Why ‘outsiders’ are both loved & hated
Getting the most from service providers and vendors

Service providers, vendors and consultants are often loved by boards of directors and CEOs, but hated by rank-and-file managers — and for many of the same reasons.

For boards and CEOs, outsiders:

• Implement needed changes

• Deliver a fresh and independent perspective

• Operate above “office politics”

• May deliver group purchase savings and discounts

• May exhibit more initiative and drive than existing department heads

• Bring accountability

• Deliver skills, staffs, systems and equipment not affordably available in-house

For rank-and-file management, outsiders:

• Challenge outdated, but comfortable methods

• Identify problems previously kept secret from the CEO or board

• Threaten vested power centers by distributing information previously kept close-to-the-vest by some managers

• Hurt egos with what is interpreted as criticism

• Operate outside the “chain of command”

• Intrude into departmental cliques

• May cast certain team members in unfavorable lights

Avoiding & mending rifts

At the outset, upper management must explain rationales for bringing in outside help, goals and expected outcomes and why one outsider was chosen over another. Beyond that, lower managers may need to be reassured their opinions remain valued and their positions are safe.

“If a consultant can be the catalyst to help a company clarify their priorities and take action on the things they already know, they’re worth much more than the high fees they charge,” says Allen Eskelin, CEO of Peak Portfolio, a portfolio management, decision-making and negotiating advisor. Rank-and-file managers, many of whom may have recommended similar operational changes in the past, may use the “credible outside opinion” to achieve what they sought all along.

“Ultimately, this helped us get the approval we needed to do what needed to be done in order for the company to continue its rapid growth. That was worth every penny the company paid the consulting firm,” Eskelin says, referring back to a time when he was a rank-and-file manager himself.

Upper management must take steps to ensure managers share relevant information, do not install roadblocks or take other (in)actions that inhibit successful outcomes. Methods of achieving success are creating dual-reporting structures, discouraging one-sided communication and setting implementation deadlines.

Sometimes, different (legal, compliance, marketing, finance, etc.) opinions may be in opposition. In these instances, CEOs must weigh the pros and cons of each, act as general contractor and not let one opinion trump another.

Sinister associations

Discomfort and tug-of-war battles are to be expected when dealing with outsiders. CEOs, therefore, should be suspicious when a department head is actually enamored with a current or previous provider. Sinister reasons for such behavior include:

• Illegal kickbacks (“off book” items such as media commissions, etc.)

• Receipt of lavish gifts

• Love affairs

• Sharing of insider trading information

• Job offer potential

• Embezzling

In 2006, Wal-Mart terminated marketing chief Julie Roehm after learning she had arranged for company-paid travel to conduct an affair, accepted lavish gifts such as Vodka by the case and sought a job with an advertising agency she was supposed to be evaluating. Wal-Mart further charged Roehm had been seen eating off the same plate and “sitting in the lap” of the agency executive who was later awarded Wal-Mart’s $580 million account.

In a court filing, Wal-Mart said, “improper conduct, favoritism and receipt of gifts and gratuities harmed the company’s image by creating and appearance that Wal-Mart’s $580 million advertising budget would be awarded based on personal considerations, connections and favoritism rather than on efficiency, sound business judgment and the best interests of the company.”

“Employee theft and embezzlement is a problem of major proportions. Annual employee theft losses in the United States are estimated at $200 billion per year, or over $500 million per day. This estimate is more than ten times the amount lost through all other crimes combined. In banks, for example, 95 percent of theft losses are from employees while only 5 percent are from robberies and customer theft. In retail businesses, about 70 percent of theft losses are internal,” according to Edward H. Osborne of Mariefta College in a 1995 white paper.

See also, COCO+CO.’s “Resolution of Principles.”

Submit your comments to creative@cocoboston.com.

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