Management Consulting

A hit-or-miss hodgepode of hyperbolicism...

Management Consulting

Postby MBK271 on Thu Mar 10, 2011 3:34 pm

Here's an interesting blog regarding my chosen profession. Our biggest rival is taking a lot of heat these days because of representatives being caught with insider trading. The article over simplifies our work and doesn't exactly get it all right (especially around the measures that we take regarding confidentiality) but he doesn't get it all wrong either. Many clients do hire us because we know what the srategies of the future are.

I don't really think this is a big deal since companies can easily hire executives from competitors to run their company. Then again, I could be justifying our work?

To be clear, any knowledge sharing that an ethical management consultant provides to clients would be directional and NOT reveal client confidential information. (e.g., a certain solution is prevelant in the industry for this problem and present OPTIONS for implementation but not reveal what others have chosen)

There's a HUGE gap between these practices and taking proprietary information and providing it to hedge fund traders like the guys that got caught were doing. That is a HUGE no-no. Corporate strategies are one thing but you don't trade on the information. Don't mess with the SEC... it usually results in jail time.

The comments in response are also worth the read/

http://blogs.reuters.com/felix-salmon/2 ... ed-culture

John Gapper makes a good point: management consultants in general, and McKinsey consultants in particular, have made their entire business out of exploiting the moral grey zone surrounding confidential information.

The reason you hire McKinsey is that its consultants have seen strategic business issues like yours before, and therefore might have developed good insights into how to approach them. But the reason they’re familiar with those issues is that they’ve been given highly confidential information about your competitors. So when you hire McKinsey you’re essentially trying to acquire, for a very high hourly fee, the kind of corporate intelligence that can only be built up through long exposure to highly-sensitive commercial information.

Here’s Gapper on McKinsey:

The accumulation and sharing of privileged knowledge is integral to how it works…

The calculation every client makes is, in the words of Christopher McKenna, a professor at the Oxford university’s Saïd Business School who studies professional services firms, that “consultants will carry information in and information out. The client has to decide which of those flows is worth more.”

Indeed, one of the main reasons companies hire consultants is to make sure they do not fall behind what their competitors are doing – in return for parting with their own secrets, they gain access to their rivals’ suitably disguised “best practices”. The consultant is a broker who attempts to amass so much knowledge that each company has to hire him, no matter how uncomfortable that feels.

In this sense, a management consultant is a bit like an art dealer, or anybody else who traffics in valuable information asymmetries. The consultant knows more than the client, when it comes to strategic issues within the industry in question. If the client wants access to that knowledge, he has to open his own kimono to get it, thereby putting the consultant at yet more of an information advantage.

For pretty much Rajat Gupta’s entire career, then, he was trading in information that he obtained in confidence by dint of his position. When it comes to corporate intelligence, management consultants are pretty much unique in this regard: while other professionals like lawyers and accountants certainly encounter a great deal of confidential corporate information, they don’t trade in it in the same way — no one ever feels the need to hire Ernst & Young just because they audit a major competitor. The only profession which might come close to consultants, in this regard, is M&A bankers, and maybe a handful of extremely senior lawyers like Rodge Cohen.

None of this remotely explains or excuses what Gupta is accused of doing, of course. But as Gapper notes, there’s a long history of management consultants violating the spirit of the confidentiality agreements they enter into — he tells the tale of Booz Allen Hamilton’s John Burns taking lots of IBM knowledge with him when he took a job as president of the computer maker’s fiercest rival.

In any case, McKinsey can and should find itself in serious reputational jeopardy here. Gapper concludes his column portentiously, saying that “McKinsey must devoutly hope that there is no third man” in addition to Gupta and Anil Kumar, the McKinsey partner who has already admitted giving confidential information to Raj Rajaratnam.

And, predictably, it now looks as though there is just such a third man after all. Three McKinsey consultants all channeling confidential information to a single hedge-fund manager who wasn’t even a client? That’s not bad apples, it’s a culture of corruption. At this point it’s unimaginable that it wasn’t happening elsewhere as well.
why don't you run back to the sandbox where the rest of the kids are playing so the adults can have a discussion...it's over there....you see Howie, he's over there with PMS knocking over other kids sandcastles...looks like fun.
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Re: Management Consulting

Postby MBK271 on Thu Mar 10, 2011 3:54 pm

The origional article from the Financial Times

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/144e6728-4a87 ... z1GEhH8Vb5


The vast investigation into insider trading on Wall Street that culminated this week in Raj Rajaratnam going on trial in New York accused of securities fraud was always likely to ensnare a large institution – perhaps a big hedge fund or a Wall Street bank. No one, however, expected the institution in question to be McKinsey & Co.

It was bad enough for the blue-chip management consultancy when Anil Kumar, one of its partners, admitted to supplying Mr Rajaratnam with inside information in return for bribes (Mr Rajaratnam denies all charges). But the Securities and Exchange Commission’s claim last week that Rajat Gupta, who was the head of McKinsey between 1994 and 2003, passed on tips as a board member of Goldman Sachs and Procter & Gamble, is a heavy blow.

Mr Gupta insists he did nothing wrong, although he has resigned his directorships of P&G and AMR, American Airlines’ parent company, having already stepped down from Goldman. But the very fact that a former leader’s conduct has been questioned has shaken McKinsey’s 1,300 partners. “Anger, disbelief, shock, sadness and outrage,” is how one describes the mood.

They should also be frightened because the scandal goes to the heart of McKinsey’s business model. Unlike with past embarrassments such as Enron, which was headed by a former McKinsey consultant and to which it gave strategic advice, it has become embroiled in accusations of being untrustworthy rather than simply incompetent.

It is hard to believe that trading on price-sensitive inside information from clients is rife inside the puritan, strait-laced firm – if evidence of that emerged, it would soon collapse, as Arthur Andersen did after Enron. But the accumulation and sharing of privileged knowledge is integral to how it works and it cannot afford its corporate and government clients to pull the shutters down.

Thomas Watson Jr, the former president of IBM, wrote in his autobiography Father, Son & Co of being asked by a company executive in 1956 whether he should share sensitive internal pricing information with a Booz Allen Hamilton consultant. “‘Sure,’ I said, ‘It’s like your doctor. You have to tell them everything.’”

A few months later, John Burns, the Booz consultant, rang Watson to ask if he would mind Burns becoming the president of RCA, IBM’s fiercest rival. “I said ‘I most certainly do, John!’ because we had entrusted him with detailed knowledge of our organisation and methods and plans,” Watson wrote. “Nevertheless, he took the job.”

Watson was wrong. A consultant is not like a doctor because a patient is at worst indifferent to whether a physician uses the knowledge gained from treating him to cure someone else, and is usually happy to help others. A company wants a consultant to help it not only to become better but to hurt its industrial competitors.

The calculation every client makes is, in the words of Christopher McKenna, a professor at the Oxford university’s Saïd Business School who studies professional services firms, that “consultants will carry information in and information out. The client has to decide which of those flows is worth more.”

Indeed, one of the main reasons companies hire consultants is to make sure they do not fall behind what their competitors are doing – in return for parting with their own secrets, they gain access to their rivals’ suitably disguised “best practices”. The consultant is a broker who attempts to amass so much knowledge that each company has to hire him, no matter how uncomfortable that feels.

Bill Bain, the founder of Bain & Company, insisted on serving only one client per industry in order to avoid the conflicts inherent in such an approach. Yet McKinsey, the exemplar of the networked model to consulting, is now the dominant firm at the elite end of the business, with a client list that includes many of the world’s largest companies.

McKinsey’s main safeguard against sensitive information being leaked or misused is cultural – it is a serious, even dour, organisation with a pronounced sense of mission. McKinseyites have to work hard for modest rewards, at least compared with being an investment banker or a hedge fund manager, for a decade before getting a chance to make partner. During that time, they are constantly subjected to “up or out” career assessments.

The partner who emerges from this treadmill tends to be a low-key, self-disciplined figure (although often with a large ego) who can act as the consigliere to a client’s chief executive. Mr Gupta, who has not been accused of leaking any information while at McKinsey, appeared to be a prototypical partner – he was compared by Alan Lafley, P&G’s former head, to the religious philosopher St Thomas Aquinas.

Yet the McKinsey culture clearly failed to restrain Mr Kumar from betraying confidences even as a partner and the accusations against Mr Gupta raise the disturbing possibility that its disciplines are broadly ineffective. This accounts for the shocked reaction inside the firm – perhaps it is not quite the place that everyone thought.

If Mr Gupta is cleared of the civil charges against him, then McKinsey will probably get through the scandal with only bruises. But it cannot afford the notion to spread that its clients’ information is not only used to amass a “knowledge base” that is sold to others in a sanitised form, but may also be exploited for personal gain.

McKinsey must devoutly hope that there is no third man.
why don't you run back to the sandbox where the rest of the kids are playing so the adults can have a discussion...it's over there....you see Howie, he's over there with PMS knocking over other kids sandcastles...looks like fun.
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Re: Management Consulting

Postby UTwiz on Thu Mar 10, 2011 8:14 pm

Wow. Very interesting.
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Re: Management Consulting

Postby SmoothLonghorn on Sun Mar 13, 2011 8:04 pm

Yeah, that is all really interesting, but all I know is, Heaven forbid, anything drastic happens to the company's stock that any of the partners find out about/Google "the Seth Jinx" :D .....
I have no problem with people like Smooth who know what they believe and why they believe it - even if it is different than I.--UTwiz
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Re: Management Consulting

Postby MBK271 on Wed Oct 26, 2011 3:46 pm

Some fun for the day at my expense...

http://www.youtube.com/watch?v=kXGhPmby0rY

Hilarious.
why don't you run back to the sandbox where the rest of the kids are playing so the adults can have a discussion...it's over there....you see Howie, he's over there with PMS knocking over other kids sandcastles...looks like fun.
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Management Consulting

Postby LMQueen on Wed Oct 26, 2011 4:41 pm

Hilarious. I'm dealing with a lot of change management and re-engineering process design now. :)
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Re: Management Consulting

Postby MBK271 on Thu Dec 01, 2011 3:16 pm

Great.

More laughs at my expense. :)

Check out the clip for the new Showtime series...

I might have to subscribe just for this.

http://www.imdb.com/video/cbs/vi2251136537/
why don't you run back to the sandbox where the rest of the kids are playing so the adults can have a discussion...it's over there....you see Howie, he's over there with PMS knocking over other kids sandcastles...looks like fun.
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