Who Will Govern The Ungoverned?

It is true, not all consultants should be characterised as conniving and sycophantic. In fact, in many ways, consulting represents the highest form of expression of liberal capitalism. It is the purest evidence of the recognition by the market that efficiencies, and in particular, human resource efficiencies, are best achieved through the use of specialist skills at critical points in time in the lifecycle of a firm.

In the body economic there exists a multitude of industries that make up the economy: mining, manufacturing, telecommunications, banking and insurance, as examples. Then there are the basic needs and services that in most countries are ordinarily state-driven: power, water, sewage, postal services and the police force, as examples. Consultants, and the firms that employ them, are typically industry-agnostic – usually offering management consulting services in tandem with implementation services to any and all industries, with some specialisation internally, through the use of obscure departmental breakdowns.

In the main, however, consulting as a practice can be said to sit above industry, dipping into it as needs be, helping grease the wheels of the economy, and ideally helping the economy to innovate. Few people realise, for example, that the desk space they occupy within a warren of similar desks – bound together in an ergonomically-ideal pattern on the floor of a large corporation – is nothing more than the actualisation of the open-plan vision that a consultant from McKinsey once had in the eighties. We work, in fact, in ways that were designed by consultants, using systems and software engineered and implemented by consultants, and report to managers, who themselves were trained – and on occasion picked by consultants – to lead and improve the firms they represent.

There are many reasons for firms to use consultants, but there are three reasons that are often used by consulting clients to motivate their intervention, all of them good. The first is that a corporation – operating for example in the banking arena – does not wish to hire the services full-time of a team of analysts to implement specific systems, such as a corporate-wide human resources management system. The need for such a system is identified as critical, the SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) is conducted, and then the system needs to be chosen from a raft of vendors and then implemented. This can take years, but once it is in, there is no need for the corporation to maintain a team of full-time HR implementation specialists.

In the same way that one would use building con tractors to make alterations to one’s home, the bank needs these skills only for a distinct period of time. Most of consulting that takes place world-wide is based on this rationale. This is the business – despite the denials that management and audit/advisory firms may make – that most advisory and consulting firms depend on.

The second reason to use consultants is when senior management within a corporation believe that they lack a specific piece of domain knowledge. This nature of consulting is ordinarily limited either to management consulting or to boutique firms that provide very specific and narrow skillsets that are extremely hard to retain permanently.

This type of high-brow consulting engagement is characterised usually by short bursts of intervention on the part of the consultants, on behalf of executive management who wish to make substantial organisational changes in a relatively short space of time. A good analogy here would be a specialist doctor, for example a cardiologist, whom one hopefully will never require, but should the need arise, the need will be acute and immediate in nature.

This is the type of consulting that the major international management consulting brands, such as McKinsey, Bain & Co. and Boston Consulting Group, as examples, aspire to conduct. The trouble with this type of consulting, of course, is that it requires essentially a damaged heart – and this is rare – and often not repeatable on the same client. And then the challenge on an operational level is to actually deliver these services through consultants who are required – to a person – to have the necessary experience in such rarefied domains. The client needs the cardiologist, not the nurse.

The third type of consulting is based on the notion that persons not embedded within an organisation in a specific industry are more likely to gain exposure to competitors’ strategies and operations than those who are employed by the organisation.

Putting it plainly, by hiring consultants – and despite any remonstrations by the consultants themselves to the contrary – organisations hope to gain a broader industry insight. Client confidentiality is key – and one will find the principle of client confidentiality on just about every consulting firm’s website – but essentially the consulting offer is to “benchmark” the organisation against its peers, to design a strategy (called a “playbook”) to bridge the gap, and to help them execute the plan.

This has been going on for decades and is an entirely viable business. In fact, if one considers that the first type of consulting is often frowned upon as overly operational by the likes of the top management consulting firms, and that the second type requires a very specific and rare requirement on the part of management within the corporate client, it is in fact the third type that is most common in the business of management consulting. Also, if conducted elegantly, the management consulting firm can always partner with execution services from a third- party on behalf of the client. The implicit contradiction that exists within the management consulting business model, in general, is that essentially it depends on the one hand on trust, and on the other hand it depends heavily on maintaining client confidentiality whilst offering industry-wide experience. This is a grey area admittedly, since consulting firms can put in place so-called “Chinese walls” to prevent breaches in confidentiality, and they can also “scrub” documentation – PowerPoint presentations, gap analyses, deep dives, requirements specifications, and operating models – but it is implicitly understood by both the corporate client as well as the consultant that the primary reason for the engagement in the first place is based on the cross-industry experience that the consultants have been privy to.

 This is an important contradiction to get one’s mind around since it is confidentiality and trust that are the essential ingredients that exist at the heart of the management consulting business model. Ironically, and critically, without trust there can be no guarantee that the engagement and its outcomes can be depended on, since there is absolutely no way to verify the information. If a consultant tells a bank executive that their treasury function is a year away from being world-class in standard, validated for example in details such as their ability to conduct daily liquidity gap reporting at a certain level of aggregation, then the treasurer will take this to mean that some work needs to be done; but with conviction and with the services of their advisor, they can get there with some effort. Once this journey has begun it is very difficult to stop. Clients may ask for site visits, and on occasion these may occur, but usually these visits will be challenging, with potential conflicts of interest, and will involve executives within the world-class banks to share information that may be competitive in nature. To circumvent this contradiction around confidentiality, consulting firms often conduct annual industry surveys. These are usually glossy hard-spine reports delivered by hand to gate-keepers and budget-holders within the client base. The contents are usually “scrubbed” to the extent that the reader cannot identify which of their competitors achieved certain synthetic scores on particular benchmark questions, and can only make educated guesses as to their own ranking within the report. These surveys are augmented with conferences, in which one is offered the opportunity as a distinguished corporate executive to attend plenary sessions, listen to esteemed peers and industry luminaries, join “master-classes”, and meet for roundtable discussions in which poker-faced executives square off against each other under the tutelage and guidance of senior consultants.

These trips to conferences, held ideally in desirable international locations, are regarded as critical to one’s career advancement, and essential for keeping abreast of “industry trends”. There is absolutely no cynicism in genuinely recognising the value in such exchanges, as well as in industry surveys, as well as in the engagements themselves in which one is first benchmarked, gap analysed and then taken on a journey under the guidance of a consultant. There is a flight plan that is made, and it helps both the consultant and the client map not only their respective firms’ progress, but also their own.

However, and critically, it is imperative to note that these engagements and exchanges are based on an immutable assumption, and that is trust. Should this trust be broken, then the internal contradiction in the management consulting business model will rear its Medusa head, and the snakes of suspicion and fear will begin their journey of unravelling the entire story.

Ironically, and tellingly, for an industry that depends so heavily on the concept of trust, there are few, if any, that have pointed out the complete lack of oversight and governance of the industry. There are no rules to consulting, other than those determined by the corporate client, or by the ethical standards of the consulting firm itself. There is no industry body that governs its players. There is no designation that one needs in order to be a consultant. It is a much-lauded fact that McKinsey, again as an example, employs top graduates from all disciplines; doctors, music theorists, MBA graduates, and even on occasion theologists. The idea is to get the best minds into the firm, but from there on, there are no industry-wide programmes that ensure minimum standards, such as those required in the audit profession, or for that matter those required in the medical profession.

We would baulk immediately at the notion of having a non-qualified person operate on our bodies, but we seem to think nothing of having the heart of our economy doctored by consultants, who may or may not have the requisite experience.

Once Medusa is looked upon, these questions pile up exponentially and expose not only particular consulting firms, but the entire industry. The audit profession is governed in South Africa by IRBA, and irrespective of whether one agrees with their findings or not, they have a duty to the entire profession to ensure that standards are maintained. They can be pressurised to act upon malfeasance by the totality of industry and by its participants. They must at least meet the minimum of moral standards, so long as the industry is not in collusion. And if it were in collusion, there is at least the Competition Commission to turn to.

In the case of public relations firms such as Bell Pottinger, it was convenient and inspiring that the U.K. has an industry body in place and one that acted. The Public Relations and Communications Association (PRCA) is an organisation most people will never have heard of in South Africa prior to the proliferation of the phrase “white monopoly capital”. But it was the body that acted to end Bell Pottinger’s business and to bury it permanently for the sin of not only being derelict of any moral compass to speak of, but of potentially inciting violence and discord in South Africa.

Specifically, the PRCA found Bell Pottinger guilty of four breaches of its code of conduct. Francis Ingham, the director general of the PRCA, was quoted as saying that “this is the most blatant instance of unethical PR practice I’ve ever seen.” He also went on the tell the Financial Times that “Bell Pottinger’s work has set back South Africa by possibly 10 years”. Whether one agrees that their actions could derail the goodwill of an entire country for a decade or not is irrelevant; the point is, they received the ultimate sanction and have been expelled from the industry.

IRBA’s report on KPMG’s conduct, as well as the involvement and investigations of SAICA, will also determine to some degree – but not entirely, owing to the systemic risk that exists to the banking system should one of the Big Four audit firms cease to exist – the fate of KPMG. But no such industry body exists in the case of management consulting, and there has been a complete absence within the industry for a call to action for such a body to be gestated out of this crisis in trust.

McKinsey, at the time of writing, has stood steadfast thus far, other than admitting to demonstrating a “lapse in judgement”, and finding “violations of its professional standards”. They deny that the firm was involved in criminal activity, for example bribery or corruption. And they maintain they breached no laws. It is implied in their willingness to allow a court to determine the validity of their contract with Eskom, that they charged no more or less than they would charge any international client for the same work. There is no way to determine whether this is true, since no investigation has been launched by a concerned industry body. It is ironic that, for an industry that is so sought after by the best minds and graduates of our generation, there are such low barriers to entry.

As it stands, at the time of writing, Eskom – under extreme pressure from bondholders and from the investigative press, and thanks to whistle-blowers and leaked emails – has demanded back its billion rand in fees from McKinsey for the six months of work the management consulting firm conducted. Whether McKinsey pays this money back or not – a question over which it cannot ponder long, for the outcome of not paying would be too deleterious to its future existence in South Africa – is irrelevant. The more important question is what the management consulting industry will do as a whole to regain the trust of their clients. Without a solution to this, the Medusa’s head will never go away.