The Code of Conduct

Best practices for the consulting industry requires that consultants maintain ethical and professional relationships with their clients. This could mean reporting conduct violations be they operational, behavioral, financial or otherwise to the appropriate regulatory organization. It could mean withholding confidential information from an employee who would appear to be interested in trading on insider information. In general, it is advisable for the consultant to maintain some distance from the client
– avoiding internal politics being one such example.

Doing business in the real world

Too often consultants not only fail to maintain some distance from the client but engage in unlawful or unethical behavior in cahoots with the client. There have been many scandals in which the consultant has been caught out aiding and abetting the client with their malfeasance. One such example took place perhaps a decade ago involving the Enron Corporation in which consultants assisted the client with the manipulation of their books and records. The consultants were ultimately found guilty of collaborating with the client with their malfeasance and were deemed as a culprit.

The reality of getting and keeping a client from the perspective of the consultant

β€˜β€™He who has the gold makes the rules.’’ There is a lot of truth to this statement. The business world is filled with consultants and the client knows this. It is for this reason that if the consultant obtains an engagement, he is generally eager to please the client so that he will be asked back for another assignment. He is loath to be confrontational and turning in his client for regulatory malfeasance or ethical violations would require not only a brave consultant but something he is not eager to do as it would end his professional relationship with the client. The consultant is more likely to refuse to participate in the malfeasance or to simply look the other way. In the real-world consultants generally go along with the client. Following the Enron scandal, the Securities and Exchange Commission along with other regulators created new rules separating consulting from investment banking with the intention of reducing conflict of interest.The thinking at the time was that when consultants and investment bankers represent two firms, they would automatically be able to wink at malfeasance. Whether this new law succeeded is one of debate.

In Conclusion

How issues involving conflict of interest are handled in the real world depend upon several factors: how strictly the regulators enforce the law; the incentives for legal and ethical conduct versus the incentives for moral hazard; and human nature since it is hard to resist the temptations of money and power versus professional obligations to observe the code of conduct.