Managing Ethical Consultancy in the UK - Essay Example

?Introduction It was McKenna (2006, p, 43) who poised this question “is the business environment in which consultants work becoming highly unethical?He answers this question by stating that it is difficult to state if unethical business practices are on increase in recent past, or not, though he adds that it appears like it. According to McKenna (2006) a contributing factor is the increase in public awareness regarding ethical conduct, with the media actively reporting corrupt cases, scandals and corporate failures. This also is partly because of continued ethical conflicts we observe such as lay-offs followed by high pays for the executives (McKenna, 2006). Hence bring a sharp focus on ethical or unethical practices of consultants. This paper, therefore, aims to examine the raising concern that consulting industry is unethical in its operations. To examine this issue, the paper will highlight the UK consulting industry; review unethical practices in the recent financial crisis by auditing firms and mention the contentions put forward by consulting industry, and lastly close the paper with a conclusion. Consulting industry in UK The consulting industry in UK has undergone tremendous growth over the years, as at 2006 the industry was worth over 7.7 billion pounds (PWC 2006), overtaken by only the American consulting industry. According to O’ Mahoney (2010) this record increase in the consulting industry indicates and comprises the role it plays in the globalized economy, and therefore a central aspect of Beck’s concept of second modernity. According to Beck (1995), consultancy, accounting and medical fields are some of the professions that have characterized the advancement and commodification of knowledge and skills contested by him in what he calls as hyper-modernity. As such Beck (2005) points out that in its role as a driver to the multinational corporations, consultancy occupies a central position in regard to risks and ethics. O’ Mahoney (2011) clearly observes that the high growth of consultancy over the past twenty years has lead to increased ability of consultancy in terms of the harm it can do, this an increased focus on the manner in which ethics operate within the industry. This increased focus on ethics has come from many directions (Craig, 2005). While the main media widely covered the participation of consultancies like Accenture and McKinsey in the collapse of Enron, the fall of Northern Rock covered by recently by popular media exposed the unethical and sometimes unlawful activities of consultancies in pursing profits (Craig and Brooks, 2006). More so, as public sector spends more on consulting services, usually involving mega failures, agencies charged with ensuring the government gets value for what it pays for, for example, the Public Accounts Committee (PAC) ns the National Audit office(NAO), have become more and more vocal in their disapproval of amounts spend on these consultancies (Craig, 2005). Owing to such widespread concerns from different parties, it could have been expected that the consulting industry would have undergone similar regulatory initiatives and measures as those enforced within the financial services sector (O’ Mahoney, 2011). However, as pointed out by Craig and Brooks (2006) this has not been done. Whereas, consultants have certainly undertaken some measures to emphasize their ethical records, these measures still remains voluntary, and in many cases they focuses on individual level, instead of corporate level. Thus, according to O’ Mahoney (2011) these measures have had little effect on the ethical outcomes of industrial practice. Example of failure and unethical practices: Financial crises The recent financial crisis brought about a heated debate on modern auditing practice. In deed, Sikka (2009) points out that during the financial crisis, financial institutions sought for government financial assistance, after getting unqualified audit report. On the other hand, auditors were paid huge amounts in fees for auditing work. This observation raise serious questions concerning the value of corporate audits, independence the auditors and their quality of work as well as the knowledge and skills of auditors (Kaptein and Schwartz, 2008). Accountants acting as auditors have entrenched their positions and privileges on the grounds that their profession allows them to intervene on uncertainty aspects and provide independent, fair and objective financial reports of corporate state (O’Connor, 1987). O’Connor (1987) further observes that accountants thus claim that their profession has enabled markets, employees and public to reduce and manage market risks. However, Soros (2008) asserts that these claims precarious since evaluations of revenues, expenses, assets, earnings and liabilities are challenged technically and also politically. In addition, Soros (2008) points out that capitalist market are naturally exposed to crises. On his part Sikka (2009) points out that these claims of professionalism and expertise are regularly tainted by sudden corporate collapses, scandals and frauds. These happenings increase the reservations that auditors are not independent, lack the necessary expertise and motivation to present the required “accurate” and “fair” financial report or accounts of companies (Sikka, 2009). For instance, in 2006 the financial reports of Northern Rock, a leading UK mortgage provider, had unqualified audit estimation. Sikka (2009) tells us that in July 25th 2007, Northern Rock’s interim financial report for the previous six months ending 30th June, 2007 was given a positive remark by the reporting auditors (Sikka, 2009). Yet, these positive remarks did not warn the public on the bad run that the Mortgage suffered in the subsequent months of August and September (Sikka, 2009). In fact, just a few weeks after getting unqualified audit reports many of the banks were looking for financial assistance from the government. According to Sikka, et al (2007) very little information is known regarding how credibility to financial accounts is added and who gives the instructions particularly since audit proof is not accessible to the public. Thus, it is important to examine how assurance in auditing is reduced as well as the circumstance that convince others that auditing as one of consulting profession is unethical. The carrying out and reporting of audit reports depends on orgnisational as well as regulatory politics. Therefore, auditors might be unwilling to certify banks financial reports for fear that is could result in panic or endanger the bank’s liability situation (Sikka, 2009). During auditing process the auditing firms however are paid huge sums from corporations in undergoing rough times. This raises the question of ethics and independence of the auditing firms, Issues that have been attempted to be corrected by regulatory measures particularly after the collapse of Enron in the US, and also the collapse of Northern Rock in the UK (Sikka, 2009). Clearly, form the above observations it is easy to see malpractices and it is unethical practices. Regarding the Enron collapse in the United States, the consulting accounting firm Arthur Andersen was found to have engaged in unethical practices contributing to the collapse of the giant firm. The accounting firm did not follow proper accounting procedures and instead helped Enron in presenting false disclosures in relation to SPEs, leading to the collapse of the company. As pointed out by Knapp (2001) Andersen did not remember the lessons it had leant in 1980, in which it was involved in scandals surrounding saving and loans. The firm compromised it independence and code of ethics for huge sums it received from Enron. Knapp (2001) further explains that Andersen got so close with its client losing its objectivity and independence, Andersen was as well involved in unethical practices in other companies such as WorldCom, which also collapsed. Due to its unethical practices Andersen firm no longer operates it went done with Enron, a harsh reminder of what unethical practices can lead to. With the collapse of these big corporations, it is easy to see the extent of unethical practices in consulting industry. However, consultants feel that their unethical practices cannot fully be blamed on them (McKenna, 2006). According to Feldman (2002) consultants argue the demand of companies in enhancing their bottom line make them to operate in a certain manner that they might not usually wish. Feldman (2002) further adds that some consultants companies develop cultures ad values that focus on target and results as the key aspects that matters in a business. As a result operating in an ethical way, or offering assistance to colleagues to work in an ethical manner is possibly to be unacknowledged. Still, some consultancy firms shift blame to external forces, competitor activities, as well as market pressure, stating that these forces cause them to act in unethical manner. Even those consultants who work alone are not spared from these pressures. As pointed out by McKenna (2006) in a business environment where the income of these consultants fully depends on their individual activities, they,, as well, are subjected to difficulties of getting assignments, reacting to activities of the competitors and meeting the demands of their clients, and offering solutions on financial issues that could result in pressure between business demands and ethical principles. And maybe, as McKenna (2006) says, it is worth noting that this aspect happens in an industry that is not entirely free of externally observed and generally accepted unethical conducts. Conclusion In the consulting industry it is clear that some consulting companies have a corporate culture and values that seem to encourage unethical practices in name of meeting clients’ demands, pressure from external forces and as a response to competitor activities. The recent financial crisis exposed the manner in which unqualified auditors knowingly or unknowingly gave good financial reports, yet the financial institutions they were representing were in a bad financial position. The effects of the collapsed corporations such as the Northern Rock and Enron are still felt until now. However, to inculcate ethical practices in consultancy industry, there is need for more regulations to seal the loopholes that are exploited by some firms and to increase accountability and independence within the industry. . References: Beck, U. (2005): Power in the Global Age. Cambridge: Polity Press Committee on the Financial Aspects of Corporate Governance (1992): The Financial Aspects of Corporate Governance (Cadbury Report). London: Gee. Craig, D. (2005): Rip Off The scandalous story of the management consulting money machine. Original Book Company: London. Craig, D. and Brooks, R. (2006): Plundering the Public Sector, London: Constable. Feldman, S. 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