Institutional Investor, January 1998

The Company They Keep

by Susan Webber

Warning: This reviewer belongs to a powerful cabal of management consulting firms, having earned her stripes at McKinsey & Co. Her mission: To infiltrate your organization, manipulate your thinking and empty your wallet. Talk to her only if you're desperate.

If you're intrigued by that disclaimer, you will love "Dangerous Company: The Consulting Powerhouses and the Businesses They Save and Ruin." This book purports to be an insider's guide to the slippery business practices of the consulting elite. Instead, it is rife with tired tales, and its most explosive charges rest on skimpy documentation.

"Chicago Tribune" editor James O'Shea and senior writer Charles Madigan mutter darkly — and frequently — about the industry's pervasive arrogance and its "drop-the-report, send-the-bill, run!" mentality, as well as the consultant's natural impulse to overstep his authority. But with this the authors merely parrot old complaints. When they do present interesting research, they draw pedestrian conclusions. A comprehensive study of consultant compensation, for example, leads to this lesson: deploying junior staff maximizes profits.

O'Shea and Madigan fail to reconcile their dim view of consulting with the successes they also describe (Gemini Consulting at Cigna Property and Casualty Insurance Co., Bain & Co. at National Intergroup, Andersen Consulting at Harley Davidson). Indeed, the portraits of the firms that fill the book's pages often read like public relations handouts. As a result, "Dangerous Company" seems schizophrenic, as it lurches from stinging pejoratives to sweeping praise. O'Shea and Madigan cavil about consultants' seizing control of a client's business but still want to hold them accountable for results; they call for consulting firms to share in their clients' risk and reward yet criticize Andersen for an agreement that did just that, because fees were linked to personnel cuts.

The authors seem to have spoken to relatively few high-profile consultants. This is surprising, since there is no shortage of big-firm veterans who have moved on to smaller pastures and would be happy to cite chapter and verse about former colleagues and bosses. Though the authors are journalists themselves, they rely on the work of their brethren in the business press. Inherently, then, this leads them to negative stories; the saga of a productive consulting project makes for dull reading.

And so we hear at length about Figgie International, which nearly went bankrupt as the result of a misguided modernization structured by consulting firms. Led by a tight fisted tyrant who fired any employee who ever had an original idea, Figgie was a disaster waiting to happen. O'Shea and Madigan also focus undue attention on the industry's lawsuits, whether they are familiar (Bain's role in the Guinness affair) or minor (McKinsey & Co.'s sole sex discrimination suit).

In some cases, the book's factual errors seem to reflect the authors' naiveté. They assert, for instance, that McKinsey teams cost an average of $250,000 per month. But this "average" is an impossibility. Teams at McKinsey vary greatly in size and seniority, and their fees naturally reflect those differences.

To even the most casual observer, the leading consulting firms harbor several serious flaws, but O'Shea and Madigan barely acknowledge them. The industry's most pervasive problem is its high fees. The pressure to land big-ticket projects is no mystery: major firms must support large overheads, and revenues remain uncertain. Even consulting firms a tier below the top ones will not accept assignments paying less than $500,000. Consulting firms hope that last year's clients will keep coming back for more, but management turnover or the mere absence of pressing business problems means that new clients are always in demand. The constant pressure to pull in revenues often leads consulting firms to work with such corporate dinosaurs as AT&T Corp., whose executives may simply not be up to the challenges facing them. In other cases, consulting firms accept assignments that are poorly conceived or only perfunctorily endorsed by senior management.

At the end of the day, the consulting firm's rent must be paid. The sobering fact is that smart, capable CEOs make for less-lucrative clients than their more lackluster peers. The real, and as yet unwritten, critique of this industry would focus on the often compromised relationship between consultant and client. Consultants frequently water down their advice because, to paraphrase T.S. Eliot, bosses cannot bear very much reality. This incestuous relationship — sadly — serves both parties well.