How best to govern management consultancy in the 21st century?

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Insights from the University of Bristol

Is there a case for the regulation of management consultancy, especially in the light of continuing scandals and debate around transparency and consulting firms’ links with politicians, civil servants and industry? Or is consultancy too difficult to pin down or too politically useful to expose? Should we rely on professionalism and professional bodies or does the market sort out the good from bad? And how might new technology, and even COVID, change the governance terrain? Recent research from the University of Bristol has started to feed a debate on the sector’s value through improved governance.

The risk is that consultants become servants of power or ‘hired guns’ – of the paying clients – rather than independent experts.

Historically, the consulting industry emerged out of regulation – the regulation of others. As now, with the regulation of auditing, consulting business evolved in the spaces freed up by the regulation of banks and other organisations. But consulting itself is weakly regulated. In most countries (with the possible exception of Austria), anyone can become a consultant. Many see consulting as too difficult to regulate. The knowledge involved, its dynamism, commercial value and co-produced nature make it hard to assess. Politically too, very few, including clients, seem interested in regulation or further governance and are even antagonistic towards it. The risk therefore, is that consultants become servants of power or ‘hired guns’ – of the paying clients – rather than independent experts. This is most evident in their often hidden, role in conducting impact assessments for example, and in orchestrating consultation campaigns for industry.

New technology might help the ‘market’ better govern quality

Of course, there are already various forms of governance, especially around purchasing processes and consulting firms and professional codes of conduct (although there is little evidence of anyone ever being sanctioned). In the public sector, at least nationally, every few years, reports give guidance to clients to improve their commissioning through monitoring, planning and contracting. Monitoring is impeded by ‘commercial confidentiality’ claims and while contracting has long been controversial, full of loopholes and resisted by both clients and consultants, positive changes have occurred. Governance can happen then, and transparency can be improved, albeit sometimes with the need for leaks to the press.

More too, may be possible with the growth in use of internet-based platforms and forms of interaction. It is not hard to imagine a ‘ratemyconsultancy.com’ site or similar internal alternatives or to have sales pitches and contract discussions recorded on Zoom ‘for future reference’. Both might benefit all parties. In short, notwithstanding claims of commercial confidentiality, new technology might help the ‘market’ better govern quality. Of course, this will bring new challenges. We only need to see the use of comparison sites in other sectors, such as tourism to identify these, but why not try?

Bad apples?

The key challenge is not about greedy or corrupt individuals or even firms

but systemic problems (‘bad cellars’) – such as the partnership model of consulting firms and, in particular, reward systems for consultants.

One approach has been to promote variations of payment by results for clients

Limited progress here is perhaps unsurprising, in that most consultancy is hard, if not impossible, to measure effectively or without conflicting views.

Probably the greatest impediment to good consultancy is the pressure to sell to new and, especially, existing clients. This lies at the heart of the consulting model, from the sole practitioner trying to make a living to the large firms and their reward systems, including promotion. Reform here is urgent and would imply significant culture change. Indeed, many would argue that this is too much to ask. However, an example of a similar initiative can be found in audit where overlapping debates are evident. Here, in a recent report sponsored by the global professional services firm, PwC, Professor Karthnik Ramanna of the Blavatnik School of Government, University of Oxford, talks of aligning staff rewards with ‘cultures of challenge’ rather than sales. Likewise, in consulting, and on the client side, there have long been calls for ‘serial purchasing’ which limits the period of engagement or projects with a single supplier. In impact assessments for example, such developments might, at least, moderate the pressures on firms to identify the specific ‘impact’ paying clients require.

Of course, such systems always generate rigidities and unintended consequences and so can only be part of a solution.

What is needed is a debate among all parties, around different options and perhaps, more parties involved in the governance process

In one of the first systematic attempts to identify an agenda for improving the governance of management consulting in general, four initial policy themes have emerged in a new research reportreinforce, review, reward and reject. These combine hard and soft governance. The former would not only include reward system reform, but also reinforcing existing regulations and procedures (i.e. in some cases, simply implementing them). Soft governance options concern various forms of reviewing and assessing projects more openly, including through third-party or meta-consultants. When consulting firms carry out so much ‘independent’ evaluation, the question of who evaluates the evaluators is important. Another important option is sometimes rejecting external consultancy in favour of alternative suppliers such as internal resources, including internal consultancy. This may seem obvious, and is a longstanding call, but in certain fields and contexts, consultants have become an almost automatic choice – quick and easy.

Hard Governance Soft Governance
Reinforce existing governance mechanisms Review the experience of other clients
Reform reward systems for challenge Reject external consulting when appropriate

These themes are merely a starting point for a conversation and further research. The academic team need to hear more from consultants, firms, users, non-users, regulators and wider publics. This may occur in different forums, such as around client sectors and, especially, different national contexts as well as the EU, where, to date, there has been much less scrutiny of consultancy use than in many national governments. The premise is that new opportunities for governance are emerging, just as many of the challenges to the industry’s reputation are familiar and longstanding. Anyone can still become a consultant, but it is hard to be a responsible one.

**Guest post from Andrew Sturdy, Professor of Management at the School of Economics, Finance and Management, University of Bristol