Ethics of Reality or Illusion in the Consulting Industry : In the years following the 2008 recession, business regained momentum, and the economy began to thrive again. After the most devastating financial earthquake in 80 years, society continues to feel the tremors. Is this a sign of evolution and growth? Or is it a warning of a more devastating phenomenon on the horizon? Unemployment fell and the majority of economists were optimistic about the future.
Organizations are growing globally, and leaders are trying to link their name to their company’s success. But is this enough? Are success and well-being the only measure of success? Do organizational leaders decide for the well-being of their company, or do they follow their own narrow ambitions?
The pursuit of self-interest is the originator of a capitalist economy, but it does not justify actions that harm organizations, the people they serve, or society as a whole. So the “do no harm” business ethics debate continues, spreading and infecting the “trusted counsel” 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, but they must also protect society by pursuing their goals in an ethical manner. Of course, they focus on their clients’ businesses generating good returns, shareholder equity, and sustainable growth, but it’s also their responsibility to align their clients’ interests with the common good.
They have an obligation to recognize that there are many stakeholders, customers, employees, communities and the environment, not just shareholders and management. They must act with the highest integrity, and serve the greater good, with an increased sense of shared responsibility.
It is important to recognize that their actions have profound consequences for everyone, inside and outside the organization, now and in the long term. Consulting firms, should focus more on ethical guidance, as they have a significant influence on many corporate strategies and plans.
Consulting firms (strategy, management, accounting, etc.) have an obligation to advise their clients on how to build their successful companies on solid foundations, and to help them achieve sustainable economic, social and environmental prosperity. It is their responsibility not to distort or hide the truth behind facts, but to explain the truth and promote transparency. They must also show their clients ethical ways to achieve their goals. But is this what happened today?
Double dealing, Fraud, Corruption, Insider trading and that’s just the tip of the iceberg
If we look at incidents that happened in the past, we find a record of poor behavior in the management consulting industry. There are many examples of partners and employees of large management consulting firms getting involved in illegal and unethical scandals, in an attempt to retain clients and for personal gain. This is common among people who put their profit before the customer.
An example of a crisis we face in consulting is a former partner of a global consulting firm, who was sentenced to 21 months in prison for his involvement in insider trading. This executive is the liaison between the consulting firm’s auditors and the client’s audit team. He has 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 advantage. Finally, after the scandal came to light, the SEC filed a lawsuit and the company sued him. He ended up paying a significant sentence and was sentenced to prison. Shouldn’t consulting firms be aware of the actions of their employees, and try to instil ethics in them?
Looking ahead, we highlight another significant scandal that rocked the consulting world in 2008. A former executive of a major consulting firm, as well as a director at another global operations firm, was found guilty of insider trading, sentenced to two years in prison, and ordered to pay a fine. of Rp. $5 million, for trading information obtained at company board meetings.
This information relates to the approval of a $5 billion investment during the 2008 economic session. The person receiving the information buys stock in the company and recognizes an immediate profit. The company was already under investigation by the FBI, and when the culprit was found discussing non-public information with executives, the scheme was exposed.
This was a major blow to the consulting firm, which by then had publicly promoted the ethics we espouse. The company took another hit when it became embroiled in an accounting scandal for a different client. The client, a large and international firm, hires and pays the consulting firm $10 million per year for consulting fees on strategy and operations.
The consulting firm provides consulting during the client’s transformation, from an emphasis on natural gas to various interests in water, timber and high-speed internet. During this consulting period, the client company experienced several cases of accounting fraud, and many financial irregularities involving their balance sheets and income statements. It also led to massive layoffs and draconian HR policies.
In the end, the company was declared bankrupt, and the consulting firm still bears the negative impact of the scandal. A consulting firm cannot be directly accused, but how can it claim innocence when it is a corporate strategy adviser? Can they know the truth and not speak up, for fear of losing a client?
A recent example of corruption is the case of the managing director of a global beer company, who hired a consulting firm to develop the company’s strategic plan. However, he also has an ulterior motive for overthrowing his vice chairman. For two years the consulting firm advised companies, sold 150 companies, and its profits increased sixfold.
This increase was mainly due to their strategic diversification into the liquor industry and the purchase of several other companies. However, the beer company is thought to have purchased its own shares to falsely increase its share price, and to use fraudulent and deceptive means to beat competitors’ bids for the companies it purchased. The consulting firm denies involvement in the illegal act, but its vice president is chief advisor to the director of the beer company.
These examples represent a fraction of the dishonest and unethical situations plaguing the consulting industry. Who would expect a large consulting firm, known for its ethics and transparent operations, to engage in significant fraud or unethical actions and decisions? Is this the business world we want to live in? Consulting firms have a great responsibility, as they are responsible for setting and delivering the strategies of their clients, influencing them, and working closely with their leaders. They must increase the value of the organization and society in general, using all available resources.
Industrial Ethics Revolution Consulting
The dishonest and illegal acts of consulting firms must be stopped. Leaders of all consulting organizations must set an example and establish and promote a new business ethic that requires honesty, trust, and hard work, and which everyone in their organization will follow. This ethical environment must be fostered by management, and become an integral part of the strategy and operations of the consulting firm.
The time has come for consulting firms to become leaders in promoting ethics and good business practices. The public must regain their trust in business, both consulting firms and their clients. This trust has been shaken by the high number of business scandals in the past.
While it is clear that some government regulations are needed to enforce honesty and compliance with the law, these regulations will not solve the problem if consulting industry leaders are not willing to lead this change.
Ethics is very important in the consulting industry, because of the influence these companies have on a large and diverse number of global companies. Consulting firms are hired to assist clients in critical endeavors, and to develop strategies that drive growth and success. Because they specialize in helping businesses succeed, their advice greatly influences company decisions.
It is therefore logical to assume that an ethical consulting firm, which promotes legal and honest business practices, will promote these ethical practices in the firms it consults. On the other hand, a company that promotes an ethos of success in any way, with little regard for ethical practice, will promote this type of behavior in its clients.
It should be the job of consulting firms to demonstrate to clients that ethical behavior can lead to success for the company, its employees, its clients, and society as a whole. The leadership and behavior of the leaders of consulting firms influence not only the behavior of their own employees, but also the management and employees of all the companies they consult.
The many high publicity business scandals that have occurred in the near future have caused a significant loss of public perception and trust in the business community. The 2008 financial crisis was also a significant contributor to this decline in confidence levels, as the irresponsible, and sometimes illegal, strategies and practices of many businesses were exposed.
This demonstrates the effect that unethical business practices can have on society as a whole. The financial crisis was partly caused by unethical behavior in the financial industry. This led to business collapses, skyrocketing unemployment, and a decline in public confidence in business culture in general. For this trust to be regained, dedication to ethical behavior must be encouraged.
Ethics drive action and decision making, and also determine how companies are perceived by their employees, their customers, and the public. A successful and sustainable business must have a culture that encourages good ethical behavior and practice.
As we have seen in several real-life examples, there are many cases of businesses losing clients and money, and employees losing their jobs and facing criminal consequences, due to unethical behavior. Acting unethically does not lead to long-term success. Companies that are successful in the long term are those that act with honesty, integrity and strong morals.
Consulting firms influence their clients and help develop strategies that lead to business success. Ethical behavior is an important part of success. Therefore, consulting firms need to have a code of ethics, just as the medical profession has the Hippocratic Oath. Ethical behavior should be encouraged in the consulting industry, so that it can be passed on to other industries it affects. Managers and employees must believe in this positive behavior, and understand the importance of it.
Consultants have the opportunity to be leaders in promoting ethical business practices. These opportunities can help bring success to their clients while benefiting society as a whole. There are many examples of negative behavior occurring in the consulting industry and business in general.
This is the time to lead by example, and to promote success with ethical behavior. This is an important opportunity for our industry, and it is important not to squander it. Time is of the essence, so let’s create today the future as we imagine it.