In August of 2024, I co-authored the article, "Management consulting – A critical juncture" with my colleague Ken Kuk, who is a board advisor to many large professional services firms, on the critical juncture facing consulting firms. We argued that “in today’s polarized world, even the most well-intentioned advice can be misinterpreted or politicized.” After the COVID-19 pandemic and focus on social and political issues that followed, many companies had to address and talk about topics in the workplace that were avoided in the past. We felt then, and continue to believe now, that it’s tough being in the “advice business” in such a polarized world.
What have professional services firms been facing recently?
Beyond the challenges of being in the advice business, there are other significant emerging challenges facing professional services firms today. For example:
- Diversity, equity and inclusion (DEI) was a key campaign topic in the 2024 elections and the Trump administration has formally issued executive orders targeting DEI programs in both the public and private sectors. Many professional services firms had policies impacting their own employees. Additionally, they had businesses that helped their clients implement, manage and govern their DEI programs.
- Because of their stable cash flow and potential for growth, private equity firms have shown interest and started to invest in accounting firms. The private equity ownership structure, which is more focused on consolidation and growth than many accounting firms have been in the past, is already leading to new questions and concerns from clients and prospective clients.
- Accounting firms have long been interested in providing legal services and are now formally taking action. KMPG won approval from Arizona’s Supreme Court to be the first of the Big 4 to practice law in the United States. Opinions in favor of non-lawyer ownership of law firms center on the need to drive innovation. Opinions against non-lawyer ownership center on the potential for ethical abuses and conflicts of interest. Regardless of one’s views on the topic, clients and prospective clients of law firms will have new options for procuring legal advice.
- Several law firms have been targeted by the Trump administration for potential executive orders that would pose a threat to their businesses. Some have come to agreements with the administration and others are pushing back in court. Regardless of the approach taken, clients, prospective clients, lawyers and staff are all watching closely.
- The federal government in the United States is cutting costs and pulling back on consulting spend. Many professional services firms have public sector businesses and some have their brand and reputation closely tied to their work in the public sector. They will struggle to change their business model to pivot toward the private sector.
The decisions that professional services firms make in response to these challenges will have an impact on their brand and reputation for many years to come. Depending on the source, research shows that reputation accounts for anywhere between 25% and 63% of a company’s total market value.[1] Even on the low end, that adds up to trillions of dollars. We believe reputational risks are increasing for professional services firms as they navigate a perilous business environment and need greater attention.
