BY THE end of the 20th century, management consultancy was a $100bn-a-year business. Considering that there is no accepted body of theory or practice for consultants to sell, it is not a profession, is unregulated and is not subject to anything resembling a Hippocratic oath, that is a remarkable total.
But even that is an inadequate measure of its clout. Scarcely believably, by 1995 there was one consultant in the US for every 13 managers, compared with one for 100 in 1965. Business schools, set up to educate managers, were 'first captured, and then redirected' to become assembly lines producing fodder for the elite consultancy firms that absorb a third of MBAs graduating from the top schools.
It's no surprise big consultancy has colonised business - in 1999 IBM, Morgan Stanley, American Express, Delta Airlines and Polaroid, to name only the best-known, were all run by recruits from McKinsey alone - recasting much of it in its own image, Enron being the prime example. But consultants also influence charities and not-for-profit organisations, as well as reshaping government by privatisation and importing their (often self-serving) notions of 'efficiency' into the public sector, all over the world.
In hindsight, perhaps the most astonishing aspect of big consultancy's rise to mastery of the universe is its accidental and specifically local origins. As recounted by Said Business School's Chris McKenna in his fascinating study, The World's Newest Profession: Management Consulting in the 20th Century (Cambridge UP), the leading consulting firms owe their existence not to specialist knowledge but to opportunistic response to US regulatory change.
Until the 1930s much of the work now labelled 'management consultancy' was carried out by US banks and accounting firms. To prevent conflicts of interest, that was outlawed in New Deal legislative and regulatory measures, which also decreed that any firm raising finance should be subject to a management audit. Barely pausing to marvel at their fortune, into the void smartly stepped entrepreneurs such as James McKinsey, Edwin Booz and Charles Armstrong, often accountants and all based in Chicago. Management consultancy, a specifically American solution to a specifically American problem, was born.
McKenna shows that time and again the pattern has been repeated, the large consultancies prospering as opportunistic beneficiaries of regulators who in their zeal to prevent one kind of monopoly inadvertently created another. Thus consultancy gained a new role in the late 1930s when Congress banned executives from using industry associations or cartels to create benchmarks or codify best practice, thereby leaving consultants free to make the role of industry knowledge-broker their own.
It was the same with IT consulting. When computer giant IBM settled the longstanding antitrust suit against it in 1956, a condition was that it should not offer advice about installing or running computers. That left the way clear for Andersen (later Accenture) and others. Most ironic of all, following the Enron collapse in which professional service firms were heavily implicated, 2002's Sarbanes-Oxley Act, the most significant US governance legislation since the laws that brought consultancy into being, almost exactly replicated their effects.
As in the 1930s, Sarbox banned auditors from offering consultancy, but compelled boards to bring in outsiders to do stringent management checks. Hence, as McKenna notes, the paradoxical result was that having failed to prevent - some would say having actively contributed to - the corporate governance crisis, the consultancy elite has been put in charge of monitoring it. Nice work!
How do they do it? McKenna argues that in extending their domain, building on their regulation-sponsored legitimacy to colonise and remake business, first in the US and then around the world, the big consulting firms have been vastly helped by not being part of a profession. 'Consultants succeeded in large part by assuming the outward appearance of a profession... even as they avoided the most confining elements of professional status like state regulation, individual accreditation and, most remarkably, professional liability.' If their remedies don't work, well, there are no guarantees in management. If ethical issues arise, that's normal in an emerging profession. Though it played a huge part in developing Enron's strategy, the management consultancy McKinsey has faced few searching questions over the company's catastrophic collapse.
McKenna concludes his provocative account by suggesting that it's time for consultancy to grow up and accept the challenge of professionalism. In the meantime clients might consider adding another definition to the one about a consultant being someone who borrows your watch to tell you the time: in McKenna's story, a consultant sells insurance which is only valid so long as you don't make a claim. McKenna's title, of course, makes allusion to another well-known profession whose prerogative is power without responsibility: the oldest.
The Observer, 20 August 2006