How consulting firms can navigate conflicts and strict regulatory guidelines

Three key regulatory changes

Both the U.S. and the U.K. have introduced new laws around conflicts of interest to help increase transparency, security, and fairness within the consulting industry. Here are three Acts your firm’s professionals should familiarize themselves with:

• Preventing Organizational Conflicts of Interest in Federal Acquisition Act (U.S.)
  • Consulting firms contracted by federal agencies must perform work objectively, without bias, and in the best interest of the government
  • Firms must adhere to enhanced disclosure requirements to prove they don’t have any business relationships or activities that could create an unfair advantage
  • Firms must undergo a tougher evaluation process and follow stricter regulations on potential conflicts
• The Time to Choose Act (U.S.)
  • Federal agencies are prohibited from contracting with consulting firms that work with “covered foreign entities” — i.e., countries that the Department of State believe pose a threat to national security or foreign policy, such as the Chinese and Russian governments
  • Consulting firms must follow broader certification requirements to confirm they are not working with any “covered foreign entities”
  • If a firm submits false certification, the penalties are high: The firm could pay three times the amount of damages, and the federal agency could suspend or debar the firm
• The Procurement Act (U.K.)
  • Consulting firms can now bid, negotiate, and work with the public sector more easily via simplified procedures, reduced entry barriers, and a robust Central Digital Platform
  • Firms must follow new accountability measures and conflicts of interest processes to ensure they meet requirements and are fit for the job
  • Assessment and implementation phases for government projects must be separate to ensure fairness and impartiality

Different conflicts of interest

With the introduction of these strict compliance regulations, your firm will need to ensure your professionals can accurately identify, resolve, and report all conflicts — without slowing down client service delivery. Educate your staff on the nuances of conflicts of interest so they can properly address red flags during the risk assessment process:

• Actual conflict A present situation that could lead to biased decision-making and noncompliance
• Potential conflict A conflict that doesn’t yet exist, but may arise in the future under certain circumstances
• Perceived conflict A situation that’s perceived to be problematic, even if no conflict actually exists

Out of all three conflict types, perceived conflicts are usually the trickiest to manage because they’re based on subjective interpretations. That’s why most large, global firms simply remove any perceived conflicts from the situation rather than try to resolve them.

For example, if one consultant’s interests are perceived to be conflicting with the client’s, the firm — which has thousands of other qualified consultants — can easily swap that team member out for another and quickly move the engagement forward.

But for growing firms with smaller workforces, switching team members isn’t always an option. Instead, these firms must be strategic in how they manage perceived conflicts and staff engagements.

This is where the “expertise paradox” can benefit small firms.

The expertise paradox

Imagine your firm wants to assign “Jane” to work with a prestigious client. However, Jane previously worked for the client’s competitor up until a few months ago, which renders Jane’s participation in this current engagement a perceived conflict.

This situation might appear problematic on the surface, but since Jane is no longer an employee of the competitor company, she is not an actual conflict. In fact, Jane’s past employment — the reason for the perceived conflict — is actually the reason she is so valuable to the engagement.

Working for the client’s competitor has given Jane years of experience in the client’s industry. She now has the knowledge and expertise needed for this particular engagement, and can deliver better results for the client. So, rather than replace Jane with someone who poses no perceived conflict but is less qualified, your firm can demonstrate to the client why Jane’s prior industry experience is not a conflict of interest — and why she is the best person for the job.

By carefully reviewing and addressing perceived conflicts, your firm can improve resourcing and provide better outcomes for your clients.

Strategic approaches to managing conflicts

Of course, conflict management isn’t just about assigning the right people to the right engagement. There are numerous factors your firm needs to consider, including your corporate structure and affiliations.

For example, to avoid conflicts with government agencies, U.S. firms may want to restructure their global operations and separate government work from other engagements. Or they may choose to specialize exclusively in either government or private sector work, meaning they may have to drop certain clients for the sake of compliance.

Other strategic steps your firm should take include:

• Developing detailed conflict documentation procedures, as documentation will help protect your firm’s reputation and provide staff with historical insights for future decision-making
• Creating strict disclosure protocols to increase transparency with clients and mitigate risk of noncompliance
• Conducting regular conflicts assessments so professionals can quickly find any red flags that emerge — and address them before they become a major problem
• Tracking employee activities such as gifts and investments to ensure compliance with code of ethics policies
• Leveraging independent review boards to reduce biased decision-making