Rise of consultant nation
“At a top firm, a new consultant with a graduate degree typically makes $1,50,000 to $2,00,000, incuding bonus”
For decades before Mitt Romney arrived at Harvard Business School in the fall of 1972, the traditional path for Harvard MBA’s had been a straight one: join a major company right out of school and climb the ranks.
By the early 1970s, though, the culture of elite American business was starting to change. Brand-name corporations were losing some of their cachet. In their place was a rising new group of firms that did not sell goods and services to American households but instead sold advice to other companies.
These firms - consulting firms and, to a lesser extent, investment banks - paid more money and cast themselves in the same exclusive sheen as Harvard. They pitched themselves as a kind of Ivy League of adulthood.
As the good-looking son of a former presidential candidate, who finished in the top 5 per cent of his Harvard Business School class, Romney had his pick of jobs upon graduation. He chose the Boston Consulting Group, which was only 12 years old at the time. Two years later, an upstart rival, Bain & Company, recruited him away.
In the 30-plus years since, Romney and his chosen profession have enjoyed a striking, dual-track rise. Consulting became the most popular career choice not only at top business schools but also at many liberal arts colleges.
The current chief executives of Boeing, General Electric, Hewlett-Packard, Morgan Stanley and PepsiCo are all alumni of either Bain, Boston Consulting Group or the most prestigious consulting firm of all, McKinsey & Company. So are the prime minister of Israel, the governor of Louisiana, Chelsea Clinton and the rhythm-and-blues star John Legend.
Even so, Romney remains the beau ideal of consulting. He used his career as a springboard, just as the industry’s college-campus recruiters promise is possible, to both a high-profile private-sector job (running the 2002 Winter Olympics in Salt Lake City) and a public-service career. He has built his presidential campaign on a narrative that comes directly from consulting: he is a problem solver who understands business, he says. And one final, darker parallel exists, too: the chance that both Romney and the consulting industry have peaked.
Of course, any presidential candidate runs the risk of defeat. The problems facing the consulting industry, however, are both troubling and unexpected. Its popularity has slipped on both college campuses and in business schools in the last few years.
Some students have decided that the work is not meaningful enough, perhaps influenced by college presidents who, like Obama, have urged young adults to pay less attention to their starting salaries. Others students have decided that if they are going to make money, they want to make real money, and have joined hedge funds instead.
The fact that consulting delivers something short of true riches was a subtext of the recent indictment of Rajat K Gupta, who once stood atop the profession as the managing partner of McKinsey (and also attended Harvard Business School in the early 1970s). Gupta, who says he is innocent, is accused of passing corporate secrets to a friend and hedge fund manager.
Testimony suggests that Gupta, disappointed by the mere millions he had made at McKinsey, was hoping to strike it rich. For the industry, perhaps the most damaging part of the case, which also led to charges against a second McKinsey partner, was the questions it raised about the nature of consulting. Critics have argued that Gupta became accustomed to sharing privileged information because he was already doing so as part of his normal work as a consultant.
“The scandal goes to the heart of McKinsey’s business model,” columnist John Gapper wrote in the Financial Times. What consulting firms describe as “best practices,” Gapper argued, is just a euphemism for the information they gathered at one company and passed on to another. Felix Salmon, a widely read finance blogger at Reuters, went one step further and called the business model “corrupted.”
Consulting executives reply that they are careful not to share confidential information. With everything else, they say, their clients are well aware that information flow is part of the bargain. Compared with dutifully ascending the ladder at a single employer, a consultant’s life has some obvious appeal, even glamour.
The top consulting firms hire an array of the nation’s best-trained, sharpest minds: not just MBA’s and business-minded college graduates but people from nearly every type of graduate school. About 20 per cent of Boston Consulting Group’s new consultants, for example, come from law schools, medical schools, public-policy schools, Ph.D programmes or other non-business schools. That is up from about 5 percent in 1995.
After they are hired, consultants parachute into big companies, often meeting with top executives who are decades older. “People see it as a way to get a tremendous amount of experience in a short period of time,” said Mel Wolfgang of Boston Consulting Group, who has a doctorate in ocean engineering from MIT. Former McKinsey consultant Pulin Sanghvi, who runs the career office at Stanford’s Graduate School of Business, added, “It’s especially useful if you don’t know exactly what you want to do.”
For the consultants, the process itself can be rewarding. They pride themselves on looking at issues from as many angles as possible and asking questions that are important but not obvious. By definition, the answers can have real-world impact. Boston Consulting Group did some of the analytical work behind Obama’s emergency automobile-industry task force. It also helped turn Victoria’s Secret into a huge success.
Of course, consultants’ failures also matter. Enron was a McKinsey client, and Jeffrey K Skilling, the onetime Enron executive now in prison, had been a McKinsey partner. More recently, McKinsey consultants told General Electric in 2007 not to worry about a credit crunch, according to GE Chief Executive Jeffrey R Immelt.
At a top firm, a new consultant with a graduate degree typically makes $150,000 to $200,000, including bonus. For MBA’s, only finance jobs reliably pay more. For doctors and many Ph.D’s, a consulting job pays far more than most other options. The rise of consulting is one more side effect of rising inequality: as the salary premium has grown, so has the cost of choosing of a less lucrative job.
Some observers suggest that people are choosing consulting for the money and claiming to like it more than they do. It can be grueling, requiring four days of travel a week. And parts of the work lack any larger economic or social purpose, like helping Victoria’s Secret sell underwear.
Among bachelor’s degree graduates from the University of Michigan’s business school this year, 22 per cent chose consulting, down from 30 per cent a decade ago. At Stanford’s Graduate School of Business, 27 per cent of this year’s MBA class went into consulting, down from 35 per cent a decade ago. At Harvard Business School, the numbers are also down.
The rise of consulting has not only affected the career choices of young adults; it has also influenced American culture, turning consulting jargon, outside the box, bandwidth, buy-in, win-win, ping, into colloquial speech and making best sellers out of management tomes like “In Search of Excellence”.
