Consultants are often criticised for their inscrutable and unaccountable nature. This is as a result of their behind the scenes nature paired with their increasing share of the work of the Australian Public Sector (APS). They have come under fire once more for PwC’s recent misuse of sensitive information for unethical benefit to their clients. The footprint consultancy has in the APS has been brought under close scrutiny. It further begs the question, are these too often occurring scandals contained to PwC, or is it systemically endemic to consulting firms?
Consultancy is not a new line of work. It originated in Europe at the close of the 19th century during the industrial revolution. The first management consulting firms targeted the need for organizational process and machinery expertise, gaining popularity as they brought greater efficiency and profit for companies. McKinsey & Company (founded in 1926) is one of the oldest contemporary consulting firms that leveraged its technical and regulatory expertise to capitalise on the increasing regulatory requirements of that era. The following decades are known for their influence on major strategy frameworks, such as BCG’s famous “Growth Share Matrix” still used today. However, it was the emergence of modern technology throughout business that sparked rapid growth in the demand for consultants, with the Big Four (and later the big six) capitalising on this market and establishing themselves as powerhouses within the space.
More recently, consulting has taken on a larger role within the APS. Though the average number of contracts awarded per year since 2013-14 have remained consistent (roughly 4000), it is the value of these contracts that critics outline. These contract values increased over half a billion dollars, from $300 million in 2012 to $888 million in 2022. In 2015 the coalition government promised to keep public sector staffing levels at the equivalent of 2006-2007 levels, to stop public sector bloat and increase the efficiency of the taxpayer’s dollar. However, by arbitrarily capping the number of public sector employees, the illusion of efficiency is advertised while work is outsourced to an opaque and less accountable shadow workforce of consultants.
Source: Consultancy.com.au. A Breakdown of the largest consulting groups in Australia.
This outsourcing of public sector work is not endemic to consultants, with the total spend on outsourced labour reaching $20.8 billion under the Morrison Government. Australia’s consulting industry is one of the biggest in the world, as despite our population, it is over twice that of comparable countries such as Canada or Sweden. To combat this disproportionate public spending, Labour has promised to cut total outsourced labour spending by $3 billion dollars over the next four years, electing to reinvest savings into enhancing the capacity of the public service while scrapping the staffing caps.
With the current prevalence of consultants, it comes as unsurprising that some call for increased transparency in the sector. Some argue ethical issues are bound to arise in cut-throat, profit-driven sectors like consulting. There is some merit to these arguments, with systematic conflicts often undermining the integrity of the work. A recent example would be how PwC abused sensitive information of government intentions to prevent multinational tax avoidance. This information was picked apart, with loopholes given to PwC clients to help them avoid tax. Others state the systematic drain on the public sector is inhibiting the ability of the APS to retain the skills required to effectively perform, with consulting now a necessary component of the modern APS.
Let us now focus on whether this propagation of power afforded to large corporations like PwC, EY, KPMG and Deloitte is truly in the interests of the public. Consultancy firms have gained the name “shadow public service”; this is mainly due to the heavy reliance that governments both past and present have required from such firms. Consultancy firms provide policy advice, and access sensitive information in the service of the state. The breadth of this relationship is highly visible, with the noted Morrison government spend of close to $20.8bn on outsourced service providers.
The reasons for this increasing dependence on such firms are varied. The government has highlighted the inability of public servants to complete necessary work prior to deadlines without the help of consultancies. This is suboptimal, as consultancies are among the most powerful, but also most secretive of private organizations. They are very often driven by commercial or profit-minded motives, overriding or distorting their advice or insights which are supposedly offered in the name of public interest. Another drawback of this over reliance on consultancies is that the capabilities of the true public service deteriorates. According to former public service commissioner Andrew Podger, these firms offer remuneration which the public service simply cannot compete with, thus losing quality talent.
The short-sighted goal of commercial gain is what drives some consultancies in their unethical behaviour. Recent scandals centred on consultancy conduct is currently bringing much debate to the controversial role of consultancies in public service. As Labor Senator O’Neill argued, a proliferation of well-paying senior leadership roles, a culture of “shared silence and hiddenness” and a lack of ethical fibre are often seen in large-scale, profit-driven partnerships. This is the key reason why so many people, from the public to Treasurer Jim Chalmers, are now critiquing the use of consultancies in confidential, sensitive government affairs.
Source: The Saturday Paper. PwC, the centre of a recent tax avoidance scandal.
Recently, PwC cunningly extracted and abused highly confidential government information for the benefit of private clients to further its own profits. A former tax advisor who breached confidentiality through multinational tax consultations and the sharing of government information with other staff at the firm is alarming. When this abuse of trust aids private clients and generates millions in profit, the true consequences of this lack of respect and basic moral character can be seen. The world’s second largest professional services firm engaging in such blatant breaches of trust showcases a neglect for the cultural values it pertains to hold close to the core of its business. Moreover, it also highlights the inherent bias toward profitability over performing the true public service consulting firms have been hired for, something that consumes many of the high-end consultancy firms.
In addition to PwC Australia CEO Tom Seymour resigning amidst this crisis, this matter has initiated severe public concern, with 80% of Australians supporting the banning of government-consultancy contracts that leak information and attack public trust. Some go further advocating for reduced outsourcing of core public sector work and increased parliamentary scrutiny for organisational partnerships. Other factors must also be taken into consideration, and the over-dependence for public sector work given to commercially-minded firms needing to be mitigated or resolved. Above all else, the basic tenet of trust must be re-established for firms to help facilitate a more ethical future.
As noted above, Labor made an election promise to cut down government consultancy contracts by expanding internal public service capability. Since the election, this has taken the form of an in-house consultancy structure. While this may seem like an obvious solution, a successful implementation will prove challenging. In 2021, the UK government launched its own in-house consultancy model that sought to solve the same problem, but less than 2 years later it has been quietly shut down; allegedly because government departments still prefer external consultants.
The federal government’s model is likely to focus on three elements. Firstly, there is the in-house consulting arm itself, which would not be centralised like the UK model, but built as a network that builds on existing services in different departments. Secondly, there is a need to help public servants become better at contracting external consultants when they do need them, such as crafting proper terms of reference, ensuring the consultants have the required expertise, and managing the consultants appropriately. This also includes record-keeping on the use of consultants, which was found to be inadequate in a major review of the public service in 2019. Some have suggested the establishment of a National Register that accounts for the abilities and past results of the consulting firms.
Finally, there is the matter of increasing quality within the public service itself. A great deal of this comes down to funding. Many critics of government reliance on consultants believe it is the result of underfunding and lack of capacity within the public service. However, this issue also extends to the structure of the funding itself. The rigid conditions attached with public service employment result in relatively low salaries, slow career progression, and laws which prohibit performance-based pay. Another problem though is how government departments usually have much more flexibility with their budget than with staffing levels. Unless the government is able to rectify this issue, the Australian model could very easily go the same way as the UK model.
Source: Parliament of Australia. Public Service staffing levels from 2000 to 2018.
There are also ways to target the capability of public servants. Governments have been concerned about a lack of knowledge transfer and upskilling from consultants to public servants, resulting in no additional capability for the public service. An oft-discussed solution is to explicitly require upskilling of public servants in consultancy contracts. It has also been reported that managers within the Australian Public Service are being trained to think and act more like external consultants, which could be another part of the broader plan.
Through the past decade, external consultants have found their way into all aspects of government, and it’s only the past few years that governments have realized the issues this is causing, as capabilities within the public service are being eroded and a lack of accountability means money is sometimes being spent in return for very little substance. Governments must now start prioritizing the public service and ensure it is given the funding and attention to build in-house capabilities and expertise, with external consultants used only when necessary. These changes are targeted to reduce reliance on consultants, and as a result ensure higher quality through demanding higher standards.
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
I am a second-year Bachelor of Arts student majoring in English and Economics. When I’m not deep diving into the structure of the education sector or the way the share market works, you’re likely to find me on top of a mountain peak somewhere else in Victoria.
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Hello! I’m a second year Bachelor of Commerce student majoring in economics and finance. At Cainz, I aim to link my writing skills with my interest in the business world to create deeply informative and interesting articles with my team.
I am a second year Bachelor of Commerce student, majoring in Economics and Finance. I am most interested in public policy, global trade, and the domestic and international politics that shape these areas. Hailing from the exotic locale of Brisbane, Melbourne has grown on me but the weather leaves a lot to be desired.