Best practices for conflict management for consulting
Observing best practices around risk and conflicts management for consulting firms is key to avoiding lawsuits and reputational damage. But how do you know if your consulting firm’s process for identifying potential conflicts of interest is reliable?
To help consulting firms develop a sound approach to conflicts clearance, we spoke with Jey Purushotham, Global Risk and Compliance Practice Group Leader at Intapp, about best practices for conflict checking in the consulting industry. Purushotham revealed the disadvantages and risks involved with inadequate conflicts clearance processes, and shared the best ways to develop an effective clearance system.
How have consulting firms historically determined if an engagement presents a conflict of interest?
Many consulting firms typically run conflicts checks in one of two manual ways. The first method is sending a firm-wide email describing the potential client and engagement and asking whether anyone has a conflict.
One problem with this process is it assumes everyone involved knows what in fact does and does not constitute a conflict, which may not always be the case. For example, most staff are usually not aware of all the drivers of potential legal and ethical conflicts. In addition, although an incoming engagement might not present a legal or ethical conflict, this new potential client may still be objectionable to past, current, or future clients — a scenario that many times is not readily obvious to firm staff.
The second manual approach consultancies tend to use is checking the potential client against a spreadsheet of all existing and past clients. This method is problematic because it depends upon two things that are challenging for many firms: 1) a comprehensive spreadsheet and 2) a reliable way of searching the complete spreadsheet for conflicts.
Ultimately, these manual processes are not effective, reliable, or scalable. Using these types of manual processes runs the additional risk of firms’ clients discovering the conflicts themselves well into the business relationship. When this happens, the firm risks a damaged client relationship, a tarnished reputation in the market, and a costly lawsuit. I’ve heard of these missed conflicts happening at several firms, and what has saved the firm from a lawsuit is the quality of the pre-existing relationship between the firm and the client. However, the blunt truth is that a good firm/client relationship simply won’t be there every time to save the firm.
What are some of the other risks and drawbacks of these traditional approaches?
One significant drawback of manual conflicts clearance processes is the time involved. Searching, surfacing, and clearing conflicts tends to involve significant back-and-forth communications between firm staff and the potential client themselves. In addition, when firms check conflicts via blast emails, partners will receive dozens or even hundreds of emails a week, depending on how big the firm is and how much new business the firm is taking on. That level of email volume can severely distract partners from their billable work.
Using inefficient manual conflicts clearance approaches also slows down the new business acceptance process. The longer this process takes, the longer your professionals must wait to start billing on that business.
Finally, firms have told me that this time lag can negatively affect a new client’s first impression of their firm. The conflict check is usually the client’s first introduction to that consulting firm. If your client perceives your process takes longer than expected, your firm risks making a negative first impression on the new client.
What’s a better way of checking for conflicts of interest?
Your firm needs risk management software that offers features and capabilities specifically tuned to the needs of high-growth consulting firms. Here are some key capabilities to look for:
• The technology must be underpinned by a search engine and workflow that are built to uncover conflicts unique to the consulting industry as a whole and, importantly, to each firm in particular (not all firms view conflicts through the same lens).
• The data that is checked should be current, accurate, and complete to give the firm confidence that the requisite universe of data is being checked.
• The system should be configured so that it doesn’t involve partners and other client-facing staff unless necessary. This prevents “risk-process overload” and maximizes precious billable hours.
How does the right technology help check against corporate trees?
Oftentimes, the companies that consulting firms take on as clients are part of a larger corporate tree. In this way, firms are not taking on just one company, but rather the multitude of companies in that company’s corporate tree. Firms need a system that will check those corporate trees against their data of past, current, and potential future clients.
Keep in mind that these past, current, and potential clients are also companies that have huge corporate trees. In essence, you need to check corporate tree against corporate tree — and that’s impossible to do manually in a scalable fashion without an industry-grade conflicts search engine.
To ensure a comprehensive corporate tree check is embedded in all business acceptance processes, we advise firms to purchase a license with a third-party corporate tree data provider. Intapp Conflicts natively integrates with corporate tree providers such as Dun & Bradstreet — a major provider in the U.S. — to enable immediate access to the corporate tree data. This integration allows firms to seamlessly incorporate corporate tree data into their conflicts search process, which enables better decision-making around acceptance, clearance, and rejection determinations.
What are the main advantages of a technological approach to conflicts clearance?
Implementing risk management software for consulting fosters an intentional method of searching for and clearing conflicts. Without defined values and an overall risk evaluation and decision-making process in place, a firm risks making inconsistent and ill-informed choices when handling conflicts. Firms often tell us that using our solution forces them to become more diligent around their process and their data.
In today’s mergers and acquisitions environment, conflicts clearance software is helping acquisitive consulting firms ingest and analyze the engagement data of the firms it acquires. Often, we are seeing acquiring firms have several legacy databases from the firms it has acquired. These legacy databases are held in disparate locations and formats, and it’s not feasible to check incoming business against these siloed databases. A purpose-built conflicts solution would ingest those legacy databases into one location to ensure the data from past-acquired firms is incorporated into all future conflicts checks, thus ensuring no conflicts from old business.
What technology has these conflicts clearance capabilities?
Intapp Conflicts has all the features and capabilities that consulting firms need for conflicts clearance. Our Intapp experts help those who purchase Intapp Conflicts to scope, design, and adjust their risk evaluation and decision-making process. Frequently this is our clients’ first introduction into a new world of process and data diligence! It’s a lot to handle so we’re here to help you not only to implement an industry-grade solution but also to benefit from our knowledge of your market.
If you’d like to discuss how Intapp can help you save time and develop a reliable conflicts clearance process, please contact us.
- Reclaim your time: 5 ways your firm can prevent revenue leakage with time tracking software
- Don't stop at Microsoft Teams: Take the next step in accounting and consulting firm software
- Top 3 tech trends of 2023 to help promote document control for consultants
- Apply a reliable, defined approach to risk management at your accounting firm
- Embracing a changing market: Three ways transaction advisory teams can modernize and adapt to uncertainty