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Controversial EU Nomination Recalls Broader Consultancy Scandals – Analysis

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After German defence minister Ursula von der Leyen emerged as the surprise pick to succeed incumbent EU Commission President Jean-Claude Juncker, she is still struggling for support from Green MEPs. The faction laments her lacking green credentials, but realistically speaking this is VDL’s smallest problem. Concerns which should weigh heavier in Brussels include the severe criticism levied against her for suspected wrongdoing surrounding its use of outside consultants, including Accenture and McKinsey. With her candidacy embattled, a light has been shed on the controversies surrounding the Big Four and other major international consulting firms and their role in public and private decision-making.

Break from tradition

Von der Leyen, a member of Merkel’s Christian Democratic Union and a close ally of the chancellor’s, would be the first woman to lead the Commission. But MEPs are angry that the Council has picked a candidate who isn’t a former head of state and who hasn’t so far featured in the European election campaigns, claiming that the process should respect the Spitzenkandidaten or ‘lead candidate’ system. It doesn’t help that von der Leyen has never worked in EU affairs and is dogged by allegations of misspending and mismanagement at the defence ministry – some of which are still under investigation – as well as accusations that the German armed forces are underfunded and under-resourced.

Von der Leyen has another skeleton in the closet, however, one that strikes at the heart of the EU’s perceived failure to address systematic nepotism and corruption by those in public office. The Bundestag is currently holding hearings into accusations that von der Leyen’s office bypassed public procurement rules when granting contracts worth millions of euros to consulting firms McKinsey and Accenture. The investigative committee will also explore whether the Commission candidate was guilty of nepotism when she hired ex-McKinsey consultant Katrin Suder as her deputy in charge of overseeing the defence ministry’s arms procurement.

Par for the course

The McKinsey-Accenture scandal may well tarnish von de Leyen’s run for the EU’s top job, but it’s business as usual for the major consulting firms, nearly all of which have been involved in their share of dirty dealings in recent years.

McKinsey may employ tens of thousands of people and enjoy annual revenues in excess of $10 billion—but its ethical reputation is certainly less than stellar. Recent investigation by the New York Times have shone a spotlight on the company’s darker practices, particularly its troubling history of aiding authoritarian regimes from Kiev to Beijing. The reports have called into question the morality of producing information for governments – like a dossier on Twitter users opposed to the Saudi Arabian regime – that has led to the arrest of dissenters.

Accenture, meanwhile, was forced to pay £150 million earlier this year to settle a tax dispute stemming from the massive LuxLeaks scandal. It was particularly troubling for a company paid to advise on accounting matters. In an unrelated kerfuffle, car rental giant Hertz is suing Accenture for $32 million after the consulting firm failed to meet a single deadline or fulfil the most basic elements of the agreement it had signed to redesign Hertz’s website.

Getting too complacent?

Yet even these contentious contracts pale in comparison to the laundry list of controversies which the ‘Big Four’ accounting and consulting firms – KPMG, EY, Deloitte and PWC – have been implicated in. The recent, and very public, scandal that hit the news as a result of the catastrophic collapse of UK services company Carillion was blamed in part on the ‘parasitical’ relationship between Carillion and its auditors, KPMG and Deloitte. The special government committee charged with investigating Carillon’s disintegration accused the Big Four of operating as a ‘cosy club’ who took £72m in fees in the years leading up to the firm’s demise without providing proper scrutiny.

In another ongoing dispute, EY is facing accusations from British fund Polygon that the firm is allowing Spanish real estate company Realia to use an unusual accounting method to artificially lower its assets’ value so main shareholder Carlos Slim can pick up additional shares at low cost. The ECO method, an unconventional approach only used in Spain, (under)values residential land by considering only liquidation value and has permitted Realia to obtain valuations up to nine times lower than it should have. EY’s involvement has sparked fears that the auditing company is not presenting a true image of Realia’s valuation.

Meanwhile, just in the last few months, KPMG has been fined millions for a host of dodgy audits, investigated for its role in multiple firms’ collapse and potential conflicts of interest. The company is most recently in hot water for appointing itself administrator of British pastry chain Patisserie Valerie despite being aware of the potential conflict as Grant Thornton, which audits Patisserie Valerie, as it is also KPMG’s auditor.

Time to break up the club?

This industry has long operated largely unchecked despite calls to break up these big firms. A planned review of the governance, controls and culture at KPMG by the UK’s Financial Reporting Council (FRC) faced robust opposition when it was announced that the review would be led by a former KPMG employee, Sally Dewar. The UK’s Competition and Markets Authority (CMA) has so far rejected calls for the breakup of the Big Four but acknowledged that the decision would have to be revisited if the audit profession didn’t show any progress.

Von der Leyen faces an uphill fight to be confirmed in the EU’s top job, in no small part thanks to her cozy connections with controversial consulting firms. What better way for her to prove her critics wrong than by taking serious action against the Big Four if she becomes the next Commission President?



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Theodoros Papadopoulos

Theodoros Papadopoulos is a consultant and researcher based out of London, specialized in the institutional evolutions of Eastern Europe and Africa.

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