Despite efforts at reform brought about by corporate governance concerns and the Enron accounting scandal, corporate executives remain deeply dissatisfied with the work product provided by their accounting, legal, IT and other consultants according to a new survey. As a result, according to the survey, 1 in 9 professional services or consulting relationships could be terminated in the next 12 months.
The survey, conducted during the spring and summer of 2003 by Albany-based business analysis firm Ross McManus of more than 1,200 Fortune 1000 senior executives from over 20 percent of the firms in the Fortune 1000, indicated that consultants and professional service providers rate only a "C+" grade from their clients for overall satisfaction. Many long-standing consulting relationships would soon be put up for review, according to the survey.
"The 'knowledge industry' of accountants, lawyers and professional services providers does not seem to grasp the magnitude of the problem," said Mac McManus, survey author and principal of Ross McManus "This is a wakeup call to these consultants, who will need to change this perception or face the consequences of lost business."
These concerns, according to the survey, may have been long-simmering among corporate clients, but the post-Enron regulatory and governance climate has created a catalyst for companies to re-evaluate even longstanding relationships with their consultants.
"The near 'perfect storm' over the past three years of recession, global terrorism, the Enron/Arthur Andersen scandal and government regulations aimed at reform have served to change forever the way companies interact with their consultants," said Steven Banis, principal of Ross McManus. "The new Sarbanes-Oxley Act alone has the potential to change corporate behavior in a way not seen since the enactment of the Securities Act of 1934."
Ross McManus, a leading authority on the post Enron/Sarbanes-Oxley business environment, compiled the results of the survey into a report titled, Selling and Satisfying the Fortune 1000 in a Post-Enron World. This report details the permanent changes to the consulting landscape brought about by new government regulations such as Sarbanes-Oxley and the USA Patriot Act of 2001, as well as by increased public scrutiny of corporate governance practices. Highlights of the findings include:
- One in 9 C-Level executives deemed relationships with their professional services providers and consultants as "significantly deteriorating," possibly leading to termination within the next twelve months.
- Senior executives rate overall satisfaction with their professional services providers and consultants as only a C+, or 7.8 points on a 10-point scale.
- Ninety six percent of senior executives say that understanding their business is their most important satisfaction characteristic, however only 72 percent said they were satisfied that their professional services providers and consultants had a good understanding of their businesses.
- According to senior executives, not understanding their business was the #1 reason for terminating professional service providers and consultants.
- Only 65 percent of C-Level executives care about the technology used by their providers; suggesting an overemphasis by firms on the technology they use to complete an assignment.
According to survey responses from senior executives, not only consultants but other service providers will have to change how they approach and do business with their clients to succeed in this permanently changed environment.
Said the CFO of a Fortune 500 telecommunications firm, "The spirit of Sarbanes-Oxley is having an impact on non-accounting firms as well. In our case, we're ensuring that all contracts are reviewed by the finance staff and that our control procedures are being adhered to. We're also bringing more firms into the RFP process, even if we don't know them."
"In this post-Enron world, business as usual simply won't do," said Banis. "Top-level executives are under tremendous pressure from their boards and oversight committees to responsibly manage the awarding and management of major outsourced contracts. The old ways of doing, and especially renewing, business with a phone call or a handshake have ended."
A CFO of a Fortune 500 electronics company remarked, "Our firm had a 40-year relationship with our accounting firm. In today's regulatory environment, a long-term relationship means less and less. We're going to end up doing significantly less business with this firm." Said a chief marketing officer at a Fortune 1000 firm of his long-time technology consultant, "They'll be getting a bit of a shock at the end of the third quarter when I send out an RFP and they won't be asked to participate."
The report, based on feedback from the executives interviewed, also indicates the most effective paths for knowledge industry providers to effectively grow their businesses in the post-Enron environment. That includes a breakdown of the 13 most important satisfaction characteristics that every knowledge industry provider must incorporate into their business; what key C-level executives demand of providers who want to win their business through the RFP process; and how to acquire key information that clients aren't sharing, which will lead to business being won or lost in the short term.
"We undertook this survey to give a clearer understanding of the significant and permanent changes to practice management for the knowledge industry as a result of the regulatory, economic, and news-making events of the last three years," said McManus. "And these changes are not limited to just knowledge industry providers. Punctuated by the passage of the Sarbanes-Oxley act, these events are leaving a permanent imprint on the business practices of clients and potential clients in every industry."