Are Consultants Truly Independent?

Bounce/Cultura/Getty Images

Are Consultants Truly Independent? The management consulting profession, especially the leading firms therein, pride themselves on independence and integrity. In short, they hold themselves out as committed to offering unbiased, expert analysis and advice to their clients. While this arguably is true in the majority of cases, there nonetheless are many instances in which consulting firms, particularly the most famous and renowned names in the business, are brought in by executives who are seeking political cover for certain decisions.

In these cases, there often is at least a tacit understanding that the consultants will produce a report that supports the hiring executive's agenda.

WedTech Case Study: In the 1980s, company called WedTech soared from humble origins as a small machine shop in a dangerous section of the South Bronx near Yankee Stadium to a listing on the New York Stock Exchange (NYSE). Its politically-savvy founders succeeded in winning major contracts from the federal government, including the Department of Defense. The company, founded by a diverse group of immigrants and dedicated to hiring people who had been written off as hard core unemployable (including former drug addicts and prisoners), soon became a media darling, and its executives were honored at the White House.

WedTech's auditing firm was Touche Ross, which subsequently merged with Deloitte. Touche also provided extensive consulting services to WedTech (see our discussion of Big Four consulting).

In 1987, Touche had two major consulting engagements with WedTech, an operational review of its pontoon division, a defense contractor, and a due diligence review with respect to a proposed acquisition.

Junior-level consultants and auditors on the pontoon division review team found numerous violations of established best practices regarding operational and accounting controls.

The reported major concerns about possible criminal conduct (e.g., over billing of the federal government and misappropriation of corporate funds) to the audit and consulting partners in charge, but these concerns were dismissed by the latter as alarmist and overblown.

Meanwhile, the due diligence team found that WedTech's proposed acquisition of the long-established, privately owned Ross Bicycle Company was fatally flawed in many respects, and thus should be withdrawn. WedTech had won a contract with the U.S. Postal Service to supply the tricycle carts that letter carriers use on their rounds in cities, despite having no prior experience in this area. Purchasing a bicycle manufacturer was seen as a way to obtain equivalent capabilities quickly.

The partner in charge of this engagement flew into rage at the negative review by his team, now making it clear to them that they had been hired by WedTech's president with the express purpose to tender a positive report to his board of directors. A strong-willed senior consultant eventually persuaded the partner that the Ross Bicycles acquisition was doomed to failure, a result that would be a worse embarrassment to Touch Ross.

Shortly thereafter, WedTech became the focus of a criminal probe by then U.S. Attorney for the Southern District of New York, Rudolph Giuliani.

Several members of the senior executive team eventually received prison sentences for theft of corporate funds, excessive billing on federal contracts, and several other offenses that junior members of the pontoon division review team had uncovered. However, no Touche Ross partners were charged for their part in aiding and abetting these practices. 

Meanwhile, in the summer of 1987 Touche fired all consultants (with the exception of one) below the level of partner who were on the WedTech engagements. These firings were simultaneous and done purportedly in accordance with up or out policy, but this clearly was a mass scapegoating exercise. One of the fired consultants went public with a magazine article on his experience, but this caused no discernible stir. Before the era of widespread whistleblower protections, these employees found no redress.