Looking beneath a consulting firm's facade of objectivity

Original Reporting | By Mike Alberti |

Kate Gordon of the Center for American Progress said that she would have liked to see environmental concerns weighed in the report. She referred specifically to BCG’s suggestion that, as Chinese wages rise and environmental standards are tightened, it was “reasonable” for many companies to “look for sourcing opportunities in other low-cost nations”  — particularly Vietnam and Thailand.

For many, the report’s last sentence was a tip-off to an embedded advocacy agenda: “As long as it provides a favorable investment climate and flexible labor force, the U.S. can look forward to a manufacturing renaissance.”

“Vietnam and Thailand are where China was twenty years ago,” Gordon said.

Laczniak of Marquette University said that notably absent from the report were any considerations of human rights. “You have to look at the social effect of economic decisions,” he said, “not just the economic effects. When you just cherry-pick economic opportunity, there’s a lot that you miss.”

For example, Laczniak pointed out that the report could have included some information on working conditions and human rights issues in the “lower-cost” countries the report advises some companies to consider as Chinese wages rise. “When they talk about the promise of the maquiladora zone on the [U.S.-Mexico] border, they should mention that that area is notorious for human rights abuses and violence.”

Many economists said that, instead of presenting a low-wage, low-skill manufacturing approach as the only successful strategy for the U.S. to pursue, the report should have discussed alternatives. For example, they said, some countries with healthy industrial bases, particularly Germany, have successfully pursued a high-wage, high-skill policy, with the result that wages have risen over the past three decades at the same time that environmental and safety regulations have become more robust.

“If you’re going to be in the business of giving policy advice,” Scott said, “then I’d hope that your advice would be beneficial to American workers.”


Consultant social responsibility?

“There is a big failure here on the part of the mediating institutions. They can’t just parrot this stuff without asking who is behind it.” — Ron Hira, Rochester Institute of Technology

The idea that companies might have ethical responsibilities to consider what economists call “externalities” — that is, the negative byproducts that society endures when a company only takes its bottom line into account — is not a new one. Indeed, a large literature has developed in the last decades concerning “corporate social responsibility,” or CSR.

“The idea is that looking only at economic decisions is suboptimal,” Laczniak said, “so you have to look at the effects of economic decisions, both on the environment and on society.” The concept that companies should consider economic, social, and environmental effects of their decisions is referred to as the “triple-bottom line.”

Several CSR initiatives have arisen in the last several years. They tend to include the principle that companies need to take responsibility for the outcomes of their actions on various “stakeholders,” including communities, consumers, and workers. A second common principle is that of environmental responsibility or “sustainable development.”

When asked what standards of corporate social responsibility should apply to consulting firms like BCG, several experts noted first that the issue would be complicated if a consultant has been retained by a  particular client to produce a specific analysis. Indeed, the code of ethics of the Association of Management Consulting Firms and the one promulgated by the Institute of Management Consultants USA both focus on the duties of the consultant to a client, although the latter code calls on each consultant to pledge to “represent the profession with integrity and professionalism” in the consultant’s relations not only with clients and colleagues, but with the general public as well.

Remapping Debate did not pursue inquiries as to how consulting firms should balance a duty to a client with a duty to the public for this article, because it appears that BCG produced the “Made in America, Again” report on its own account. Hira, of the Rochester Institute of Technology, characterized the report as “basically a marketing strategy.”

In that case, Price said that there was no reason to exempt consulting firms like BCG from broader norms that include ethical concerns. “There’s no reason to withhold a desire to see BCG behave in a more ethical way,” he said. “We expect people to act morally and we criticize them when they don’t. Why should we withhold criticism from certain corporations?”

McKinsey 2005 versus McKinsey 2011: from win-win to win-lose?

In 2005, McKinsey issued a report that announced as its first “guiding principle” the proposition that, “We consider any job that is not confined to a particular location as having the potential to be performed anywhere in the world (i.e., globally resourced).

Another 2005 report from the firm noted that, in response to concerns about the impact of offshoring on American workers, some policymakers have called for “legislation to limit offshoring and a few states have already adopted such legislation.” McKinsey’s response was clear: “Trying to protect jobs this way is a mistake.” And, the report claimed, offshoring, at maximum, meant the annual loss of only “several hundred thousand jobs.”

McKinsey continued to examine offshoring potential in a variety of countries. In the course of doing so, it produced a 2006 report on Brazil that identified labor regulations and tax regulations as among the factors that “hinder productivity.” A 2007 report on Mexico hawked that country’s “great potential as a supplier of offshored services,” but warned that “a dearth of IT vendors, a costly infrastructure, and a talent pool with limited suitability for multinational positions are among the factors preventing Mexico from realizing the considerable opportunity created by globalization.”

Fast-forward to June 2011. A report called An Economy that Works: Job Creation and America’s future admits that, while “for the most part American companies have adapted [to globalization] and thrived…the same cannot be said for American workers.”

Whereas businesses once “muddled through recessions” and “accepted that productivity declines were a natural consequence of a downturn,” the report says, this changed in a “globally competitive environment” (that is, in the environment that McKinsey and its counterparts had helped to foster). Now, “companies increasingly seek to preserve productivity and profitability at the expense of employment.”

The report quotes an economist as describing the shift as the rise of “the disposable worker,” and estimates that in “the most recent recession, employment absorbed 98 percent of the decline in GDP.”

There is no acknowledgement in the report of any role that McKinsey might have played in fostering this type of environment.

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