Reading List: The World’s Newest Profession: Management Consulting in the Twentieth Century by Christopher D. McKenna

This book was written by an academic at Oxford but is very readable. McKenna reviews the history of management consulting in the twentieth century and challenges the industry to rise to the challenge of truly becoming a profession in the twenty-first century.

The most striking thing about this book is the convincing case he makes that the business of the large consulting firms in the U.S. has really been created and perpetuated by government regulation—a few examples:

• The U.S. bias against monopolies (in contrast with the strong industrial groups of Germany and Japan) created the need for a neutral party to provide information across industries on “best” practices—the role of management consultants was knowledge transfer.

• After the Depression, the Glass-Steagall Act took banks out of the business of performing what were referred to as “management audits” and drove accounting firms to focus on providing financial audits. Taking these two traditional players out of the market opened the door for the explosive growth of McKinsey, A.T. Kearney and Booz Allen & Hamilton.

• In the 1950’s, concerns about IBM’s monopolistic power led the U.S. Department of Justice to prohibit the company from offering computer consulting advice—opening the door for the accounting firms to get back into the consulting business, most notably Arthur Andersen.

• In the mid-1980’s, a ruling on liability of the corporate board of Trans Union for failing to exercise “informed business judgment” in the approval of an acquisition led to a rash of similar suits and a crisis in D&O insurance—until boards discovered the power of consultant reports to validate their decisions—leading consultants beyond knowledge transfer to the sale of legitimacy.

• Ironically, the next turn came when the accounting firms lobbied for their own change in regulation. In response to concerns about the liability of professional firms, Congress overrode Clinton’s veto to pass the Private Securities Reform Act of 1995 which, McKenna asserts, allowed firms to continue to audit riskier clients—and led directly to Enron and the collapse of Arthur Andersen.

• The Enron crisis, of course, led to the exit by accounting firms from consulting and the Sarbanes-Oxley legislation—both creating huge new opportunities for the consulting market.

The second big theme in the book is ethics. McKenna is very open in his support for increased professionalism in consulting. He asserts that McKinsey got a free ride and took no blame for their work with Enron. Further, he feels that, with Sarbox “having failed to prevent the corporate governance crisis, management consultants were nevertheless once again touted as the best solution to rising corporate liability.” Although the cynical would say that’s a great business, McKenna tells us that the profession “eventually needs to grow up.”

He’s probably right. But it’s not an easy thing to do in the big picture—there are issues on the creation of professional work standards which is why the survey we describe above is so important. But it is possible (and necessary) for every firm to start with their own work standards. That’s why we participate in the Institute of Management Consultants and abide by their Code of Ethics.

Read more about this book at Cambridge University Press.