- ABCs of strategy consulting
- 31 May 2017
- Lu : 2343 fois
European economies might well be recovering, and some – such as the UK’s – might even be regarded as growing. But while this overall healthier picture is promising, it hasn’t stopped individual companies succumbing to collapse and eventual liquidation. So where do consultancies fit in? Peter Crush investigates.
Alix Partners is one strategic consultancy that has been particularly busy of late – recently announcing it was handling debt recovery on behalf of creditors owed more than £20million by bankrupt lingerie giant Agent Provocateur. It’s also handling the administration process for fashion chain Jaeger and last year the consultancy was involved with the administration of high street tailor Austin Reed.
Involved in what is euphemistically called ‘turnaround’ (even though 55% of US retailers filing for bankruptcy actually end up in liquidation1), this type of work has grown considerably in recent years. It’s because it requires experts in their field, outsider that are able to find solutions company insiders may not see. In short, impartiality in such work is regarded as sacrosanct.
But for strategic consultancies – the theoretical ideal bedfellows for this work – this also creates a problem – namely not being allowed to be both advisor in the good times and be caretaker when things go wrong. How much of this is this a problem for strategic consultancies keen to do this activity, and are there ways around it?
In the UK, it’s certainly the case that tough codes of ethics (laid down by groups including the Turnaround Management Association) require that advisors must ‘strive to remain independent of other associations that could be considered a conflict of interest or which compromise his or her judgement or appearance to do so.’
Although outwardly clear, issues do still arise and can be thorny. In 2014, after an 18-month investigation by the Insolvency Service, three Deloitte partners were investigated for accepting their appointment as administrators at failed electronics giant Comet, despite being having been restructuring and turnaround advisors to the same business prior to it filling for insolvency.
At the time Deloitte said: “We strongly disagree with the suggestion of a conflict of interest,” adding: “It is not unusual for an administrator to be appointed to an insolvent company following a period as an adviser.” In fact, rather than having prior knowledge of the business being deemed wrong, Deloitte actually argued the reverse, saying: “Having knowledge of a company’s financial and commercial challenges is generally beneficial to all creditors and employees.”
Deloitte (which also handled the administration of video and DVD rental business Blockbuster), along with law firm Freshfields Bruckhaus Deringer are two of the UK’s big players alongside AlixPartners, but it’s no surprise these are legal outfits first and foremostly, while the main names in strategic consultancies – like McKinsey, Boston Consulting Group and Bain are less involved here.
There are plenty of reasons why. Not only are there worries about conflict, when dealing with liquidation, it’s an end-game contract; ie there’s no prospect of any ongoing work to be had that a growing business would present. Moreover, there are understandably concerns that administrators will themselves get paid if they are dealing with a failing business.
Earlier this year, AlixPartners itself pulled out of dealing with the collapse of King & Wood Mallesons (which had debts of £35 million), because of ‘’concerns about funding.’ The only way firms seem to have solved the conflict question is by having heavily ring-fenced separate units.
McKinsey does have a transformation sub-brand, called McKinsey RTS (formed in 2010, with European presence in London, Düsseldorf, Madrid and Paris), however even this had not been without its difficulties. Last year, it was in court in the USA seeking to protect revealing the names of companies it works with.
The eventual ruling declared the unit must share the names of more than 100 clients with a judge, but not with the public. It was a half-way house. Opponents actually wanted McKinsey to disclose whether it also has consulting relationships with creditors who may be sitting on the opposite side of the table. Consultor asked to speak to representatives from McKinsey RTS, but they did not respond to our efforts.
So, knowing whether things are likely to change is a moot question. AlixPartners began life arguably a liquidation specialist. More recently it has announced that it wants to transition away from this, and move into the more generic strategic consultancy that the other firms do. Perhaps one has to conclude that this is the easiest, and perhaps only transition to make (moving from liquidation to strategic consultancy territory) than a generic firm being able to move into the liquidations side of consultancy. Sometimes, established consultancies really can’t do everything.
Peter Crush for Consultor.news
Freelance business journalist