09 August 2014

What is a consultant?

It's amazing how many businesspeople do not contemplate the implications of this question. There have been too many times where I have heard some managers say, "If you don't want to be on payroll, why don't you work as a consultant?"

This is wrong on so many levels, as it concentrates on form rather than substance, and it sees the matter as a tax question rather than one of justifiable necessity for the business. We must understand the different types of workplace relationships that exist, and the differences that exist between them:
  • employee (whether full- or part-time),
  • officer,
  • director,
  • agent,
  • partner,
  • independent contractor, and
  • consultant.
Beginning at the end of the list, probably the best definition of what a consultant does can be found in this model clause I've come across. It's from the US, and the wording could be tightened up, but it does convey the general idea:
 It is understood that the purpose of the Consulting is to provide periodic review and advice relevant to certain Company matters, and that neither Consultant nor Company will benefit if Consultant provides inaccurate advice or commentary based on insufficient information. To that end, Company shall provide Consultant, in advance of meetings, with accurate, unbiased and sufficient information for him to review the subject matter thereof, and shall promptly provide further information that Consultant reasonably deems relevant to forming any pertinent conclusions relevant to the matter for discussion. It is expressly understood that Consultant has no fiduciary obligation to Company, but instead a contractual one described by the terms of this Agreement; that Consultant’s role is to provide independent advice uninfluenced by commercial concerns; and that service as a Consultant does not require him to be an advocate for Company or its products in any forum, public or private. Company expressly agrees that under no circumstances will this role be compromised or inaccurately represented.
 In short, a consultant is called upon:
  • to review and advise on specified issues,
  • to expect complete cooperation from the client in obtaining the information needed to accomplish the task,
  • to be independent in his approach, and
  • not to be an advocate for the client.
Notice as well that this type of relationship means that he is not:
  • an employee, as his output is not subject to the client's control.
  • an officer or director, as he does not have the capacity to make decisions that directly affect the client.
  • an agent, as he does not have the capacity to bind the client.
  • a partner, as he does not have the ability to share in any gains or losses from the client's activities.
  • an independent contractor charged with the responsibility to provide a specific deliverable beyond his reports.
Our CMA training provided us with the capacity to assess strategic issues within a broad context, which directly ties in to this area. Our professional training has also included business management experience, so we can also step into more active roles, should our subsequent client engagements call for such moves. I am ready to help provide success in all such aspects.

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