Big Cons: How Consulting Firms Undermine Governments and Corporations

Yves here. A new book, The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies, Mariana Mazzucato and Rosie Collington, proves a thesis I have long believed but didn’t have enough evidence to argue: that management consultants set out to create client dependence, which results in them becoming less rather than more capable. I joked back when I was at McKinsey that the business model was to invade at the fingertip and go for the brain.

At least as this post describes the book, most of the examples come from disastrous assignments for governments. That makes sense because they are far more visible than private sector train wrecks created or made worse by big consultants. For instance, how many know that one of the most disastrous mergers of all time, Time Warner buying AOL, was not just a brain child of McKinsey, and the firm was so eager to see it get done that it pushed the board to approve it on five separate occasions? As you might infer, the board managed to say “no” only four times.

Although I can’t prove it, I also hold big management consulting firms, particularly McKinsey, responsible for the spread and ultimately pervasive use of slide presentations, which dumb down thinking and analysis. When I came from Wall Street, the professional firm content Goldman consumed were memos, sometimes legal opinions, and of course deal documents from law firms, all in text for avoidance of doubt. I was shocked that McKinsey could get away with a slide deck as a finished client product, when it was inherently incomplete (additional discussion was inevitably necessary) and no one would be sure what it said in six months. I soon realized that was the point.

By Ong Kar Jin and Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Jomo’s website

Greater government reliance on consulting companies has greatly enriched them while also undermining state capacities, capabilities, national economies, progress, governance and legitimacy.

The Big Con

Over recent decades, policy consultancy has gradually gained more public attention. With the COVID-19 pandemic, consultancies were paid billions, with meagre results, leaving even less for millions of others desperately struggling to cope.

In The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies, Mariana Mazzucato and Rosie Collington explain how consultancies persuade governments and corporations to use their services, with problematic consequences.

Many argue that governments and corporations need such expertise as they cannot be expected to be good at everything, let alone familiar with the latest trends and challenges. Others argue consultancies provide much-needed second opinions, especially when organisations have lost their capacities and capabilities.

The Big Con argues their clients rarely get what they most need. Heavy dependence on consultancies also compromises accountability and retards needed innovation. Consequently, governments allow their capacities and capabilities to deteriorate, with consultancy firms profitably filling the gap.

‘Voluntary’ Dependency

The Big Con provides many examples of problems arising from becoming “overly reliant on expensive contracts”. These include McKinsey’s role in France’s bungled vaccine programme, and Deloitte’s in the UK’s botched Test and Trace programme.

Consultancy firms have taken over many public services in France. The trend began in 2007 when Nicolas Sarkozy became president, promising to “make the French state cost-efficient”. His government gave 250 million euros ($269m) in contracts to management consultancies like McKinsey, Deloitte and the Boston Consultancy Group (BCG).

Under Emmanuel Macron, consultancy firms received 2.4 billion euros ($2.6bn) in government contracts in 2018. They have become involved in various public services, including France’s COVID-19 vaccine rollout and controversial pension reforms.

The UK spends more on consultants than all countries other than the US. Rather than have its National Health Service involved in its test-and-trace programme, ministers and civil servants turned to consultancies. At one point, over £1m was spent on consultants daily, with some ‘senior’ advisers billing over £6,000 per diem!

One consultant confessed, “It just seemed like every project had loads of wandering Deloitte people … the sheer volume of them that were around created the situation of these zombie emails just arriving all the time … taking our attention away from actual work.”

As its bankruptcy proceedings started in 2016, Puerto Rico hired McKinsey to advise a US federal oversight board. The team, led by recent US Ivy League graduates, was to prepare an ‘aspirational vision’ for the US island territory. Its recommendations included privatising state-owned enterprises, ‘rightsizing’ job cuts, and reducing social, especially labour protection.

While consultancies are often touted as involving experienced experts, most client governments, especially from developing countries, often host young graduates of reputable institutions, mainly adept at using the latest jargon and making impressive presentations.

Losing Capacities and Capabilities

Most governments have not tried hard to enhance their capacities and capabilities, e.g., to develop their public information and communications (ICT) or digital technology expertise. Instead, they ‘outsource’, depending on consultancies, even for sensitive strategic policy matters.

A book review suggests, “One also cannot help but gain the impression of the big consultancies as vultures, feasting on calamitous challenges like Covid-19, Brexit and climate change. Meanwhile, they pose as disinterested and expert helping hands.”

Management consultants are increasingly widely used by both governments and corporations, giving the impression of expert authority for mooted reforms. As a British minister noted, governments have been ‘infantilised’ by relying on management consultants.

The Big Con notes, “The more governments and businesses outsource, the less they know how to do.” Consultancies have eroded government and business capacities and capabilities. The presumption seems to be that clever young consultants, coming from abroad, know much better than experienced employees, and “knowledge can be purchased, as if off a shelf”.

So why have governments accepted all this? As the book’s title implies, successful consulting requires gaining customers’ confidence, e.g., persuading them that consultants have the answers, regardless of whether this is true.

Some decision-makers also simply want to be able to pass on responsibility for policy solutions, as it is generally politically easier to blame an external party, e.g., consultants, than to take responsibility. This is especially useful if policy recommendations are likely to be unpopular, e.g., involving downsizing or cuts.

Growing Con

The Big Con notes that a con gains momentum with seeming success. The authors argue the bigger the consultancies and their scope of work, the weaker governments become. As governments lose confidence in their own abilities, consultancies become the default solution.

Some governments have become so taken with consulting that they have set up ‘internal’ consultancy arms, e.g., Malaysia set up PEMANDU, PADU and other entities for this purpose. This is part of a wider trend of increasing corporatisation of public institutions to pursue ‘efficiency’.

Perhaps urged by major donors, the United Nations Development Programme (UNDP) has championed ‘entrepreneurship’, ‘impact investing’ and ‘accelerating social enterprises’ in recent years. It now has labs, team leads, and strategic innovation units, all spouting corporate buzzwords.

This turn reflects growing faith in what Daniel Greene terms the ‘access doctrine’, i.e., the belief that poverty and other social problems can be simply overcome by new technologies and technical skills, regardless of their complexities. Policymakers increasingly embrace and proselytise such technical fixes, ensuring consultants’ status as the cult’s new high priests.

Threatened by fiscal austerity and criticisms of being obsolete, public institutions increasingly embrace the access doctrine. They shift resources to foster ‘startups’ or ‘accelerating innovation’ to retrieve legitimacy and secure much-needed resources as public spending is threatened by fiscal austerity.

By redefining poverty as a problem of technology access, consultants reframe problems as seemingly more manageable for staff, politicians, other decision-makers, donors and others. The technological fix fetish has provided a powerful rationale for cutting social protections, replacing them with upskilling programmes and entrepreneurship ‘boot camps’.

Neoliberal Consultancies

With the counter-revolution against Keynesian macroeconomics and development economics, policymakers embraced ostensibly market and private solutions from the 1980s.

As state-owned enterprises were privatised, the public sector was expected to function like businesses. Governments embraced ‘performance-related pay’ and cost-benefit analyses to promote private sector values in the public realm.

After Margaret Thatcher became UK prime minister in 1979, her party chairman declared: “The management ethos must run right through our national life – private and public companies, civil service, nationalised industries, local government, the National Health Service.”

Such policies were mimicked in many developing countries, either for access to concessional finance or voluntarily, as the Washington Consensus gained hegemony in policymaking circles. The consultancy cult’s osmosis into public institutions in recent decades as well as its more novel recent iterations are their consequences.

The book ends with a call to change the role of consultancies, arguing they have caused the public sector to become less capable and innovative. Investing in public sector expertise will be necessary to retrieve the space ‘voluntarily’ ceded to ‘the big con’.

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  1. t

    Nice. I hope the book also spends some time on “consulting” being the guise for doing whatever fast and short term thing you had planned, but couldn’t announce without facing torches and pitchforks.

    1. Reply

      Investment banks like Goldman referred to clients as muppets.
      What do consulting firms say, even if the clients are in earshot?

  2. Colonel Smithers

    Thank you, Yves.

    I would say both businesses and governments are weakened and infantilised. The big banks that I have worked and work for are.

    These engagements are often corrupt. For example, two former employers wanted customer due diligence remediated. The in house teams bid lower, but external bids from two consultancies, including one fronted by former colleagues of executives, won. One in house team leader objected, so she was fired on charges of not being a team player. Banks in particular are carcasses to be fed on by these vultures.

    McKinsey is crawling all over Whitehall and Brussels.

    The European Commission hired McKinsey to advise on and police the 2008 bank bail-outs. When one bank protested that McKinsey that not only was McKinsey involved with its restructuring, but was using confidential data to trade, the Commission felt unable to act. No one wants to cross McKinsey.

    McKinsey’s former head of financial institutions, Charles Roxburgh, became the No 2 official at the UK Treasury. His wife, Karen Pierce, is ambassador to Washington and was at the UN.

    James Kelly, the husband of client journalist Laura (von) Kuenssberg, spent the coalition years on secondment from McKinsey as an adviser to David Cameron. In that period, his wife was ITV news’ business editor and the BBC’s political editor.

    The joke about British PMs since Thatcher is that none understood how complex systems, whether business, the economy or government, worked, so they fell for the slogans and power points. Readers may quibble about Sunak and say he was at Goldman Sachs. He was in the bottom decile of performers that are culled periodically and, having married an oligarch’s daughter he met at Stanford, was hired by hedge funds keen to woo the emerging oligarchs for subscriptions. Client journalists won’t report this stuff.

    Marianna Mazzucato was an adviser to the Corbyn leadership. Her books are well worth reading.

    1. ChrisPacific

      Yes, the revolving door definitely applies in management consultancy, and at the high end of IT consultancy as well sometimes. These firms are extremely well connected politically and are able to work the levers of power to their advantage.

      I was once part of an ongoing project with a small development shop doing a phased delivery of a Web site for a large client. Everything was going really well, the client was happy with our work, and the site was everything that they wanted. Then suddenly the contract just stopped, and wasn’t renewed again. The reason? Another big project had ended, the company’s consultants from Andersen (still Andersen at that time, although they later rebranded as Accenture) were in need of something to do, and our project was a convenient target. Our stakeholders were unhappy about it, and said outright that they would much rather keep working with us. But Andersen’s connections were way above where we operated, right at C level, and we just weren’t on the radar.

      I later learned that the Andersen consultants had their own offices there, with nameplates on the door and everything.

    2. anaisanesse

      I well remember the extremely rude and offensive behaviour of Karen Pierce when UK’s Rep to the UN during the Skripal saga of 2018.

  3. ciroc

    This trend is not surprising, as I have long wondered why neoliberal governments do not privatize themselves. After all, head of state and head of a company are the same word.

    1. digi_owl

      Because the nation is the infinite money through.

      And keep in mind that the real power of company resides with its board of directors. It decide who to hire as CEO and when to fire same. When you see a company turn the CEO chair into a hot seat, flee. As that suggests the board is filled with short term raiders.

  4. juno mas

    State and local governments have intentionally “dumbed” themselves down. In the past they had numerous professional staff (architects, engineers, planners,etc.) on staff to produce or interface with consultants on special (rare) projects. Today there are few experienced (knowledgeable) professional staff to intersect with slick talking consultants while planning or implementing government projects. On-staff professionals are considered too expensive. (I speak from experience.)

    An example: my town engaged an outside consultant to propose a solution to coastal lagoon (man-made) that had become seasonally smelly from eutrophication (urban runoff). The consultant proposal was to lower the outlet of the “lagoon” by building a new, lower outlet that would allow the polluted waterbody to drain. The consultant fee, alone, was $900K. Construction costs for the new outlet on top of that. Unfortunately, the new outlet did not lower the lagoon water level and allow sea water flushing. Because outlet of the lagoon is controlled by the adjacent coastal sand dune and diurnal high tide, not the expensive new outlet structure.

    Typical of US fiascoes, there were no repercussions at the top for this abject failure.

    1. digi_owl

      I so much wonder how all this comes back to accounting practices, with how staff show up as an ongoing wage expense while consultants only show up “when needed”.

      Maybe they can even foist the consultancy fees onto a third party as part of some paperwork requirement.

      1. Steve of plainfield

        I can 100% say that in my experience this is a factor. Wages of on staff employees are an expenses that has to be paid for out of an annual budget. Consultants are part of a “project” can be paid for out of a capital improvements loan/bond/ect. Additional incentives are of course the donations of the private consulting to campaign funds, connected non profits that have well paying professional and board positions for the political class and positions in the consulting firm itself.
        In a related story from my life A guy that was at of the end of his career when I was just starting in the late 90’s told me how the DOT worked back in the late 50’s, 60’s and early 70’s. Supervisors were told how much cash there were to collect from their employees to donate to the party in power every year. Don’t meet the goal and you’re no longer a supervisor so you collect with the same threat to your direct reports. When that was found to be illegal the majority of design work was done by consultants by the early 80’s.

  5. Laura in So Cal

    I pretty much had a hate-hate relationship with outside consultants in my previous life as an accounting/finance professional at a mid-sized publicly traded company. We had consultants for new software implementations and for processes to comply with new regulatory requirements or accounting standards (SOX, ASC 606, etc).
    Generally everything they did was over-engineered but strangely error ridden, hard to maintain, and not robust. The KISS principle was totally ignored. Those of us who actually did the work were left with a mess when they left.

    The only “consultants” that were mostly effective or helpful were company employees who were trouble-shooters who would work at a site to implement a new process and then go to another site and do the same thing. They were around long enough to be accountable for their results.

    1. lyman alpha blob

      Do you work for my company? ;) New accounting system currently going in which we’ve hired consultants to implement. With their advice, it was decided to turn the thing on with no testing ahead of time, and we’ve all has the distinct pleasure of trying to work in an error ridden, hard to maintain, non-robust system for almost a year now while they’re trying to fix all the errors at the same time. We took a robust system that worked well and replaced it with a Rube Goldberg machine. Modernization!

      In honor of those consultants, I know have a copy of this pinned by my desk, which nicely sums up the whole post above –


      If you’re not a part of the solution, there’s good money to be made in prolonging the problem.

      1. Laura in So Cal

        Hah! I spent over 2 years dealing with a software solution that integrated into our SAP ERP system to comply with the Revenue recognition requirements of ASC 606 (stupid for our company which mostly manufactured and repaired hardware, but a great way to artificially pull Revenue to the left time wise.) Nightmare from Day #1. In the 2 years, we managed to fix all the big problems, but they were still discovering new smaller problems that had been hidden by the bigger ones at the time I left.

        Exactly as you said, lets take something that mostly works and that we understand and crapify it.

          1. Laura in So Cal

            The core programming of SAP is super solid and very robust from my experience, but it requires lots of precision inputs and coordination (aka lots of staff) for it work as intended. It is also the least intuitive ERP software I ever used so lots of training for new people is required.
            However, the newer programming and add-ons don’t measure up to the original core functionality. I suspect the same lack competence and follow thru compared to 30 years ago that we’ve prevoously discussed here at NC.

      2. digi_owl

        “We know the transition to the new software have been painful due to clashes with company procedures, so now we are changing said procedures to match the software” as one comic strip punchline put it.

  6. Another Scott

    Very useful post as usual. A couple of thoughts.

    First, it’s not simply the management consulting firms that have contributed to the reduction in government capability. I have seen a large rise of Project Management Consultants to lead large infrastructure and similar projects. These organizations do the jobs that used to be done by civil servants, but providing the government with less control and additional costs. I suspect that like the management consultants, these organizations want to maximize their revenue from their clients by creating dependency.

    Second, I have consumed a number of McKinsey and similar presentations and boy are they bad. It’s hard to follow what they say and there is simply too much information on each slide with little actual flow or insight. For the money spent, I would have expected a better product. A coworker told me that these presentations were the product of a number of people’s work, often across the globe. My theory is that such presentations are a lot easier (and cheaper) to produce than having one or two people synthesis information and prepare a concise, written summary.

    1. ChrisPacific

      On the subject of consulting in the delivery area, this is a very common consequence of government changes and particularly of conservative governments (here, at least). They often come in with a lot of rhetoric about eliminating government waste, so they cut budgets and reduce headcount, but without any corresponding reduction in core services or work programs. In fact they often layer on extra, because they often have policy changes they want to make, and in IT at least any kind of change means work.

      This is finessed via OpEx/CapEx. If you have an ambitious policy program requiring all kinds of system changes that’s going to take two years to deliver, you allocate funding for it as part of the legislation, and that forms a separate bucket of money. But the department can’t go out and hire new permanent staff to deliver that, because they’re supposed to be lowering costs, and permanent salaries go to OpEx. So they go to market, and bring in either a consultancy or a patchwork of short term contractors.

      Typically the lines get increasingly blurred after that. A bunch of OpEx stuff starts bleeding into CapEx – stuff that wouldn’t normally get done because of cost reduction, but Big Project has a dependency on it to complete – so permanent staff end up working on Big Project as well. Also while Big Project is supposedly time limited, there are others going on too, and government will probably come up with some other things they want done after – and of course any election usually means a big new change program. So the supposedly temporary staffing arrangements end up being not so temporary. When I worked in government (as a contractor myself) I would routinely discover that people who had worked there for many years and were key subject matter experts with all kinds of irreplaceable knowledge were actually contractors or consultants, and not employees at all.

      All of which is to say that the sector naturally creates its own conditions for exploitation by predators. Even for the ones in the trenches honestly trying to do the right thing, the incentives are all messed up. I tended to take the “teach a man to fish” approach because I felt part of our job was to leave clients better off than we found them, but my employer didn’t like that because it didn’t create dependency (called ‘repeat business’).

  7. lyman alpha blob

    My town had a proposal for a footbridge at a five way intersection with little foot traffic several years back, and there was talk of spending five figures on consultants to perform a “feasibility study” for said project. I noted that it was definitely feasible to build a small bridge, but since there was so little foot traffic at the intersection to begin with, there really wasn’t much point in spending millions on a project that would benefit very few people. I gave that advice at no charge. So far nobody’s built a bridge. I really need to start getting paid for this valuable work.

  8. bassmule

    In my brief career as a food indutry consultant, the point was to find a way to justify what the client was going to do anyway.

  9. hemeantwell

    ” I joked back when I was at McKinsey that the business model was to invade at the fingertip and go for the brain.”
    Nice one, Yves! Among psychoanalysts the concept would be “extractive introjection,” coined by Christopher Bollas. Examples are too easy to come by, starting with the exploration-oriented child who is made to feel that they are incapable of anticipating and handling problems and so become all the more dependent on the parents, at the ready with a helicopter in the driveway.

  10. stefan

    Thirty or so years ago, I had a friend who was a management consultant at McKinsey’s, and she told me that basically what she did was go downstairs and talk to the guys on the shop floor, and then go upstairs and repeat what they said.

    For example in the 1980s, my lawyer brother-in-law represented Pullman when the subway carriages they built for the NYC-MTA were cracking. When he talked to the guys on the factory floor in Chicago, they said, “We told them this would happen, but our MBA beancounters wouldn’t listen.”

    If management would just listen to labor, they could figure most things out.

  11. Willow

    Consulting firms are like cuckoos – once they get into a organisation they push out those with expertise, leaving the consultant cuckoos being fed by unsuspecting management.

  12. notabanker

    I am not at all going to defend Management Consultancy firms, in particular McKinsey who is by far the worst of the lot. But most of the criticism here and in the comments should be directed at BOD’s , C-Suites and Governments for not doing their jobs.

    You cannot hold a consultant firm accountable for the true risks of any engagement, and anyone who argues otherwise has never read a consulting contract. Therefore, you never hire a consultancy to be responsible and accountable for core corporate or government functions / decisions / strategies. If you do, you are in violation of your fiduciary responsibilities the day you sign the contract. You hire consultants to provide advice, or otherwise do things that you cannot do yourself, like gather intel on competitive industry practices. What you choose to do with that advice is up to the BOD or C-Levels who get the advice. Every single engagement that jobs out the full execution and accountability to another firm fails miserably and has zero chance to succeed. Seen it happen hundreds of times.

    Conversely, C-Suites that use them for the purposes intended and take full accountability for the outcomes of their decisions often benefit greatly from using them. I’ve also seen specific instances where the work of a consultant firm is so bad/controversial that C’s and BOD’s will throw them out and take the exact opposite path recommended and be much better off for having gone through the exercise.

    If you let these firms into the org’s brain, it is your own fault and you likely have extremely weak management. Size of the firm, or even perceived success, is not relevant. Some of the largest firms in the world have the absolute worst management teams. AIG? Credit Suisse? Barclays? The latter has BCG in there now advising them on how to continue to mismanage their Investment Bank, for like the 10th year running. Ever since they fired Diamond, they have not had a clue about how to run an American IB. And yet every 2-3 years they are back telling the Street about their latest strategic plan to allocate or not allocate capital to a losing business. Guys, here’s a clue, it’s not about capital allocation. I wonder how much they are paying BCG to tell them otherwise.

    Again, not at all letting the consultants off the hook. If you hire someone to burn down the neighbors house, sure the arsonist is guilty, but he wouldn’t have been there if you hadn’t hired him to do the job. For me, this story is more about the absolute corruption of neoliberal capitalism. YMMV.

    1. Yves Smith Post author

      It appears you are unfamiliar with a well-established legal doctrine that allows top management and boards escape liability for their actions if they are relying on expert advice. The obvious version is the use of fairness opinions in mergers. No shareholder can charge a board with paying too much if they got a fairness opinion.

      In addition, Bain sends huge teams in and takes over substantial parts of company management. That is their business model. Once in a while, McKinsey does the same.

  13. Mickey Hickey

    I worked for three national governments two in North America and one in Europe. My take on why consultants are popular with politicians is Political Campaign Contributions as a form of kick back. Perfectly legal and easily covered up. In my experience most corruption is legal. Canada in my opinion had governments that were the most above board. I have dealt with civil servants dealing with logistics for private sector companies in my twenties, Nigeria and India take the cake they made the South Americans look like saints and scholars.

  14. Michael Dowd

    I was in charge of a major inventory project at one of Big Three auto companies. The project was sold to top management by the consulting company, a project that I suggested to them several months earlier. I was put in charge of the project and the consulting company was hired at $300,000 per month. Soon it became evident that the consulting company was hindering, not helping with 20 their part time, young, elite school graduates. After a short while I stopped paying them. They complained to top management. I was able to explain to management that they were not needed. It took over a year to get rid of them.

  15. Altandmain

    There’s a case to be made for very specialized consultant, such as in fields like engineering, production consultants, and other very specialized skills, but these “management consultants” have become a rent seeking drain on the industry.

    One major impact is going to be that the Western nations are going to be less competitive than the rest of the world. They will have to pay a lot of management consulting fees to a company that is weakening their abilities, rather than adding value. The same is going to be true of Western governments.

    If the Asian nations are able to avoid the extent of this management consulting drain, it will give them a long-term competitive advantage.

    As far as governments, they need to take a serous look at bringing some of their work back in house. Of course this would mean a reversal of neoliberal policy, which the rich will resist.

  16. scott

    Am i incorrect in understanding that accounting firms became consultancies because they knew where the money came from?

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