Ethics in the Consulting Industry: Reality or Illusion?

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In the years following the 2008 recession, businesses are regaining their momentum, and the economy has begun flourishing again. In the wake of the most ferocious financial earthquake of the last 80 years, society continues to feel its tremors. Is this a sign of evolvement and growth? Or is it a warning of a more catastrophic phenomenon on the horizon? Unemployment is down and a majority of economists are optimistic about the future. Organizations are expanding globally, and leaders are striving to attach their names to their companies' successes. But is this enough? Is success and welfare the only measures of success? Do leaders of organizations decide in favor of the well-being of their enterprises, or do they follow their own narrow ambitions? The pursuit of personal interests is the initiator of a capitalist economy, but that does not justify actions that harm organizations, the people they serve, or society as a whole. So the "do no harm" business ethics debate rages on, expanding and infecting the "trusted advisers" of the consulting industry.

Consultants Should Do No Harm

In management consulting, executives and consultants are primarily responsible for creating value and safeguarding the interests of their clients, however they should also protect society by pursuing their goals in an ethical manner. Of course, they focus on their clients' businesses making sound profit, shareholder equity and continuous growth, but it is also their responsibility to align the interests of their clients with the general good.

They have an obligation to recognize that there are multiple stakeholders, customers, employees, society and the environment, not just shareholders and management. They should act with the utmost integrity, and serve the greater good, with an enhanced sense of joint accountability. It is vital to realize that their actions have profound consequences for everyone, inside and outside the organization, now and in the long run. Consulting companies, should focus more on ethical guidance, as they hold significant influence over many companies' strategy and plans.

Consulting companies (strategy, management, accounting, etc.) have an obligation to advise their clients on how to build their successful enterprises on a solid foundations, and to help them achieve sustainable economic, social, and environmental prosperity. It is their responsibility to not distort or hide the truth behind facts, but to explain the truth and promote transparency. They must also demonstrate to their client's ethical ways to achieve their goals. But is this what is happening today?

Double-dealing, Fraud, Corruption, Insider trading and that's just the tip of the iceberg

If we take a close look at incidents that have occurred in the recent past, we find a rotten record of behaviors in the management consulting industry. Numerous examples exist of partners and employees of major management consulting firms being involved in illegal and unethical scandals, in efforts to retain clients and to harvest personal gains. This is a common among people who put their profits before customers.

An example of the crisis we face in consulting is that of a former partner of a global consulting firm, who was sentenced to prison for 21 months because of his involvement in insider trading. This executive was a liaison between the CONSULENZA BANDI REGIONE MARCHE firm's auditors and the audit team of the clients. He had access to non- public information, such as planned or potential acquisitions, quarterly earnings, etc. From 2006-2008 he illegally used inside information for personal and family market gains. Finally, after the scandal was revealed, the SEC brought charges and the firm sued him. He ended up paying significant penalties and being sentenced to prison time. Shouldn't the consulting firm have been aware of its employees' actions, and made an effort to instill ethics in them?

Going forward, we highlight another significant scandal that shook the consulting world in 2008. A former executive of a huge consulting firm, also a director at another global operating company, was found guilty of insider trading, sentenced to two years prison time, and ordered to pay a fine of $5 million, for trading on information obtained at a company board meeting. This information concerned the approval of a $5 billion investment during the economic session of 2008. The person that received the information purchased stock in the company and recognized immediate gains. The company was already being investigated by the FBI, and when the culprit was discovered discussing non-public information with the executive, the scheme was revealed. This was a significant hit for the consulting firm, which to that point had publicly promoted the ethics that we espouse. The firm took another hit when it was involved in an accounting scandal for a different client. The client, a large and international company, hired and paid the consulting firm $10 million per year for advisory fees concerning strategy and operations. The consulting company provided consultancy during the client's transformation, from an emphasis on natural gas to a wide range of interests in water, timber, and high speed internet. During this period of consulting, the client company experienced several cases of accounting fraud, and a multitude of financial irregularities involving their balance sheet and income statements. It also led to massive layoffs and a ruthless HR policy. Ultimately, the company filed for bankruptcy, and the consulting firm still bears the negative mark of the scandals. The consulting firm cannot be accused directly, but how can it claim innocence when it was the strategy adviser of the company? Is it possible that they knew the truth and did not speak up, for fear of losing the client?