Why Do Executives Employ their Friends as Consultants?

In an ideal world, those of us steeped in procurement would see everything our organisations spend with third parties subject to an appropriate and effective level of rigour and competition. We know that is not feasible of course; if we need to get a cab on a foreign business trip, we're not going to run a full-scale tender first.

But in terms of compliance to procurement policies, one of the most problematical spend categories is professional services. That area - what we might also call "complex people-related services" - is particularly susceptible to bad practice in procurement's eyes, in terms of professional services firms (consultants, lawyers, investment banks) and individuals fulfilling similar roles (senior level contingent workers) being engaged without proper process. The formal process is often challenged by budget holders who want to use their favourite provider without running a competitive process, that provider being a firm or simply an individual.

I suspect we have all seen examples. That consulting firm brought in by the CEO without competition or even much negotiation, or the interim CFO brought in through her own professional services firm and - oh yes - she just happens to be a "good friend" of the HR VP. A VERY good friend, maybe.

But why do budget holders, generally sensible, often senior level people, behave in this manner? Some of the potential reasons are obvious, but others are less so, and anyone who is trying to drive compliance should think about this, as it might just help in managing difficult situations. So let's give you our view of the six principal reasons why people favour "those they know" in some sense when it comes to awarding this type of contract.

1. The supplier genuinely has done a great job in the past for the budget holder. "I've used this firm of consultants four times previously and they have been great every time - they're not expensive either". The budget holder may be telling the absolute truth, and may have no other reason for engaging them.

2. The budget holder is simply lazy. "I know someone who can do this - they're OK and I can't be bothered to look any harder for alternatives". That might also be combined with the "need for speed" which is often another excuse for non-compliance to procurement policies.

3. There is an emotional dependence on the supplier. This is a complex issue, but we have come across budget holders who appear to have a dependence on the supplier that does not fall into the other categories defined here. Perhaps the supplier flatters the individual, makes them feel good, or creates an air of paranoia - "they're all out to get you, but work with us and we can protect you".

4. There is personal friendship, attraction or even a full-blown intimate relationship between budget holder and provider. This may not be corruption in the sense of anything financially tangible, but the relationship plays a part in the engagement of the supplier or how much they make out of the arrangement. This may run from a manager having a wild passionate affair with the chosen consultant or lawyer, to nothing more than "I really like him" or the old-school golf-club / freemasons type issue. But the common thread is that it is not based purely on the capability to do the job, so it is obviously a worrying issue for the organisation.

5. The relationship is corrupt - the budget holder is receiving some direct benefit with a financial value (money, goods, holidays, tickets to sports events) that is influencing their decisions in a manner that is probably not in the best interests of the organisation. But to be clear, this is corruption even if this is the best supplier in the market and the work is carried out at a fair price.

6. The budget holder has a future expectation of gain from the supplier. This is becoming increasingly common, in our view, as more and more people move within their career between line management type employment, interim or consulting work. If I appoint this firm now to a million-pound or dollar contract, might they offer me a nice Partner role in a couple of year's time?

Some food for thought anyway ....

 

First Voice

  1. Final Furlong:

    I think that these are great examples Peter. I’ve seen all of them (sadly).

    It’s always important to recognise what the supply-side dynamics are too. Consulting firms are very skilled (and highly trained) in influencing people and manipulating information to provide insight that is ‘mutually beneficial’ (“costs will only increase if you don’t do this now…”).

    So many decisions are influenced by verbal, face-to-face interactions as opposed to being based on fact. I recall how a group of senior stakeholders in a major government department were “blown away” by the presentation of the partner from one consulting firm, only to be brought down to earth by the content of the actual proposal which stated that they would only see him for one hour every month. His day rate in the rate card was an ‘arm and leg’ and I imagined how senior stakeholders would request more of his time.

    You will see some of these extraordinary dynamics in the recruitment industry (especially high-end search/headhunting). “We put Peter in as CIO but it didn’t work out. Just a matter of time before we find him a similar role”. Wow. Almost a personal service. But why? Well, because when Peter gets the top job, he’ll come back to the same recruitment firm to find his own new ‘top team’.

    Trust is very difficult to obtain but, once in place, is almost impossible to reject.

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