Though hated, they often provide a valuable service to the economy
What explains the boom? A shroud of secrecy makes it hard to calculate how much value the industry adds: fews or politicians would credit consultants for a successful turnaround. As a result there is a widespread view that all consultants are parasites and those who pay for them are fools. In fact the firms have grown because they provide two services that bosses want—one of them more economically beneficial than the other.
The first is an outside opinion. When firms or governments make decisions, it can pay to buy in rigorous analysis. The danger is that this becomes aself-protection racket. When bosses want to push through controversial decisions, from firing staff to breaking up a firm, a consultant’s backing can bolster their credibility. And consultants’ reports in pleasing fonts with scientific-looking tables can protect leaders from legitimate scrutiny, whether by political opponents or board directors.
The second service is unambiguously good both for the people in charge and the wider economy: making available specialist knowledge that may not exist within some firms and bureaucracies, from deploying cloud computing to assessing how climate change affects supply chains. By performing similar work for many clients, consultants spread productivity-enhancing practices.
One defence against an explosion of bogus advice is better disclosure. Companies are already required to reveal how much they spend on their auditors and on investment bankers’ fees on deals. The sums individual firms spend on consultants often exceed this, running into the tens of millions of dollars a year, and should be made public too.
So far the industry has escaped the formal rules that govern lawyers and bankers. If it wishes to keep it that way, it should adopt a second measure: a code of conduct that all responsible consultancies adhere to. They should eschew providing advice that helps powerful people at the expense of the institutions they run; police the revolving door between government jobs and consultancies; and avoid serving despotic regimes. Consultants have much to offer, but also much still to prove.
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