Feld Thoughts urges us to distinguish between consulting and professional services, noting the nearly universal tendency to conflate the two. Here is a distinction that makes a difference for both buyers and sellers, because failure to get the distinction right can lead serious abuses.
Among the biggest abuses during the Internet bubble was the conflation of analysis within investment banks. Banks distinguished between analysts and bankers. The analysts issued recommendations about individual firms based on "research" while the bankers tried to get investors to buy particular stocks. Banks insisted that a "Chinese wall" existed between the analysts and sales people to ensure the credibility of the analysts. But we know that the Chinese wall was in many cases a sham. Forbes, writing about Frank Quattrone's operation at CSFB, "...in Quattrone's
shop research was expected to serve the bankers' interests. The
Internet craze had led analysts at every investment bank to issue
glowing reports on Internet companies that were little more than an
idea and some PowerPoint slides—a process that Bill Burnham, a former
CSFB Internet analyst, calls 'the competitive devaluation of
underwriting standards.'"
In the banking case the investor had little idea that the banks had real interest in companies that they were analyzing. This information tended to be buried in small print, if available at all. Most of us, of course, never read the fine print.
With Feld's distinction and the lessons from the banking case, we might draw the following conclusion: as a consumer, be clear what you are buying under the package "consulting and professional services" because of the potential for conflict of interest. as a seller, don't confuse the two because in the long run trust matters: create your own version of the chinese wall.
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