States. That sales plan contributed to the deaths of more than 450,000 people over two decades by advising Purdue to focus on selling lucrative high-dose pills.

In today’s market it’s safe to say companies will recognize the benefits of management consultants (or project managers) as well as criticise whether the services and output are both useful and consistent to the client.

In this article I’d like to briefly explore this duality and consider “Ethics in Management Consultancy”.

If a management consultant or consultancy company is effective and delivers strong, value-adding results, the outcome would likely be that they are hired again within the same firm or recommended to other companies. Over time the reputation of the consultant will grow alongside their successes and, most likely, their profits will increase as well.

In their article “The ethical issues caused by the gap between the needs of clients and the resources of consulting firms ”, the authors Antoine Bariol and Giliane Ferotin-Rey state that: “” A lot of firms see profit above all else and are not focused enough on people. Most of the time they just want to open an account and keep an account and for that they are ready to put the consultants they have on hand to plug the holes a little”. To maximize their profit, consulting firms seek to have as many clients as possible and to place their consultants on as many missions as possible. This kind of practice raises a question of ethics because the firm does not consider the needs of the client: if the consultant does not have the necessary skills for the mission, he does not have the keys necessary to carry out his mission and to satisfy the client.”

Based on the above statement, how could one tell if a management consultant is effective or not if the outcome for ‘a value-adding consultant’ is a higher level of work/ revenue but, on the other hand an ‘inexperienced/ inflated consultant’ also results in a higher work/ revenue level? If the results are the same whether a consultant is ethical or not, it would be very difficult to understand whether they are truly trustworthy. Therein lies the root cause of most of the negative opinions around management consultancy: it all comes down to trust.  As a client, ‘Can I trust your consultancy to deliver what you promised or are you creating work for yourself in an attempt to charge excess cost to the client?’

In “Ethical Principles in Consulting” a paper by Zhanna Mingaleva, the author explored what happens when consultants do not act ethically. In summary, clients often view the consultants as ‘dishonest’ because the delivery was not as agreed. Client participation during the project decreases and the relationship may degrade over time. Overall the result is a breach of confidence in not just that consultant/ consultancy company but in the profession as a whole.

Since, as stated in “Ethics in the consulting industry: a new wave to navigate” by Miguel Castaneda, “Consulting firms are having an increasing influence on governments and public institutions. We have seen lately prominent politicians becoming advisors, working with private corporations and even foreign governments.”,  the question of ethical consultancy becomes extremely relevant not just on a business level but, more widely, to our society.

“Another very important factor to consider is that consulting, unlike many other professions, has no industry wide regulatory body, and while the proposal of establishing a regulatory organism for the consulting industry is genuine, it is unclear who would be in charge of developing this and under what standards and metrics the industry would be governed.”

There is no easy answer to how we measure and ensure ethical practices within management consulting effectively but it is time for us professionals to ask the right questions.

What would contribute to a code of ethics (or conduct) rating for a consultant’s performance and/or a consultancy practice? How can clients influence the rating? Is there a potential governing body that could be impartial? Like other industries should whistle blowing be allowed for consultants to flag unethical behaviour while working in a consultancy company?

Finally, assuming an ethical breach is evidenced, what fine or penalty should be imposed, if any at all?

 

Janell Dudley, Project Manager and CMCE Associate

 

Supporting Information and Sources

The progression of my article uses the following key points:

  • Good Ethics Example: Historical accomplishments such as the Egyptian Pyramids that took organisation and equipment management for up to 50k people. Talk about a stakeholder management.
  • Frederic Taylor, an American mechanical engineer, whose principles of scientific management, quantified workflow processes and labour capacity in a revolutionary, although controversial, way that hadn’t been done before in the steel industry.
  • Excerpts:
    • “The first known project managers were Egyptians. Various researchers have attempted to determine the cost of the projects; however, the amount of work required may be a more useful metric. According to one source, the pyramids were believed to have taken 52 million person-days to build. Based on estimates, Kurt Mendelssohn, an American mathematician and physicist, estimated that the Egyptians engaged up to 50,000 men in constructing the Great Pyramid.”
    • “In 1911, Frederic Taylor wrote, “The Principles of Scientific Management” based on his steel industry expertise. The book’s purpose was to allow untrained individuals to work on new, complicated projects by teaching them skills quickly and simply.
    • In addition, he determined how many people would be required to labour below capacity regularly to assure job security in the future. He also recognised the need to develop incentive-based pay structures and utilise time-saving strategies. Many of the ideas in Taylor’s book are still applied by businesses today.”
  • Source:

 

  • Bad Ethics Example: McKinsey Settles for Nearly $600 Million in lawsuit where documents proved they worked to drive sales of Purdue Pharma’s OxyContin painkiller amid an opioid crisis in the United States that has contributed to the deaths of more than 450,000 people over the past two decades.
  • Excerpts:
    • “The settlements come after lawsuits unearthed a trove of documents showing how McKinsey worked to drive sales of Purdue Pharma’s OxyContin painkiller amid an opioid crisis in the United States that has contributed to the deaths of more than 450,000 people over the past two decades.”
    • “McKinsey’s extensive work with Purdue included advising it to focus on selling lucrative high-dose pills, the records show, even after the drugmaker pleaded guilty in 2007 to federal criminal charges that it had misled doctors and regulators about OxyContin’s risks. The firm also told Purdue that it could “band together” with other opioid makers to head off “strict treatment” by the Food and Drug Administration.”
  • Source:

 

  • Problem Statement: Consultancies that lack ethics will place resources that do not match client needs, services will be sub-par and sometimes over resourced or issues will be fabricated or implementations elongated to charge additional fees
  • Excerpts:
    • “A lot of firms see profit above all else and are not focused enough on people. Most of the time they just want to open an account and keep an account and for that they are ready to put the consultants they have on hand to plug the holes a little”. To maximize their profit, consulting firms seek to have as many clients as possible and to place their consultants on as many missions as possible. This kind of practice raises a question of ethics because the firm does not consider the needs of the client: if the consultant does not have the necessary skills for the mission, he does not have the keys necessary to carry out his mission and to satisfy the client.
    • “The ethical issue for a consultant is to accept or not a mission that he is not able to succeed: In this situation, should the consultant accept the mission, even if he does not think he has the skills to fully succeed?”
  • Source:
  • THE ETHICAL ISSUES CAUSED BY THE GAP BETWEEN THE NEEDS OF CLIENTS AND THE RESOURCES OF CONSULTING FIRMS by Antoine Bariol and Giliane Ferotin-Rey
  • https://www.audencia.com/en/articles/news/the-ethical-issues-caused-by-the-gap-between-the-needs-of-clients-and-the-ressources-of-consulting-firms/?no_cache=1&L=2&cHash=fa52032c1cc631f0a1ccee012b4950ce

 

  • Result: Dishonesty – consultant doesn’t deliver, decreased participation of client, degrading of client relationship, negative impact on business operations or opportunities lost, breach of confidence
  • Excerpts:
    • “Perm consulting companies serve mainly middle and small business. Large industrial enterprises usually work with famous specialists-advisers from Moscow and world leaders the firms of "Big Five": Price Waterhouse & Coopers, Ernst & Young, KPMG, Deloitte & Touche, Arthur Andersen.”
    • “The revealed ethic problems of management consulting can be divided into 3 groups: 1) the problems of cooperation between advisers; 2) the behavior problems of advisers and their attitude to the ethic principles; 3) the behavior problems of the clients. receive real help from the adviser. Professional credibility of management consulting firms decreases. The absence of new management ideas and management decisions leads to stagnation and bankruptcy. The main breaches of ethical principles are: 1) Dishonesty. The management consultant often promises to solve the problems, that they cannot solve or the problems that have no solutions. 2) The lack of individual approach. Management consultants in this case use typical, template documents and he concrete economic situation of the enterprise. 3) Breach of confidence. Some management advisers use the received confidential information in the interest of their competitors or disclose the information. Adhering to ethical standards by management advice.”
  • Source:

 

  • Future State: Code of Ethics rating or governing body? Whistle blowing or breach fines/ penalty?
  • Excerpts:
    • “Another very important factor to consider is that consulting, unlike many other professions, has no industry wide regulatory body, and while the proposal of establishing a regulatory organism for the consulting industry is genuine, it is unclear who would be in charge of developing this and under what standards and metrics the industry would be governed.”
    • “Consulting firms are having an increasing influence on governments and public institutions. We have seen lately prominent politicians becoming advisors, working with private corporations and even foreign governments.”
  • Source:
Date
Tuesday 22nd August 2023
Hands on laptop