Consultant

There’s No Bigger Grift in Business Than the Consultant

How the corporate world got itself hooked on expensive, often-useless management-consulting methadone

As you read what follows, there’s something important that I want you keep in mind: I know next to nothing about management consultants. Despite the assured tone I’m about to launch into, and despite the sprinkling of facts and opinions that I hope will add up to a fairly convincing aura of authority, it’s important to be aware that in reality, I have zero direct experience of the profession, other than the fact that I once shared rented accommodation with a management consultant for one of the major firms (a puzzling guy prone to erratic behavior, who on one occasion asked if I could lend him a £20 note, which he then tore in half in front of me; I was unemployed at the time, he was on a $100,000-plus salary, how we laughed). So let’s just admit up front that everything below is based on that, plus a certain amount of peripheral research I’ve conducted into a vast and complex world which, owing to limited time and a lack of personal expertise, I can barely hope to scratch the surface of, let alone adequately grasp its inner workings.  

All of which is totally okay, though, and a 100 percent legitimate approach, because that’s what management consultants do, too. That’s how they earn their living! Right? RIGHT?? 

At least, that’s the reputation consultants have in just about every workplace below senior management level: Hugely expensive, well-tailored grifters who swoop into an organization with no background in its products or services, spend a couple of weeks avoiding eye-contact and draining the coffee machines, then razzle-dazzle the bosses on things like how to overhaul working practices, why they need to urgently upgrade their perfectly serviceable IT system or which employees should definitely be fired to save the business. 

By contrast, among the CEOs and business leaders who repeatedly hire them, there seems to exist a blind faith in the consultants’ power to conjure success; it’s a strange form of corporate hero-worship, which was famously characterized by a New Yorker article in 1999 on the granddaddy of consultancies, McKinsey & Company, which called its young, overwhelmingly Ivy League-educated staff “a SWAT team of business philosopher-kings.”

“That’s a grandiose description,” says (actual) philosopher and author Matthew Stewart, who spent a decade working as a management consultant before walking away from it all in 1999 to pursue his original career path of being a writer. “Most consultants most of the time, including those at McKinsey, are performing much more mundane tasks, usually associated with cost-cutting and/or internal corporate propaganda,” he cautions. “Remember, consultants make most of their revenue from very large clients whom they bill $10 million to $100 million per year. You just can’t spend that much on philosopher-kings. Sometimes they do serve as a SWAT team. Sometimes they’re more like a virus or an infestation.”

Stewart sees his time in the industry as “a tremendously valuable experience personally, a window into a very strange world,” which he drew on for his book The Management Myth: Debunking Modern Business Philosophy. He’s not the only former consultant to have mixed feelings about the sector: In 2005, the British author David Craig blew the lid off his former profession in an exposé he called Rip-Off!: The Scandalous Inside Story of the Management Consulting Money Machine. And a Guardian article on auditing firm PwC’s involvement in the 2017 Oscars debacle (the one where Warren Beatty and Faye Dunaway ended up announcing the wrong movie for Best Picture) attracted rueful comments from a number of ex-consultants, such as, “Too often we either came in to reaffirm the approach the company’s management had already decided on, or we came in with a cookie cutter ‘methodology.’” And: “The only thing that prevented the consultancy that I started out in (and quickly left when I realized what we actually did) was the unions. Were it not for them, many public services would have been shaved to the bone by management consultants decades ago.” Finally, especially damningly: “I left after a few years after I realized just how much management consultancy was bullshit. I have many stories from the trenches but my bosses’ favorite one: ‘To Client: And here is our report, sir’ (50 pages)…PauseTo Client: ‘And here is our invoice’ (200 pages).”

That nagging feeling that consultancy is a towering edifice of perfumed horse manure appears confirmed by research from outside the industry too. In their 1997 book Dangerous Company, James O’Shea and Charles Madigan used court records to look at various consultancy failures. In 2002, a Bloomberg report took McKinsey’s involvement in the collapse of Enron (whose disgraced CEO, Jeff Skilling, had previously been a McKinsey employee engaged as a consultant for the energy giant) as a cue to look at other companies that had gone under following major consultancy projects. A survey in the late 1990s by the U.K.’s Cranfield School of Management, cited in Craig’s book, purportedly found that only around a third of 170 companies contacted felt they had received value from their financially bruising encounters with management consultants.

And yet one of the most comprehensive and scientific studies to date on the effectiveness of consultants seems to have proved the exact opposite. In 2013, The Quarterly Journal of Economics published the results of research jointly conducted by Stanford University, Berkeley and the World Bank, who sent teams of Accenture philosopher-kings into 20 textile factories in Mumbai, and told them to have at it. The outcome? After a few months of alterations, productivity leapt by 17 percent, profits were up by almost a fifth (more than covering the consultants’ fees), and defect rates fell by half. It’s been pointed out that there are a few caveats to these results, but they do suggest that, given the right circumstances and a reputable team, management consultants can be worth the outlay after all. 

Putting the ‘Age’ in ‘Management’

It’s interesting that The New Yorker writer went with “philosopher-kings.” After all, it’s a phrase coined by Plato, who, after much deliberation in The Republic, has Socrates humbly declare that this term best describes the perfect leader for the ideal city state. But throughout Plato’s writings, Socrates’s sworn philosophical enemies are thinkers who might legitimately be seen as the management consultants of ancient Athens — the sophists, slippery characters who sold instruction in rhetoric and winning arguments to anyone who’d pay them. 

In Plato and other ancient sources, the complaints most commonly leveled against the sophists strikingly echo the gripes many people have with modern consultants: They were known for their facility in persuasive and impressive language; for a willingness to turn their hand to any subject; and for their wildly exorbitant fees. There is a legend associated with one famous sophist, Protagoras, who sued a pupil who had refused to pay for his lesson, and argued that whichever way the case was decided the student should be ordered to reimburse his full fee — either as punishment if the pupil lost his case, or if he won it, because this would serve as proof that Protagoras had earned his fee by equipping the defendant with the rhetorical skills necessary to prevail in court cases. This either-way-I-win interpretation of services rendered mirrors the old standby that you frequently hear being thrown at management consultants by their detractors: That they borrow your watch to tell you the time, then charge you for the service.

At least in spirit, then, the glib sleight-of-hand of consultancy can be traced all the way back to the dawn of Western thought. But according to Stewart, the philosopher who would have felt most at home in the offices of Bain & Company or The Boston Consulting Group would have been the 17th to 18th century German polymath Gottfried Leibniz. “He actually tried (and failed) to set up a variety of outlandish businesses,” says Stewart. “Which in a way would qualify him as a consultant, who are generally much better at commenting on other people’s business than setting up their own. He was also intensely intelligent, hopelessly insecure and insufferably arrogant — all excellent credentials for the trade.”

The trade in its modern form, though, is a product of the Industrial Revolution that got going some 100 years after Leibniz’s death, and specifically the boom time of America’s Gilded Age, when regional companies began merging and expanding into national behemoths of mass production. In the late 19th century, these newly incorporated giants such as AT&T and General Electric found themselves herding many thousands of workers, unprecedented head counts that required the invention of systematic forms of management that could be standardized and rolled out from coast to coast from a remote head office. Answering this need in 1911, Frederick Winslow Taylor, a mechanical engineer turned founding father of the whole concept of management science, published his landmark guide to anally retentive industrial efficiency, The Principles of Scientific Management, and the cult of managerial wisdom as we know it today was born. 

As well as its swift take-up among the mega-corps of America, another notable early adopter was Vladimir Lenin, who wrote enthusiastically in 1918 about the potential he saw in Taylor’s forensic “time and motion” studies for improving efficiency in Bolshevik Russia’s new workers’ economy: “…in the analysis of mechanical motions during work…, in determining the most correct methods of work, the best systems of accounting and control, etc… We must introduce in Russia the study and teaching of the new Taylor System and its systematic trial and adaptation.”

Any cult needs its high priests, and these were supplied a little later by one James McKinsey. After McKinsey’s own grand systematizing ideas — as set out in his 1922 page-turner Budgetary Control — had proved popular in corporate America, he began hiring himself out as an adviser and built both his own legend and pretty much the whole U.S. consultancy industry around the quickly expanding McKinsey company. En route to market dominance, his firm was helped along by Congress with the passing of the Glass-Steagall legislation in the early 1930s, which, among other regulatory curbs, forced investment banks to commission independent financial investigations when brokering their deals, but also forbade them from using lawyers or accountancy firms for this. By default, the lion’s share of this work in the decades that followed fell to management consultants.

Putting the ‘Sultan’ in ‘Consultancy’

And they’ve been dancing in the sunshine under one big money hose ever since. Barring a few notable blips — the dotcom bubble popping in the early 2000s, a dip following the Enron scandal, the financial crisis of 2008 — the sector has been ballooning steadily since the 1990s. The global business consulting market grew by around a third between 1999 and 2010 to an estimated value of $150 billion, and it’s been predicted to hit more than $340 billion by 2025. The U.K. government, which has outsourced much of its public administration to consultants, is spending more than $2.5 billion a year on them, while in the U.S. it’s estimated there were some 680,000 people employed as management consultants in 2018 — that’s 100,000 more of them than there had been five years earlier.

Given the notorious size of their fees, what’s the attraction for businesses? Why are CEOs and senior execs so lacking in confidence in their own managerial nous that they constantly turn outside for gold-plated second opinions? “People are very motivated from a blame-avoidance point-of-view,” says Paul Culmsee, a management consultant and writer based in Perth, Western Australia. “If you’re in an organization with a strong blame culture, the reason you pay management consultants a lot of money is: a) You’re outsourcing your thinking; and b) if it all goes wrong, you can just go, ‘Well, it was the management consultants’ fault! We’ll get some more consultants in.’” 

He also points to an odd cognitive bias people often have toward authority figures who swing in impressively from out of town. “If I get on a plane, and I travel to the other side of Australia, I’m automatically much more authoritative than I was in my home location.” It’s that thing, he says, where, “You go, ‘Man, I’ve been saying that for a year…’ — and when the consultant comes in and says it, everyone else goes, ‘Oh, that’s such a brilliant idea!’”

During his 15 years’ experience running workshops with clients, Culmsee has also noticed that what many decision-makers in business seem to struggle with most is ambiguity — the anxiety of situations that have no easy solutions in terms of costs and benefits, or where a rational, logical approach doesn’t seem to help. Time and again, he’s noted “a rush to grab on to a process, or ‘Six Easy Steps to Awesomeness’ or a SWOT chart — drawing a two-by-two diagram on a whiteboard seems to have this amazing calming effect on certain people.” 

The tendency of staff confronted by uncertainty to cling to managerial dogma and ritual — what in his book, The Heretic’s Guide to Management, Culmsee calls their “teddy bears” — is often what stops them engaging in the creative or flexible thinking that’s really needed to navigate a complex crisis. And this fetishizing of simple, logical-looking solutions is one of the quirks of organizational psychology that the consultants have been trading on for decades.

Many of the large management consultancy firms, says Culmsee, “tend to try and cookie-cutter and codify,” often with trademarked models of success (he cites McKinsey’s ‘Seven S’ framework as one of many examples), selling the reassurance of a seductively simple, step-by-step solution without stopping to properly gauge whether their template is appropriate to the situation at hand. According to Culmsee, “It doesn’t really matter what remedy you offer, so long as you can turn it, or yourself, into a teddy bear.” All of which might help to explain why, while periods of economic instability are anxious times for most businesses, they can provide rich seams of opportunity for consultants. “The feeling of rationality is extremely attractive,” he says. “People don’t like deviating from that, because it feels good.”

We all need a cuddle from time to time, but what makes a seasoned, and let’s reasonably assume, cut-throat CEO willing to spend $10 million to $100 million per year on one? Why don’t top business predators realize that, as they nod along approvingly with the consultant’s pitch, they’re the ones being preyed upon? It turns out there might be other, less vulnerable motivations also driving their urge to call in the consultants. Far from feeling averse to it, “business leaders may well be interested in making use of a certain amount of sophistry,” suggests Matthew Stewart, pointing out that they “are often pursuing their own career interest as much as they are the interests of their shareholders or other stakeholders — and sometimes consultants are useful for those purposes. Also, it’s worth bearing in mind that many current business leaders are former consultants themselves.”

Audit Plaudits

And that’s maybe the point. Put its image as an elevated shaman elite to one side, and the whole consulting industry looks like a lot of managers selling not so much snake oil but an intoxicating, musky essence of managey-ness to each other. “There are a lot of very, very good management consultants out there, no doubt,” says Culmsee, “and some of them do have a really good appreciation for the culture and nature of the organizations they’re working with. But probably just as there are good managers and there are bad managers, the proportion of good and bad management consultants may be similar. There might be a mutual law of attraction going on there.”

It’s an assessment that broadly chimes with Stewart’s experience inside the industry. “Consultants can and do add plenty of value,” he says — it’s just that it’s often not in terms of the things they’ve explicitly been asked to deliver. “First, the perspective of an outsider is often very valuable to insular corporate cultures. Second, consultants can be a way of ramping up resources on a particular problem very quickly. Third, consultants are often effective as an internal communications agency (or as propaganda).”

The projects Stewart was involved in that he feels were actually worth the fee, “were those that led to very clear recommendations that might not have been pursued otherwise. The simplest case I did resulted in a simple recommendation to roughly double prices for a particular service; it worked, and far more than covered our costs.” More surreal assignments, “were more like Groundhog Day. You’d identify a particular issue, like the fact that a financial institution was taking on more risk than was appropriate. You’d present the findings. And then you’d present them again, and again, and again over the course of a year, without having any noticeable effect, and yet without ever being told to go away.”

So if you find a troupe of consultants has one day set up camp in your workplace, it’s worth bearing in mind that they might be there for some time to come. Your best strategy, says Stewart, is to treat them like the fabulously paid interns they are, and — in deference to the fact that they might well be there to make hot-take recommendations on cutting staff numbers — to at least give the impression of amicable cooperation. “The consultants who show up day to day often know very little about the business you’re in or the political dynamics at play,” he says. “I’d find a way to keep them occupied. Give them huge datasets and let them play.”

And now, having talked to some management consultants about the services they provide, and having spent an undisclosed number of billable hours researching the issues involved, I feel I have attained a sufficient superficial understanding of the industry to draw some grossly simplified conclusions. Firstly, management consultants are indeed philosopher-kings, but not in the mold of either Leibniz or the sophists: The branch of philosophy they are kings of is, in fact, the niche one that was first explicated by the Princeton philosopher Harry Frankfurt in 1986 — see here for details. 

Secondly, in order to stimulate growth, productivity and morale throughout the global economy, I recommend cutting back the worldwide consultancy headcount by 30 to 40 percent. I strongly advise decisive action on this — we should see results right away. And thirdly, my work here is done and I’m now going to move on to my next important topic of hustled-together expertise, completely forgetting everything to do with the weird, wasteful world of management consultancy. Except I don’t think I’ll quite be able to do that — it still owes me five grand.