In April 2022, the global consulting firm McKinsey drew international attention for a conflict of interest.
According to a 2022 interim report by the US Congress' Committee on Oversight and Reform, McKinsey failed to disclose it worked for Purdue to the US government's medicine regulatory body, the Food and Drug Administration (FDA).
Purdue Pharma is the corporation behind the prescription opioid OxyContin. It has been linked with the North American opioid overdose crisis through its aggressive and often misleading marketing of the medicine.
In 2020, Purdue Pharma pleaded guilty to criminal charges for its actions.
In 2021, McKinsey agreed to settlements valued at $641 million for its work with Purdue from 2011 to 2019.
However, what drew the ire of Congress was that McKinsey was also advising the FDA during this same 11-year period.
"We did not comment on the safety of drugs such as OxyContin or any other opioid in our work with the FDA," McKinsey managing partner Bob Sternfels told the US Congress at the time.
The consulting industry, which sees private firms advise and assist government and non-government organisations, has been a mainstay of the political landscape since the 1990s.
Across the world, governments, including Australia's, rely on consultants. In 2021, the global consulting services market was valued between $US700 billion ($1.06 trillion) and $US900 billion ($1.37 trillion).
However, critics argue governments and the wider public sector have become overly reliant on consulting firms, often to their detriment.
"Why are governments getting fooled? And why are governments continually hiring and outsourcing their own knowledge and activities to the consulting firms? Even after, in many cases, dreadful scams, mistakes and so on," Professor Mariana Mazzucato told ABC RN's The Money.
Professor Mazzucato is a London-based economist and the author of The Big Con, a book that explores "how the consulting industry has weakened our businesses, infantilised our governments and warped our economies".
She said that, often, the reason why governments outsource to these firms was due to a lack of investment in the public sector.
"One [issue] is that because we're not investing within our health systems or education systems or transport systems, we're getting a weaker and weaker state, which then requires others to help it do its work," she said.
"When you no longer invest within your capacity, you actually end up literally requiring them to do some of the most central functions of government."
Different standards
While the public sector is underfunded by governments, Professor Mazzucato said there were many examples where consultant firms were hired for large contracts, despite a lack of expertise.
In 2021, it was confirmed the UK government had invested 516 million pounds ($925 million) in external contracts for its national COVID-19 Test-and-Trace system, including 298 million pounds ($539 million) to Deloitte. The system has since been considered a failure.
That same year, McKinsey won a $6 million contract from the Australian government to produce an emissions reduction strategy for achieving net zero. The published report was widely criticised for failing to offer information on how to reach that goal by 2050.
Professor Mazzucato said arrangements like this made little sense, particularly when there were experts employed in public service.
"Why are we not using those types of organisations — like the CSIRO — for the kind of expertise that's required. But even universities … it's actually quite amazing how little governments properly use academic research," Professor Mazzucato said.
"The big question is, why did [the consultants] even get the contract in the first place?"
Consulting firms were also not held to the same standards as governments for mistakes, Professor Mazzucato said. These corporations were not at risk of losing clients nor work for any major mistakes, she added.
Professor Mazzucato coins this as a "skewed risk-reward" situation.
"What's interesting is that, even though there's been so many different errors made by the consulting industry, they are not under the kind of scrutiny that the civil service is. When it makes a mistake, we all know about it," Professor Mazzucato said.
"If things go bad, the consulting companies actually don't have to own up to the mistakes and they might end up settling … but it doesn't prevent them from getting the next round of contracts."
For example, despite Deloitte's failure in the UK, in 2022, Optus announced it had enlisted the consultancy firm for an independent security review following its data breach.
Playing both sides
Conflicts of interest are another significant and frequent concern within the consulting industry.
For instance, in February it was revealed a former tax partner of the accounting consultancy PricewaterhouseCoopers (PwC) briefed on confidential government plans to prevent multinational tax avoidance shared these details with colleagues. PwC later marketed a tax-avoidance scheme to their overseas clients.
And while McKinsey's net-zero report for the Morrison government has been criticised for its lack of detail, perhaps just as concerning is that the same firm is also known to have advised 43 of the world's top-100 most-environmentally-damaging companies.
Professor Mazzucato said these conflicts of interest were not exceptions but, rather, the standard.
"If you look at South Africa, you have the same [firms] consulting both for Eskom, a state-owned energy enterprise, and the Treasury, which is regulating Eskom," she said.
"You can't be on both sides of the street or, at least, if you are, it should be extremely transparent."
Addressing this lack of transparency was essential, Professor Mazzucato said.
"We need very transparent contracts where governments must know, and citizens must be able to ask governments for this knowledge — all the different types of consulting contracts that they have, which might actually pose conflicts of interest."
Focus inwards
Governments are on alert for this issue. For example, in Australia, as part of its 2022 federal election campaign, Labor pledged it would cut the government's consultancy expenditure by $3 billion.
According to the Australian National Audit Office, the total committed value of consultancy related contracts was $888 million in the 2022 financial year.
And, in December, the US introduced new legislation designed to prevent conflicts of interest with consulting firms.
But these may not be enough to address the crisis of consulting firms.
For Professor Mazzucato, the major step would be to invest in government capacity, in both expertise and knowing when to work with a consulting firm.
"You actually need that internal capacity in order to even know who to work with; which private sector companies to work with, even which consulting companies you might work with [and] how to write a proper terms of reference or proper contract," she said.
Professor Mazzucato added that there must also be better understanding in evaluating and assessing when a contract might result in a government being dependent on a contractor. There should also be transparency between a firm, its government contracts and its other clients.
This does not mean governments should not rely on consultants when necessary. However, this would mean differentiating between when a consultant was "on the sideline" or whether "they were actually doing the work of government", she noted.
"The greatest challenges of our time actually require public, private [and] third sector organisations to be collaborating together.
"But what we've witnessed in the last 50 years is the dismantling of the capacity within our government organisations to even be a good partner to these other organisations."
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