How should we govern management consultancy in the 21st century?

This post is written by Andrew Sturdy, Professor of Management and Organisation, University of Bristol, UK.

• The problem: ‘Over-use’ of external management-oriented advice which is hidden, narrow, hard to evaluate and often expensive and addictive.

• Why it matters: Because huge resources are devoted to deploying often inappropriate knowledge to important activities with no accountability for clients and consultants.

• The solution: 1. Reinforce existing governance; 2. review performance for transparency; 3. reform reward systems for consultants and firms; and 4. sometimes reject the use of external consultants in favour of alternative internal and external providers, beyond a traditional management/market perspective.

"The ambiguous nature of management knowledge and the fact that it is typically jointly produced with clients make it hard to assess and attribute blame when things go wrong."

Is there a case for the regulation of management consultancy, especially in the light of continuing scandals and debate over its cost and lack of transparency? Or is consultancy too difficult to pin down or too politically useful to clients to risk exposing?

Should we rely on professionalism or the market to sort out the good from the bad? And how might new technology, and even the climate crisis change the governance terrain? Recent research from the University of Bristol in the UK has started to feed a debate on what to do about consultancy through improved governance.

Too hard to regulate?

Historically, the consulting industry emerged out of regulation – but the regulation of others. It evolved in the spaces freed up by the regulation of banks, IT firms and other organisations, much as it continues to do with new rules for auditing. 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 ambiguous nature of management knowledge and the fact that it is typically jointly produced with clients make it hard to assess and attribute blame when things go wrong. Politically too, very few, especially clients, seem interested in regulation or further governance and are even antagonistic towards it. The risk therefore, is that consultants can become servants of power of their paying clients and/or ‘masters of the universe’, shaping policy and practice and fuelling client dependency. Their potential as independent experts for use in special circumstances is undermined.

Room for improvement

Of course, there are already various forms of governance, especially around purchasing and firm and professional codes of conduct (although there is little evidence of anyone ever being sanctioned in such codes). Every few years, reports from national audit offices, accounts committees or other watchdogs give guidance to government clients. The latest is a ‘Consultancy Playbook’ published in May 2021 by the UK Cabinet Office, but the recurring themes are to improve commissioning through monitoring, planning and contracting.

These are really useful, but little progress is made. Monitoring for example, is impeded by ‘commercial confidentiality’ claims. Although in October, the Australia Institute called for the publication of consulting reports to government departments as a start for reform. Likewise, contracting rules have long been controversial, full of loopholes and resisted by both clients and consultants, but there have been some positive effects. 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 online forms of interaction. It is not hard to imagine a ‘ratemyconsultancy.com’ site or similar departmental alternatives or to have sales pitches and contract discussions recorded on Zoom ‘for future reference’. Both these initiatives might benefit all parties. In short, 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?

Rewarding success

The key challenge is not about greedy or corrupt individuals or even firms - ‘bad apples’ - but systemic problems (‘bad cellars’) - such as the structures of consulting firms and reward systems for consultants, including in partnerships. 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, regardless of client or wider social needs. 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 too. Indeed, many would argue that this is too much to ask. However, an example of a similar initiative can be found in audit.

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. There would therefore be no point in trying to sell on more business.

"While encouraging greater development and use of internal resources is vital, more can be done with external suppliers to increase the diversity of approaches and types of expertise."

An agenda for change

Of course, such systems can only be part of a solution. They always generate rigidities and unintended consequences such as focusing only on what is measured. 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 report – reinforce, 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. This could include the use of third-party or ‘meta-consultants’ although, the question of who evaluates the evaluators is always raised!

Another crucial option is sometimes rejecting external consultancy in favour of alternative suppliers such as internal resources, including internal consulting. This may seem obvious. It is for example, a longstanding call of reports to government users which emphasise planning for skills needed in the future. Nevertheless, in certain contexts, consultants have become an almost automatic choice or habit – quick and easy (if not cheap).

"Anyone can still become a consultant, but the challenge is to create the conditions for responsible ones to flourish. "

Towards responsible consulting?

While encouraging greater development and use of internal resources is vital, more can be done with external suppliers to increase the diversity of approaches and types of expertise. This is already evident in the context of policy advice, with diverse organisations such as NGOs, industry associations, think tanks and other not-for-profits forming part of wider national ‘policy advisory systems’. But external consulting operations, where selling and profit are not the driving forces of business, could also be developed further.

There are small signs that alternative approaches are emerging and in demand. With the financial and climate crises, combined with technological developments, new forms of consulting are being developed with a different ethos or structure such as the BCorp model of purpose-led business. Even the large firms seem to be (a little) more sensitive to needs beyond their own and their clients. While such developments might sometimes be more of an exercise in branding than different values, there is at least some potential here to go beyond the repeated call for better ‘monitoring, planning and contracting’. Anyone can still become a consultant, but the challenge is to create the conditions for responsible ones to flourish. This is a task not just for clients and consultants, but for all of us to keep the pressure on.

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