Barry Ritholtz at the Big Picture has a great piece that asks, "Is McKinsey & Co The Root of All Evil?" This is the managment consultancy that advised AT&T (Bell Labs, a subsidiary, invented mobiles) that there wasn’t too much of a future in the whole mobile thing. Well done lads! Oh and yes, as TBP highlights, our brave boys popped into Enron before it blew up, their advice to General Electric cost the best part of a billion and amongst other crackers their advice to NY to aggressively underwrite more derivatives business to compete with London almost resulted in the entire financial system being blown back to the stone age. You genuinely couldn't make it all up.
In a rational world companies would be forced to issue a profit warning just as soon as these idiots turn up. As a business model though, it takes some beating. They arrive in the place of work, are given carte blanche access to years of experience and intellectual property by the companies board and then having sucked the brains of the clever and creative people dry, they then write a report. Then, they move on with all that intellectual property which would otherwise take decades to build. It's an insane system from the clients perspective.
This of course, is a subject best discussed at length with a decent claret. Sharp knives and firearms however, should be kept well away from the participants lest rage overcome them and they either stab themselves in frustration at the stupidity of companies that hire consultants, or they rise from their chairs and attempt to seek out these arrogant miscreants who’s presence in a company is not dissimilar to the effect enjoyed by SE Asian jungles being sprayed with Agent Orange.
Usually, the consultants are called in by the CEO or Chairman of a company largely on the basis that the boss needs some intellectual basis to help him persuade his board to agree to a decision that he’s already made. The boss simply calls his chum from the consultancy who he shared a room with at College who then dispatches some 25 year old minions to examine the problem, largely ignore what they are told by the company’s own experienced experts, and who then present the pre ordained report to the board. The same rules largely apply to the CEO’s investment banking advisors with whom he was also probably at school with.
Obviously, it’s not easy to have an enlightened view like my own unless you have first hand experience of how these genius’s work. Don’t worry; I’m here to help. While working for an investment bank I welcomed the presence of the 25 year olds on my trading floor with the unbridled joy I would normally reserve for a diagnosis of genital warts. Actually, these boys did listen for the three weeks they were with us and disappeared to write, much to the boards horror, a not unfair commentary of the business. Unfortunately, they somewhat carelessly forgot the original instruction and were sent away to redraft it.
A reasonably profitable and healthy, if somewhat vanilla, business was then shut down and assets redeployed to New York where apparently there was a lot more money to be made, “in the mortgage business.” Yes, German banks and consultants from New England really can be that stupid.
It should be a mandatory for any public company hiring consultants to give full and timely disclosure to the market to give wiser, if battle weary, shareholders the chance to get out of Dodge before the next weapons grade cock-up.