Ethics in the Consultancy Profession

Ethics in the profession of consultancy

Introduction: You will find multiple reasons why individuals and organisations take the help of a advisor. Organisations resort to the practice regularly since the complexities of doing business are rising with regards to competition, new marketplaces, laws and regulations, technology etc. Sometimes companies have their own consultants or they seek the assistance of professionals qualified in their chosen field. In a nutshell a advisor is somebody who is trained to advise anyone who approaches him. This means that that there must be trust in the client towards his specialist and the expert on his part shouldn't do anything to misuse it. Quite simply the specialist is expected to respond ethically toward his client. Ethical behavior means a code of carry out with the belief that what's done is right with reference to own values, religious beliefs, legislation and what is generally accepted by the modern culture.

Ethics out there of consultancy

One of the very most respected specialists on moral consultancy is Peter Stop who is a consultant himself. He has authored a number of books including the widely acclaimed 'Flawless Consulting: A Guide to Getting Your Expertise Used'. Mr. Block has given several recommendations that are expected to be always a part of the code of conduct of a consultant. The most essential element relating to Mr. Stop is of the opinion that the advisor always tells the truth even if it's unpleasant to the client. The trouble numerous consultants today is that they pressure the clients to believe in their point of view by behaving clever. It ought to be noted that the client may have his own viewpoints which may be relevant and the consultant is expected to review that before advising your client. Such behavior for the client will make him skeptical of the expert and the level of trust or beliefs in him will diminish. Clients see right through the fast dialect and persuasion techniques and, as a result, their level of skepticism rises. Instead, consultants should be who they are and inform the reality in a caring way, which will establish the balance that leads to a trusting, fruitful relationship with the client (Meet up with the MasterMinds: Flawless Consulting with Peter Block, Management Consulting Information). http://www. managementconsultingnews. com/interviews/block_interview. php. The author is of the judgment that the role of consultancy has improved over time. Consultancy organizations have grown in proportions and the role they play is more of the administrator than an advisor. They conclude taking the duty of doing the responsibilities they advise the customers in the first place. Exactly what will happen in this case would be that the consultants become a part of the client firm. They loose the freedom that is vital for a specialist because of the guidelines and organizational politics that exist in the client organization. Mr. Block says that this situation came about not since it is a part of consultancy but since there is money in performing such duties for the client. Another area of matter regarding ethics is the lack of accountability for the consulting industry. He consultancy companies have their own models and methods which they force it on the clients. There is no negative impact in this industry even if the models do not work. The fact is that the customers themselves attended to simply accept such a behavior for the consultants. Sometimes the specialist will consent to the client's point of view totally without voicing any disagreement just to keep the client happy. The consultant may give advice on issues that are beyond their area of expertise. Clients are usually willing to listen to the advice with their consultants totally. This might prompt the second option to overemphasize their point of view, thereby bringing damage to the client. A similar situation could also result in a proper study of the issues on the part of the consultant. It could also happen that the client did not disclose all necessary information so that the consultant will offer advice which is suitable to your client. The expert may disclose comfortable information of your client for personal gain. Sometimes the consultant may use your client as a tests ground for a few new model or technology that the expert may have developed or purchased. The consultant may also disclose confidential information given by the top of the client business to other people of the management in the belief that it can help them to solve a problem. The above mentioned information was those distributed by experts and clients who noticed that these are instances of unethical habit by consultants. It can be seen that such tendencies occurs also due to attitude of the client into the consultants. Some of the instances occurred because it was your client who made it possible.

Example

The best exemplory case of unethical consulting tendencies recently entails Arthur Anderson Consultants and Enron Organization. The collapse of the multinational giant resulted in huge losses because of its average shareholders and the increased loss of huge amount of money of pension funds which were very valuable to its employees. Hundreds of men and women lost their careers, creditors lost their money and many were damaged in other ways. Arthur Anderson Consulting, that was well known across the world as practitioners of high ethics lost face and exists and then clear the many litigations against it. This particular situation is because greed, non-disclosure of facts by Anderson Consulting for fear of losing your client, in cases like this Enron Firm and the specialist moving out of its real specialization that was that of accountants. The fact was that Anderson had two past audit failures prior to Enron. Both companies included were Waste material Management and

Sunbeam. The company had to spend $110 million for litigation costs. In the case of Enron, the company got appointed Anderson's consultancy division for an extremely large fee. It had been because of this that Anderson's were required to go with the crooked accounting procedures of Enron for concern with losing that accounts. There have been also another factor included. Enron's impressive progress during its preceding years made them arrogant. This led to a number of growth plans which were not possible. Enron's growth projects including its property light policy did not proceed as expected. The end result was that Enron possessed stakes in a number of loss making concerns. If the figures were to be disclosed in the business accounts, Enron would need to report a damage and the worthiness of its shares would fall. The company falsified the losses of these companies by expressing that they were hedged by another company. The truth was that it was Enron itself that placed bulk stake in the hedging company. This move resulted in the company exhibiting excess earning of 1 billion dollars over 2000 to 2001. The company acquired also misappropriated money by creation of certain companies like Chewco, LJM1 and LJM2. The formation of such companies led to huge against the law financial gains because of its past CEO and certain employees of the company. Based on the statement by the Special Inspection Committee of the business formed immediately after the company filed for bankruptcy, ex - SEO Andrew Fastow received 30 million us dollars from this package. The company also found other solutions to falsify its accounts. For this purpose, Enron created a separate entity called Special Purpose Vehicle or Special Goal Entity (SPE). Such entities are usually created for executing certain accounting duties subject to legislation. Enron could treat the SPE as it were a totally indie company. Two conditions in developing the SPE were met by Enron. They are really that an unbiased investor should spend at least 3% in the resources of the business and that the indie investor should have control over the business. Another investment in a business called JEDI (Joint Energy Development Investment Collaboration). In order to avoid showing the deficits of the company in the company accounts, the then Enron CEO Fastow certified Chewco to invest in a 3% stake in the SPE. The business, when reviewing the problem along with Anderson later in 2001 discovered that the investment in the SPE didn't satisfy the guidelines. They made a decision to change the already printed figures by adding JEDI in Enron accounts which resulted in a massive reduction income and a huge increase in debt.

The question is what role does Anderson have in the whole affair. Studies from the Special Exploration Committee indicate that the accounting techniques were done on the advice of Anderson. In practically every one of the transactions, Enron's accounting treatment was determined with extensive contribution and structuring advice from Anderson, which Management reported to the Mother board. Enron's records show that Anderson billed Enron $5. 7 million for advice regarding the LJM and Chewco trades alone, above and beyond its regular audit fees. (Summary of Studies, William J Power, Page 5, February 1 2002, Article of Investigation by the Special Investigative Committee of the Plank of Directors of Enron Corp). http://files. findlaw. com/news. findlaw. com/hdocs/docs/enron/sicreport/cover. pdf

It is seen that Anderson acquired played a component in advising and assisting to falsify accounting practices of Enron Company. Both its auditing and consultancy divisions were responsible and had behaved in an exceedingly unethical manner.

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