Recent scandals, such as Hertz suing Accenture for £32 million over a defective website revamp, have exposed major high-profile conflicts of interest and misconduct by third-party consulting firms. Though the issue of conflict of interest is now firmly in the limelight, you should be aware that, unlike recent high-profile cases, not all types of conflict of interest are subject to regulatory oversight. In fact, certain conflicts of interest are not exceptional, but all too common, and quite ingrained in the same old way of doing things. That’s why it’s crucial to protect your business by not only making yourself aware of the types of conflicts of interest that may be affecting you, but also getting proactive and taking appropriate action.
Modern business is known to be structured as a nexus of contracts, consisting of shareholders, employees, clients, vendors and partners. Contracts are defined to regulate the general terms of working and to mitigate risks for all parties in worst-case scenarios. For these relationships to work, contracts need to define and represent a chain of trust.
For a true chain of trust to exist, the objectives and incentives of both parties should be aligned.
Why? If objectives and incentives are not aligned, the balance inesorably ends up breaking – making it harder for you to achieve your objectives. Thankfully, you can take control of this alignment so the chain of trust can remain strong.
Of course, this applies to any kind of contract inside your business (eg: an employee contract) and outside your business (eg: contracts with third parties).
When needing to fast-track your business, you are likely to seek specialist support services to leverage the expertise of others in order to advance your learning curve in a specific domain. When engaging these third parties, it’s crucial that your provider has your business’s interests at heart. If it doesn't, it poses a risk. And it’s a risk you need to be aware of. The most common external partners are consultancies and marketing/media agencies which are also the ones taking their fair share of posing conflicts.
You’ve engaged a classic large consultancy for a digital strategy. You assume they have your best interest at heart. However, the strategy calls for a digital development partner, which they suggest they can provide as part of their own services.
This creates an instant bias – the consultancy firm has suggested strategy requirements that rely on the development services that they provide. This is a clear conflict of interest. Having them doing the development is obviously the path of least resistance, but it locks you into the consultancy’s ongoing billing trap and may not serve the interest of (or be the best solution for) your business.
Your business needs to be aware of the danger of this conflict of interest. Review and challenge the proposed strategy to establish a shared purpose of interest. Only accept aligned incentives. Resist the urge of going for the easy and fast choice of hiring a consultancy firm for the development phase. Instead, take the time to find the right third parties who are the best fit for the execution.
You engage a large consultancy that provides ‘strategy only’. They come up with a strategy for you. However, they do not take any responsibility for the delivery of the project. There is no skin in the game. And so – you take all the risk: the execution – and the success or failure – of the strategy is all on you.
Create a shared promise. Make the strategy team crafters responsible for executing the strategy alongside your business leaders. Clearly express the expectations from the strategy to the leadership team and (ideally) get internal expert buy-in on the proposed strategy – IMPORTANT: do not look for general consensus (which is the death of leadership), but for the buy-in of the experts in each of the facet of the strategy. Establishing this alignment will be a key element of success, and without it the shared purpose is unstable. Even if your strategy firm leaves the project after delivering the strategy plan, if you can successfully create a mutual agreement, assign clear accountabilities and buy-in for execution from your leaders, then the strategy will have a real chance of being carried out successfully.
A lot of consultants get a commission or fee from third parties for bringing them new business. This disgusting practice creates an environment where the consultant is biased towards using or recommending the services of such third parties in their proposed strategy, as they get a financial reward to do so. Again, this is a clear and deeply unethical conflict of interest, as the recommendations are highly likely not be in the best interest of your business (eg: capital intensive builds and tools).
To avoid this conflict of interest, be clear: express that you do not want to work with consultants that get a kick-back from bringing new business to others. Make this official by putting a clause in your contract that insists that the consultant must confirm commercial independence and that has not received any (direct or indirect) financial reward from third-parties over at least the last five years.
Most agencies work with a remuneration model calculated on a percentage of the media that they buy on your behalf. In addition, they also get commissions from the publishers they work with. The more you spend, the more they earn. Plus, the highly questionable system of commissions casts a shadow on how trustworthy their choices of media are for your campaigns. Is their media plan solely based on your interests or their commission structures with their publisher partners? Want to find out more? We've written a separate article on this very topic.
Say no to a pricing structure based on a percentage of the media you buy. Instead, pay a fee based solely on FTE. The aim is to ensure that your media agency will choose the right media for your business and campaigns without the bias of pocketing increased rebates. Get visibility on the rebate commissions the agency receives from publishers by asking about their partners and the media they get the most rebates from.
If you are affected by any of the four conflicts listed above, it’s time you take back control. Turn the tables.
Here are some take-aways to think about any time you suspect a conflict of interest from your 3rd party partners: