By Tom Rodenhauser, Managing Director, Advisory Services
By many accounts, the past few months have put the spotlight on management consulting as an industry. Prominent ex-consultants have moved to the forefront in both politics and business. Combined with the global revolt against Wall Street excess, suddenly consulting seems downright cool.
First, U.S. presidential hopeful Mitt Romney has parlayed his Bain Capital and Bain consulting experiences to demonstrate his unparalleled business acumen relative to rivals. Then, Meg Whitman, another ex-Bain partner—who had handed the reins of eBay to fellow alum John Donahoe—is named CEO of HP. Her task: transform the moribund tech giant into a services behemoth.
The model for an HP turnaround, of course, is IBM. And dovetailing Whitman's appointment is Ginni Rometty getting the nod to succeed Sam Palmisano as CEO of Big Blue. Rometty, who grew up with IBM's consulting business, championed IBM's acquisition of PwC's IT consulting arm 10 years ago, and headed the successful integration of that practice. The $4 billion deal remains the largest acquisition ever within consulting.
The positive news of ex-consultants as the new titans is tempered by a couple of high-profile failures. In an ironic twist, the day of Rometty's announcement, former McKinsey managing director Rajat Gupta was formally indicted on criminal charges of insider trading.
It's important to note that while Gupta's trial will surely grab headlines, his reported indiscretions occurred while serving as board member to Goldman Sachs. McKinsey's reputation suffered more, in my opinion, from former senior director Anil Kumar's guilty admission last year on similar charges. It was Kumar, after all, who profited by directly trading on confidential information from McKinsey clients.
So what does it all mean? The Harvard Crimson student newspaper suggested in a recent article that students' fascination with consulting is based on the hyperbole touted by consultancies themselves: "consulting firms repeatedly emphasize that they are a career choice that opens doorways rather than closes them … the firms that come to campus definitely position themselves as ladders to corporate promotion, allowing students to bypass years of unglorified introductory work at the lower levels of their dream industries."
Individuals like Romney, Whitman, and Rometty actually demonstrate that consulting careers do lead to the highest levels of power. Meanwhile, consultants were only bit players in the insider trading scandal that embroiled dozens of Wall Street traders and executives beyond Gupta and Kumar (Bob Moffatt, Rometty's rival for IBM's top spot, was an early guilty plea). We have long chronicled the industry's penchant for individual hubris and stupidity. Consultants' proximity to power sometimes causes them lapses in judgment. They forget the root tenets of being a "Trusted Advisor"—namely trust and advice.
All the prominence of successful ex-consultants can be un-done by the sins of a few. Client concerns regarding consultants are increasingly focused on "the trust issue." The global financial crisis and ensuing recession put a not-so-flattering spotlight on the consulting industry. Now, the European Union has sought to force divestiture of the Big 4's consulting arms, so as to limit their clout and avert inherent conflicts of interest in providing business audit and management advisory services to the same clients.
Bash-the-consultant underlies the fact that consulting remains inherently unregulated. Unlike virtually any other professional service, management consultants require no licensure or certification to practice their craft. The consulting-specific professional groups that exist (i.e. AMCF, FEACO, Zen-Noh-Ren, IMC) attract a subset of members. But no one group can claim unanimity for the profession, and so cannot impose across-the-board standards or mete punishment to the industry's bad elements.
Ten years ago, U.S.-sponsored Sarbanes-Oxley was intended, among other things, to separate the Big 4's accounting firms' U.S. consulting arms. Legislation did not have the desired effect given those practices are stronger than ever. The EU's effort may prove more lasting given the tighter bonds between European audit and consulting. But realistically, clients themselves will regulate bad behavior, particularly with the increased involvement of client procurement officials.
In the future, poor consulting results—even from good consultants—may prove more litigious than just unacceptable. And fewer ex-consultants will be in line for top corporate and political posts.
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