Final Paper

Running head: THE LEGAL AND ETHICAL IMPLICATIONS 1
The Legal and Ethical Implications
Of An Independent Management Consulting
Robert Haskins
BUS 670: Legal Environment
Peter McCann, JD
11 November 2013

THE LEGAL AND ETHICAL IMPLICATIONS 2
The Legal and Ethical Implications
Of An Independent Management Consulting
“…there is nothing more difficult to take in hand, more perilous to conduct, or more
uncertain in its success, than to take the lead in the introduction of a new order of things”
Niccoló Machiavelli
This report begins with this quote because it emphasizes a fundamental philosophy of
management consulting, to identify a problem and issue a solution that its clients most often will
object but knows it needs. Consulting services is common in 2013; the industry including human
resources, information technology, strategy, operations management, and business advisory
services will exceed $415 billion (Plunkett Research, Ltd., 2013, para. 1). Moreover, the
booming economies of Latin America and Asia have created higher demand for specialist with
the talent to advise in financial, strategy, and process efficiency (Plunkett Research, Ltd., 2013,
para. 5). With this growing demand for management consulting professionals, more emphasis on
the legal and ethical implications placed on the industry needs to be done to keep the integrity of
the profession and protect the individual and their clients.
To achieve the task of illuminating the important issues of legal and ethical standards
upon an industry that rightfully require the professionals adhere to will call for an investigation
into what exactly is independent management consulting and how it relates to legal and ethical
issues. An ethical analysis of the philosophical theories on ethics will offer greater
comprehension of just some of the issues consultants face every day. A look at two of the
philosophies, utilitarianism, and deontology will give specific references towards consulting to
help determine the preferred ethical philosophy to generate the optimal legal outcome for a firm.
Common law dictates the uniformity and legal principles in consulting and this report will

examine three areas of law pertaining to the independent professional, contract law, tort law, and
criminal law. Furthermore, investigating the liability exposure and overall ethical standards of
the independent management consultant industry will assess the type of business entities and the
policies to improve the ethical environment for the individual, the company, and/or industry as a
whole. Legal and ethical issues initiates the motives of an independent management consultant
because using philosophical theories of ethics creates a foundation for legal decisions and using
common law practices formulates the environment as an independent management consultant.
Independent Management Consulting 101
Consultants are a multifaceted profession that appears across diverse industries. “A
consultant is simply anyone who gives advice or performs other services of a professional or
semiprofessional nature in return for compensation” (Cohen, 2001, p. 2). Part of the difficulty in
defining a consultant is determining whether they ought to be called employees of a firm
contracted to work on-site (the client’s premises) or in office, or an independently contracted
consultant working at home, in an office, or on-site. One significant way to distinguish between
the two is by how the Internal Revenue Service recognizes the relationship with the client. “The
individual on an agency’s payroll but assigned to work for the agency’s client and the individual
contracting directly with a client or with a prime contractor is drawn by identifying the first one
as a W2 consultant, and the second one as a 1099 consultant” (Holtz, 1999, p. 12). Although the
legal and ethical issues will not differ dramatically between the two types of consultants, this
report, as previously noted, will examine those issues of the independent management
consultant.
Management consultants are hired to identify a problem and issue a solution to improve
efficiency and profitability. However, many times the problem perceived by the client is only a

symptom of the real problem. “The need to spend time at the beginning doing research,
identifying areas of concern, and mapping out how the different areas of a business affect one
another is often a difficult sell to clients who want immediate results” (The Princeton Review,
2013, para. 1). The characteristics of a good consultant are good listeners, honest, resourceful,
analytical, problem solvers that know how to tactfully communicate how to implement a plan.
The typical consultant will often work 50 or 60 hours a week and travel often to domestic and
international clients. However, compensation is good and greater increases of pay and benefits
come with experience.
The independence in independent management consultant is not only a title but it is also a
noticeable feature of consulting. The position requires an unbiased assessment of the client’s
situation without any afterthoughts of the consultant’s own interest or repercussions from the
client. The consultant will need to have five types of independence to accomplish their goals,
technical, financial, administrative, political, and emotional independence. Technical
independence is to “Formulate a technical opinion and provide advice independently of what the
client believes” (Kubr, 2002, p. 8). The consultant with financial independence will commit to
giving advice with no financial interest in the clients decisions. The consultant shall have
administrative independence when they are not affected by the administrative decisions of the
client. Consultant’s cannot be influenced by the client’s management and/or employees and will
need political independence to keep from making biased decisions (Kubr, 2002, p. 8). These
characteristics and features of independent management consultants are all valuable components
that are all based on legal and ethical principles.
The Ethical Implications on Independent Management Consultants

An analysis of business ethics. One significant attribute of an independent consultant is
integrity because the position requires the person to be in a leadership role influencing
executives, managers, and employees. Therefore, this powerful role demands the consultant to
oblige with strict ethical standards. Carlo Vallini (2007) described ethics as “An expression of
thought rather than instinct in doing…pursuing of our own interests to a self-controlled extent; it
is responsibility in the relationships that includes…the interests of those whose interests are at
stake, loyalty of information and action, respect of super partes interests” (p. 27). Giving advice
will naturally involve the implications of ethics and established moral standards. Having the
obligation to give advice will necessitate the consultant, the person, to have an explicit moral
compass. Those seeking advice will expect this unordinary abundance of moral standards to
withstand the temptations of an independent possibly reaping putative personal gains from the
advice being given. “That is why, when seeking to craft an integrative management consulting
ethics as a guiding principle, it is imperative first to focus on the fundamental justifiability of a
management consultant’s specific consulting understanding” (Hagenmeyer, 2007, p. 110).
Undeniably, the issue of business ethics is a relatively young study that will require further
examination. Especially in the ideals of transparency and accountability philosophies to which
every leader will need to know to create the type of ethical environment an individual, company,
or industry is to thrive.
By applying two philosophical theories on ethics, utilitarianism and deontology to the
independent management consultant profession it will provide exceptional detail into the
framework for type of business ethics needed to succeed in the consultant industry.
Utilitarianism and deontology are placed on either side of the spectrum when it comes to ethical
theory because of the fundamental divide between teleological (utilitarian ethics) and

deontological ideals. “Deontologists basically believe that consequences don’t matter in ethics;
teleologists believe the consequences are the only thing that matters” (Waller, 2008, p. 52). An
analysis of these two ethical theories will give further insight into the contrast and comparison
elements that are relevant to the consultant profession.
Utilitarian theory. The simplest way to understand utilitarianism is to understand that it
is not an appeal towards intuition or an attraction towards reason; people merely want to enjoy
pleasure and avoid suffering. “Starting from this simple principle, ethics becomes a matter of
calculating how to produce the greatest balance of pleasure over suffering” (Waller, 2008, p. 50).
Utilitarian’s believe that any act that creates the greatest balance of pleasure over pain, it is
ethical. The utilitarian will consistently use calculations to determine whether their actions will
result in producing the benefits of a proposed act, policy, or duty. If events occur that were not
anticipated, the calculated consequences may also be wrong. “The best chance of plotting the
right ethical behavior is to make [the] best calculations, based on all the information [that can be]
secured” (Waller, 2008, p. 51). Utilitarian’s pursue this type of philosophy to avoid using
intuition or abstract reason; both considered a flawed perception of the world. Act-utilitarian and
rule-utilitarian have different views on the delivery and specifics of the calculations. Act-
utilitarian determines what should be done by considering the specific act that would produce the
best consequence. The rule-utilitarian “look more deeply at societal practices and institutions”
(Waller, 2008, p. 52). The utilitarian theory of ethics is effectively transformative to business
ethics because of the nature to produce the greater good with the minimal amount of pain.
A utilitarianism principled independent management consultant sees the moral standards
to achieve the right course of action would be to produce the best results possible for their clients
and limiting the pain of drastic changes. A consultant using utilitarianism will adhere to either

act-utilitarianism or rule-utilitarianism as the best fit for them in making those changes in the
business model. For instance, if the consultant uses rule-utilitarianism they will seek to make the
calculations to produce the greater good by taking known practices of change management to
maximize the effect and minimize inefficiencies.
Deontology theory. Another philosophical theory of ethics is deontology, the theory
originating from the concept of individual moral duty. This is to contrast the consequential view
of ethics similar to the aforementioned utilitarian theory. Consequentialists believe the choices
they make are morally assessed according to the results of the act. Deontologist consider the
morality of the choices and not the results those choices create. “The most familiar forms of
deontology…hold that some choices cannot be justified by their effects—that no matter how
morally good their consequences, some choices are morally forbidden” (Stanford Encyclopedia
of Philosophy, 2012, para. 13). Seaquist (2012) emphasizes this point by contrasting the
deontological view with utilitarianism stating, “The rights of the individual are very important
and there are some things one should not do, even if they would benefit a large number of
people” (p. 49). The deontological view of justifying the means to create an optimal result is
countered with the idea that people must act out of respect to the moral law. “The deontological
approach…is the way to balance the teleological dualism of means and ends by adding the
regulative dimension of the concept of moral duty, which manifests itself in self-imposed
constraints regardless of potential unwanted consequences for the acting entity” (Micewski &
Troy, 2007, p. 20). The stark differences between utilitarianism and deontology identifies
specific areas that independent management consultants behave and molds the psyche of those in
the profession to do the right thing, the definition of ethics.

The consultant that behaves with deontological approach will assess their decision based
on the actual choice and not the result of the choice. Thus, the consultant will weigh whether the
decision to modify a process according to the needs of the present over the results of the future.
More importantly, the deontological decision-making process keeps the patron legally and
ethically legitimate.
A careful evaluation of the two ethical theories, utilitarianism, and deontology has
expanded the comprehension of the optimal ethical environment for the independent
management consultant. This report has determined the philosophy to achieve the best legal
outcome for an independent consultant is the theory of utilitarianism. The consulting profession
is related to project/goal oriented processes and a utilitarian worldview would fit well in the
industry because of the similarity of the means justifying the ends. Although the ethical theory
we are discussing does not address the legality of the means, it does recognize that it is the moral
decisions that we make to create the greatest for the whole.
Areas of Law Relevant to Independent Management Consulting
Contract law. Common law dictates that the precedence and traditions of a society will
often outline the law itself. Contract law has been created to bind a relationship between two or
more entities to facilitate trust between those involved. For instance, a contract enforces and
protects an agreement or promise. A contract is comprised of five elements, offer and
acceptance, consideration, capacity, and legality of purpose, all of which needs to exist in order
for there to be a valid, enforceable contract. Contracts are made to keep a promise and validate
trust enforceable by legal authorities.
The independent consultant’s interest in contract law is validated since it establishes
credibility with the promisor and promisee. Furthermore, a contract confirms that the consultant

and the client understand the scope of the project, the obligation of the consultant, and their
authority. There are four distinct types of contracts that most consultants agree to, fixed-price,
cost, performance, and incentives contracts (Cohen, 2001, p. 111). There is no one type of
contract that is preferred over the other, but are more accustomed to fit the situation.
Tort law. The purpose of tort law is to remedy civil infractions inflicted on an
individual. This is in contrast to criminal law to which is an infraction on society. Furthermore, a
tort crime will have at least three elements, an act by the defendant, the defendant comprehends
the consequences, or intent, and the plaintiff suffered damages due to the actions of the
defendant (Seaquist, 2012, pp. 105-106). These three elements of tort liability establish the
intentional, comprehension able consequences. When the tort is unintentional, the defendant is
said to be negligent. The elements of negligence are a process to establish that negligence is
appropriate. These elements are:
Duty of care. This is the first step towards establishing negligence and it creates the
notion that a person is expected to behave in certain circumstances. “A duty of care…is the
standard of behavior expected of a person in a particular situation” (Seaquist, 2012, p. 122).
Standard of care. This element defines the reasonable behavior of the defendant and
establishes this behavior as the standard. Thus, “Falling below the duty of care is not exercising
the care that a reasonably prudent person should have exercised under the circumstances”
(Seaquist, 2012, p. 123).
Breach of the duty of care. When the defendant creates the standard of behavior to
avoid the risk of causing damages, it is said to have prior knowledge and presumes duty of care.
“A person who acts carelessly – unreasonably, without due care – breaches the duty of care, and
such conduct is characterized as ‘negligent’” (Owen, 2007, p. 1607).

THE LEGAL AND ETHICAL IMPLICATIONS
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Actual causation. This element of negligence is a lesson in cause and effect by testing
the hypothesis asking the question, “but for the existence of A, would B have occurred?” (US
Legal.com, 2013, para. 1).
Proximate causation. The next element, proximate causation, implies that the plaintiff
may not be negligent if the space and time between injury and negligence have no relevance
(Seaquist, 2012, p. 125).
Actual injury. The last element is a culmination of the previous elements and the result
of each. For example, actual injury is the damage a plaintiff suffers because of the proximate
causation of a defendant’s breach of duty (Owen, 2007, p. 1685).
Defenses to negligence. Despite having been proved through the elements of negligence,
a defendant could escape liability by providing evidence for one of three defenses, contributory
negligence, comparative negligence, and assumption of risk.
Contributory negligence. The defendant could use this defense when the plaintiff is
partially at fault. If this defense is used and the plaintiff is found partially at fault, it is possible
the plaintiff will not receive any compensation (Seaquist, 2012, p. 126).
Comparative negligence. A modern update of the contributory negligence is the
comparative negligence. This defense would still allow some recoverable damages for the
plaintiff. Thus, this defense reduces the possible reward because “The plaintiff's damages are
reduced by whatever percentage her own fault contributed to the injury” (Environmental Law
Online, 2013, para. 4).
Assumption of risk. The third defense against negligence is to prove that the plaintiff has
previous knowledge of a product or activity to be dangerous. The difficulty for the defendant is
to prove “The plaintiff knew or should have known the inherent danger of engaging in the

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activity in question and whether he or she voluntarily assumed that risk” (Seaquist, 2012, p.
128).
Criminal Law. This type of law considers the infractions committed are harmful to
society as a whole. This will involve various types of people to bring justice to those that have
been harmed. In criminal law there are two elements to every crime that the prosecutor will need
to identify to convict a person, “A criminal act or omission by the accused and the existence of a
wrongful state of mind or intent at the time of the commission of the wrongful act or omission”
(Seaquist, 2012, p. 83). These elements of a crime do not necessarily require an act of intent
failure to act will not result in criminal liability unless the accused had a duty to act. For
instance, a producer of a television show is not liable for the actions of their star actor while the
actor is off duty. However, if the producer had seen the actor drunk and about drive while
working, there could be a special relationship that could cause the producer to have a duty to act.
White collar and corporate crime are two types of criminal activity that occurs in the
workplace. White-collar crimes are individuals that commit crimes against the company thus,
doing harm against them. Corporate crime is criminal activity that affects the economy and
society. This type of crime can have devastating impacts on people. Therefore, corporate crimes
are more serious than white-collar crimes.
Liability Exposure
A business is created because of a person’s idea, instinct, or dream but the creation of the
entity will require a fundamental decision of what type of business it be organized under, a sole
proprietorship, corporation, or a limited liability company (LLC). By examining each of these
types of organizational forms to comprehend the impact these forms have on personal liability.
In addition, as these forms are compared and contrasted, a clear view of the types of

12
organizations will formulate the optimal choices for the independent consultant to take. Even
though more expensive to create than a sole proprietorship, LLC is the best type of
organizations because owners have limited personal liability for business debts and IRS rules
now allow LLCs to choose between being taxed as a partnership or a corporation.
Sole proprietorship. Perhaps the simplest form of business is the sole proprietorship
because of its definition of being a company owned and operated by one person. An
entrepreneur may form a sole proprietorship because of its ease to create and having “Complete
authority, within the boundaries of the law, for the running of the business, and does not need to
report to any other person” (Liuzzo & Bonnice, 2007, p. 292). However, those who decide to
become sole proprietors will need to understand they are liable for all the legal debts and
obligations of the business. This type of business entity is common for the independent
management consultant due to its solitary work environment.
Corporation. In a corporation, the owners have become those who invest capital into the
entity, they call themselves stockholders. Stockholders elect the directors that will elect or hire
managers to operate the company. “The law grants a corporation status as an artificial being
much like a person for most purposes” (Seaquist, 2012, p. 427). Thus, a corporation acts as
though it is a person, can own property, and borrows money. Furthermore, the stockholders of
the company are not personally liable for corporate debts and suing the corporation can occur. If
the independent management consultant decides to incorporate themselves they will have heavy
taxes levied on it because they “Have a ‘double tax’ problem, both corporate profits and
shareholder dividends are taxed, corporate profits are taxed at a lower rate than the rates for
individuals” (Cornell University Law School, 2013, para. 4). Moreover, the personal liabilities

13
of the shareholders are protected under the veil of the corporation. Therefore, a personal liability
lawsuit will not personally affect individuals, rather than the corporation itself.
Limited Liability Company (LLC). The LLC is the “goldilocks” of business
organizational forms because it takes some of the advantages of the sole proprietorship form and
combines with some of the advantages of corporations. For instance, LLC’s provides the limited
liabilities of a corporation and the tax implications of a partnership. Even with having limited
liability, the members of the company shall also have the ability to manage the day-to-day
activities of the company. “As is true for all small firms, the owners of an LLC frequently have
difficulty in raising additional funds to expand or maintain the business” (Liuzzo & Bonnice,
2007, p. 298). Independent management consultants are protected from personal liability under
the rules of a LLC. However, the company can suffer tremendous losses if not protected by
liability insurance or other forms of insurance.
Conclusion
The legal and ethical issues that independent management consultants face every day are
often times daunting. This report has uncovered many of the implications that create the
foundational and fundamental aspects of the consulting profession. Once a comprehensive
examination of the profession was conducted, it revealed that the consultant could be one of two
types of employment, one that works for a firm contracted to a client working on-site or in
office, or an independently contracted consultant. Moreover, the first step to illustrate the legal
and ethical issues was to examine two types of ethical theories. It was concluded that
utilitarianism was an ideal philosophy of ethics to affect the independent consultant the greatest.
The report also investigated three relevant areas of law that the consultant needs to consider,
contract, tort, and criminal law. Furthermore, this lead to examining the liability exposure of the

14
independent consultant, choosing the limited liability company as the optimal option in the type
of business entity that would protect the consultant from personal liability. This report produced
the vital evidence that legal and ethical issues initiates the motives of an independent
management consultant because using philosophical theories of ethics creates a foundation for
legal decisions and using common law practices formulates the environment as an independent
management consultant.

15
References
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Environmental Law Online. (2013). Negligence - Defenses To Negligence Liability. Retrieved
October 14, 2013, from http://jrank.org: http://law.jrank.org/pages/8785/Negligence-
Defenses-Negligence-Liability.html
Hagenmeyer, U. (2007, April). Integrity in management consulting: a contradiction in terms?
Business Ethics: A European Review, 16(2), 107-113. Retrieved October 26, 2013, from
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Owen, D. G. (2007). The Five Elements of Negligence. Hofstra Law Review, 35(4), 1671-1686.
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