In an episode of ‘House of Lies’, the Showtime series loosely based on management consulting, there was a situation where the team was tasked with reviewing a pharmaceutical client’s internal study. In reality, they were being paid to rubber stamp the study rather than to perform any diligent review.
One team member, Jeanie, applied some due diligence and found that there was a high frequency of deaths that were not reported in the pharmaceutical client’s internal report.
She was reprimanded by her consulting manager for going outside the scope of what they were hired to do.
Client focus or profitability focus?
His exact words were, “You’re here for one reason and one reason only – to maximize shareholder return (the firm’s, not the client’s). Sacrificing profit for any other concern is a violation of your fiduciary responsibility. Jeanie, you’re gonna get us all shit-canned.”
While it’s true that, in a publicly held company, you have a fiduciary responsibility to maximize shareholder value, it can be argued that ethical responsibilities hold trump over them.
For more information, see Client Relations for Consultants
In this example, they were ignoring evidence that they ethically should have regarded. One could argue that by breaking ethical principles, you put the firm and the client at risk which could ultimately affect the bottom line.
In a related – and real life – situation, on March 14th, Greg Smith published an op-ed in the New York Times titled “Why I Am Leaving Goldman Sachs” (http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=all). He lamented on his disappointment in how, over his 12-year career with the investment firm, they had transformed from a firm dedicated to the client’s best interest to one obsessed with profits and “How much money did we make off the client?”
He repeatedly talked about culture and leadership and how they both shifted over the years to a point where the firm took shortcuts focused only on profitability.
It’s a difficult balance for some firms. Legally, there is either a fiduciary responsibility to shareholders, or a political responsibility to the partners, to be profitable. However, one could argue that focusing on short-term profitability and not serving your customers’ best interests could result in long-term loss of customers, profitability and, ultimately, liquidation.
This is a classic conflict of interest that all professional services firms experience. We’re in business to make money, and we make money by figuring out ways to charge our clients. But if we screw all the paying clients by charging them for short-sighted billings that don’t provide long-term value, we will eventually run out of clients to bill.
It’s exponentially more expensive to acquire a new client than to keep an existing one.
In the long run, client focus and profitability are the same priority
Focusing instead on the client’s best long-term interest, becoming a trusted advisor that consistently adds value, will result in the ability to name your price. Clients will come back to you on a consistent basis.
Partner with them and they will partner with you. Treat them like an ATM, and the well will run dry very soon.
Have you ever lost a client due to lack of client focus?
If you would like to learn more about working in consulting, get Lew’s book Consulting 101: 101 Tips for Success in Consulting at Amazon.com
As always, I welcome your comments and criticisms.