Every business regularly, often visibly, experiences ethical failures. Whether due to lapses of judgment or willful fraud, these events can have legal, financial, reputational, or even existential impact. Consultants and their clients share ethical responsibilities of which they may not even be aware.
Fraud in the US economy has nearly reached a trillion dollars annually. Even in nonprofits, where one might assume the absence of a profit motive would result in minimal fraud, the Nonprofit and Voluntary Sector Quarterly (2008) reports nonprofit fraud amounted to $40 billion, or 13% of total philanthropic giving. Certified Fraud Examiner work shows that the median loss per nonprofit fraud occurrence is $100,000. As a trusted advisor, part of your job is to support and promote trust in your client by its stakeholders.
What does this say about the ability of your client to engender the trust of their funders, stakeholders, employees and the public? Are efforts to improve strategy, operations and culture helping or hurting the ethical culture and conduct of your client? What is the role of consultants – either as the sources or solutions of ethical failures? Why is there so little discussion about this?
Ethics is a complex issue. I won’t address the well-trod paths of internal controls, reporting mechanisms, billing processes, employee orientation, compensation packages, lax leadership and governance, theft prevention or compromised confidential information. What I will cover is a huge potential liability but rarely discussed: the impact of external consultants on the ethical culture and practices of the client organization itself.
Consultants’ value derives from their independence, objectivity and expertise. Management consulting is a trust business. With respect to ethics, this can go two ways (1) consultants themselves can compromise ethics, or (2) consultants create and strengthen ethics.
First, consultants are given implicit authority and credibility by being asked to help solve a problem or opportunity. Ethical lapses in client organizations are multiplied when consultants themselves have conflicts of interest, compromise standards or misrepresent their capabilities. Technically competent but ethically compromised advice may be worse than incompetent but ethical advice. Recent consulting firm malfeasance includes kickbacks for recommendations, insider trading, plagiarism, improper payments, false claims, restatement of earnings, and misrepresentation of capabilities. While no one wants to admit hiring an unethical consultant, these actions represent significant third party risk to a client, which can ill-afford to leave ethics out of their consultant management process.
Second, instead of creating ethical problems, consultants who are committed to ethical practices can create or significant strengthen a client’s ethical culture and practices. Management consultants often can see a whole organization because they are given broad access to information, people and activities. Their independence and objectivity, combined with a commitment to observe and practice strong ethics, lets them see the implications of existing or imminent ethical failures and mitigate them. Organizations that retain consultants with a solid understanding and capacity for ethical practices in management are a powerful resource to increase trust among constituents.
Managers are well-advised to spend as much time discussing the ethical roles and responsibilities in a consulting assignment as they do on technical capabilities and processes. The highest value consultants should be able to differentiate between consulting and management ethics, detect and address both obvious and subtle fraud and be bound to an independent Code of Ethics and enforcement (i.e., consultants who “monitor their own” ethical behavior have, by definition, a conflict of interest).
Both clients and consultants live or die by their reputation and trust others place in them. The ethical impact on the culture and practices of the client organization should be at the top of the list for selecting and effectively using consultants. Developing a strong ethics capability should be at the top of the list for a consultant’s professional development.