The Quiet Power: How Consulting Firms Influence Industries and Policy Making

The Evolving Landscape: Consulting Firms, Policy, and the Imperative of Accountability

In today’s intricate global economy, consultancy firms have transitioned from mere advisors to indispensable strategic partners for both multinational corporations and governmental bodies. Their role extends far beyond offering recommendations; they are increasingly shaping industry landscapes and, in significant yet often understated ways, influencing national policy. While their contributions undoubtedly bring valuable expertise and drive efficiency, this profound involvement has naturally ignited vital discussions surrounding transparency, accountability, and the emergence of what is often termed a “consultocracy”—a phenomenon where external counsel heavily sways both public and private sector decisions.

At CA Sweta Makwana & Associates, our firm is dedicated to guiding businesses through the complexities of regulatory frameworks. In this capacity, we observe firsthand the dynamic interplay between policy formulation, industry evolution, and the advisory ecosystem. A clear understanding of the mechanisms through which consulting firms exert their influence is paramount for businesses, policymakers, and indeed, every citizen.

The Rise of the “Consultocracy”: Understanding the Dynamics

The term “consultocracy” aptly describes the growing power and pervasive influence that consultants wield within public administration and the policy-making apparatus. This evolution is propelled by several key drivers:

• Specialized Knowledge: Governments and industries frequently encounter challenges of unprecedented complexity—be it digital transformation, economic recovery post-crisis, or the multifaceted demands of climate change. These issues demand niche expertise and sophisticated analytical capabilities that are often not readily available within internal structures. Consulting firms seamlessly bridge this knowledge gap.
• Agility and Efficiency: Consultants offer a flexible and rapid deployment model. They can be engaged for specific projects with stringent deadlines, providing agile support without necessitating an expansion of the permanent public sector workforce.
• Perceived Objectivity: Public officials, particularly when grappling with difficult or politically sensitive decisions, may enlist external consultants to provide a seemingly neutral and unbiased analysis. This external validation can lend crucial credibility to proposed reforms or existing processes.
• Potential Erosion of Internal Capabilities: Paradoxically, a persistent and heavy reliance on external consulting firms can, over time, lead to a “hollowing out” of internal governmental expertise. As civil servants become less directly involved in the granular details of policy design or implementation, their intrinsic capacity and institutional memory may diminish, fostering an increased dependency on external advisory services.

Mechanisms of Influence: Beyond Simple Recommendations

The influence of consulting firms on policy and industry extends well beyond the provision of simple advisory reports, permeating various strategic channels:

• Direct Policy Development and Strategic Formulation: Evidence suggests that consulting firms are often directly involved in the drafting of policy recommendations, the development of strategic blueprints, and even the hands-on management of large-scale government projects. For example, a 2023 report from the French Senate highlighted consultants’ involvement in the majority of significant reforms during the first Macron quinquennium, including their critical support for the COVID-19 vaccination campaign’s management.In India, the “Big Four” professional services firms (Deloitte, EY, PwC, and KPMG) have markedly expanded their footprint in government policymaking. Reports from Consultancy.in indicate that these firms secured projects valued at nearly ₹500 crore from various central government ministries and departments between 2017 and 2022. This work encompassed diverse areas such as strategy consulting, policy development, organizational restructuring, and policy evaluations. During the COVID-19 crisis, for instance, firms like McKinsey, BCG, EY, and KPMG were actively advising central and state governments on a wide spectrum of issues, from resource planning to complex healthcare logistics.
• Shaping Industry Standards and Regulatory Frameworks: Consulting firms frequently collaborate closely with industry associations and regulatory bodies. In this capacity, they provide invaluable input on emerging standards, best practices, and the design of regulatory frameworks. While they assist businesses in navigating complex regulatory labyrinths, their input inherently contributes to the shaping of these very rules. In the financial sector, for example, major accounting and consulting firms are recognized for their influential roles within lobby groups that seek to influence EU policy responses to critical issues like tax avoidance. A report by Corporate Europe Observatory, titled “Accounting for Influence,” detailed the “omnipresent” involvement of the Big Four in EU policy processes aimed at tackling corporate tax avoidance, highlighting their influence on public procurement contracts and their presence on expert groups advising on tax policy.
• The “Revolving Door” Phenomenon: A common and often debated pathway for influence is the “revolving door”—a cycle where individuals transition between senior governmental positions and high-level roles within consulting firms, and vice-versa. This fluid movement cultivates extensive professional networks and deep institutional knowledge, which can be strategically leveraged to secure lucrative contracts and subtly influence policy direction. This phenomenon naturally raises legitimate concerns about potential conflicts of interest, where former public servants might utilize their privileged connections and intimate knowledge to benefit their private consulting employers.
• Leveraging Data Analytics and Insights: Consulting firms possess exceptional prowess in data analysis and delivering data-driven insights. Their reports and recommendations, frequently underpinned by rigorous research, can profoundly influence decision-making processes across both the public and private sectors. They possess a unique capability to synthesize and translate the detailed knowledge of civil servants into broader, strategic perspectives.

Real-World Cases and Data Points: Illuminating the Impact

• McKinsey & Company’s Global Footprint: McKinsey has faced considerable scrutiny for its extensive governmental contracts worldwide. In the U.S., reports indicate that since 2008, McKinsey has been awarded over $940 million in federal contracts, with the Department of Defense emerging as a top client. Concurrently, the firm has advised foreign companies and governments, even in countries with complex geopolitical relationships. Their extensive work in Saudi Arabia, for instance, led to the Planning Ministry being colloquially dubbed the “Ministry of McKinsey.”
• Canadian Auditor General’s Report (2024): A critical report by Auditor General Karen Hogan in Canada highlighted that federal organizations frequently “disregarded federal contracting and procurement policies and guidance” when awarding contracts to McKinsey & Company, totaling $209 million between 2011 and 2023. The report explicitly stated that these contracts “often did not demonstrate value for money,” citing instances where organizations failed to justify non-competitive awards and neglected to estimate costs in advance for numerous contracts. While the audit specifically focused on McKinsey, its findings underscored broader systemic issues within government procurement practices.
• India’s “Big Four” Expansion: Deloitte, EY, PwC, and KPMG have significantly expanded their operational footprint in India. Romal Shetty, Deloitte’s India head, recently announced the firm’s ambition to double its annual revenues in the country, having already surpassed the ₹10,000 crore mark in 2023-24 with an impressive 30% growth rate. This robust growth is partly fueled by increased engagement in crucial sectors like financial services and government, unequivocally demonstrating their expanding role within India’s economic and policy landscape. Notably, the Indian government itself has expressed a strategic desire to foster robust homegrown advisory powerhouses, aiming to reduce reliance on foreign firms and address national security concerns related to sensitive data.

Challenges and Debates: Navigating the Complexities

While the specialized expertise offered by consulting firms is often invaluable, their deep integration into policy and industry inevitably raises legitimate and pressing questions:

• Transparency and Accountability: The precise extent of consultants’ influence and the criteria underpinning the award of their contracts often remain opaque. This lack of transparency makes it challenging for the public to adequately assess accountability for decisions made.
• Conflicts of Interest: A significant concern arises when firms advising governmental bodies simultaneously advise private companies within the very industries regulated by those same governments, potentially compromising impartiality.
• Erosion of Public Sector Capacity: An over-reliance on external consultants risks weakening the internal knowledge base, institutional memory, and developmental capacity of government departments, potentially fostering a long-term dependency.
• Cost Efficiency: The substantial fees charged by consulting firms frequently prompt questions regarding whether the value added genuinely justifies the expenditure, particularly when the cultivation of in-house expertise might offer a more sustainable and cost-effective long-term solution.

Concluding Thoughts: Striking a Balance

The pervasive and multifaceted influence of consulting firms on both industries and policy-making is an undeniable reality of our contemporary economy. While they demonstrably bring specialized knowledge and foster efficiency in addressing complex challenges, the evolving nature of the “consultocracy” necessitates greater scrutiny and thoughtful engagement. Policymakers, business leaders, and citizens must collectively engage in ongoing dialogue to ensure that this influence genuinely serves the broader public interest, upholds the highest standards of transparency, and rigorously promotes accountability.

For businesses navigating dynamic regulatory changes or seeking astute strategic advice, a profound understanding of the forces that shape policy is absolutely paramount. CA Sweta Makwana & Associates, recognized as a leading CA in Mumbai and a dedicated compliance specialist for SMEs, startups, and NRIs, offers expert insights to help you seamlessly align your operations with this continually evolving regulatory environment.

We invite you to explore our Startup Advisory Services for comprehensive guidance on business strategy and compliance. How might a clearer understanding of this “consultocracy” influence your strategic planning for the year ahead?