Thursday, November 13, 2008

Will Your Firm Be The Next Arthur Andersen? The Ethics of Enough in Times of Scarcity

Will your Firm be the next Arthur Andersen? I'm not asking whether it will become the next professional services firm to score over $9 billion in revenue after nearly 90 years of stellar reputation. I am asking whether your Firm will be like the one that collapsed after an obstruction of justice scandal involving document shredding and other alleged misdeeds. The time is ripe for the next professional services firm implosion - not necessarily due to actual but perceived scarcity and the ethical discrepancies that surface as a result.

Though we just witnessed one of the fiercest and most public competitions in American life - the presidential election - there's an even fiercer battle raging on Wall Street and in business markets across our nation. Credit is tighter than a banjo string and jobs are disappearing like rats down a sewer drain. Because of this, now is the most important time to be vigilant about your professional ethics and the ethical behavior of your colleagues and clients - especially when it comes to the most ethically vulnerable spot for professional services: business development.

Competition and scarcity go hand in hand. If all we wanted was abundantly supplied, competition wouldn't be necessary because there would be no obstacles to obtaining what we desire. It is at times when scarcity and competition are perceived to be excessive that ethical breakdowns seem most likely to occur. The key word is "perceived." This doesn't just mean when times are actually bad. Consider times and markets where abundance was an understatement such as the mid-1980s when the stock market was booming. Remember Michael Milken the Junk Bond King? How about Ivan Boesky? Gordon Gecko? Ok, Gecko was fictional but still...These ethics-benders lived in a time and market of great wealth but they still perceived themselves as no t having enough and needing more and more and more of a scarce resource without which they - personally - weren't "enough."

The Enron/Arthur Andersen debacle - featuring ethically and legally challenged behavior which occurred in the midst of the technology boom - is the more obvious and recent example. I know plenty of former Arthur Andersen professionals and they are among the most professional and ethical people I've met. But somewhere in Andersen's Enron account team lay a mindset of scarcity - or fear of it - which motivated a series of highly questionable decisions that ultimately helped to crumble the Firm.

When the economy is in the dumps and there is real scarcity, businesses and professionals are even more likely to fight over scraps. Litigation rises in bad times. More fraud is unearthed in recessions than at other times. Client negotiation tactics are nastier when budgets are squeezed - causing some Firms to loosen standards in reaction to "the squeeze." Colleague elbows are sharper when opportunities are dwindling - collaboration flies out the window. We are hearing stories of Professional Services advisors (not OUR clients, of course) who are:

· Billing for hours that were probably not worked or charging clients for the time they spend entertaining over dinner...shouldn't that be a marketing expense for the firm?

· Dropping fees by 50% to match a competitor's offering...if the incumbent firm can legitimately deliver the same service for 50% less were they overcharging the client all this time?

· Escalated infighting over which Partner "owns" which client in order to claim origination fees - even when one of the Partners really has no known contact with the client decision-maker.

· Making vaguely questionable claims about credentials, capabilities and ability to solve client problems - was this just over enthusiasm or intentionally misleading?

The perception of severe scarcity can often bring out the worst in clients, too. In difficult economic times, we hear more stories of Clients who feel it is their obligation to force professional services advisors to dramatically lower fees "or else." We see more Clients pushing advisors for free services - not just sample size services, but full blown projects with real, substantial cost to advisors. This exploitive behavior is sometimes a catalyst for ethically gray behavior among advisors as it exacerbates the sense of scarcity and "do whatever it takes" to win.

Regardless of the profession, it's our obligation to "first, do no harm." I recommend that you revisit your professions ethical standards and review them with your colleagues. Seek to go above and beyond the standards - always - and especially now. You might want to check out the recently released book, "The Elements of Ethics for Professionals" which is an easy, substantive read to help wrap your brain around setting higher standards for yourself and your colleagues. The book was released last month and you can find it here: At a minimum, this would make a good lunch-and-learn discussion starter for your team.

As one way to promote the highest standards of professionalism across professional services disciplines and also as a way to encourage clients to raise their own ethical standards in dealing with advisors, Creative Growth Group developed the Client Advisor Awards. One of the evaluative criteria in judging nominees for the Awards is demonstrated credibility and integrity on both sides of the client advisor relationship. Successful nominees in the professional services provider Awards category must consistently demonstrate integrity and the ability to build and sustain trust at the highest levels of their client-base. Similarly, successful Client category nominees must consistently manage professional service firm relationships in a forthright, high-integrity, intelligent and humane manner.

Given the ethical susceptibility of the professional services market in the current economic turmoil, we believe it is especially timely that this year's keynote speaker for the Client Advisor Awards is a world-class expert on business ethics. Dr. Paul Voss is President of Ethikos - a business ethics consultancy and he's also an Associate Professor of Literature at Georgia State University. Dr. Voss is an award-winning teacher, gifted public speaker, and published author. He lectures nationally and internationally on ethics and leadership and his teaching weaves the lessons of Shakespeare, Machiavelli, the Renaissance and more into actionable ideas for leading more forthright and successful organizations. Dr. Voss told us recently, "While the immediate future remains fraught with uncertainty and angst, one thing appears clear: Companies that engage in unethical behavior will be punished in the marketplace. Healthy, successful businesses can only become healthy and successful if they demonstrate a steadfast commitment to leadership, integrity, and an ethical culture."

By the way, we think Dr. Voss is so smart and the lessons he instills regarding business ethics are so important to our work with professional services firms and their growth initiatives that we've asked him (and he's accepted) to be a part of our newly launched Advisory Board.

Dr. Voss' keynote speech at the Client Advisor Awards program will focus on ethics in the relationships between professional services firms and their clients. We hope you will join us for Dr. Voss' talk and the Awards ceremony and luncheon that will follow.

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