DiamondCluster made an interesting move Tuesday that demonstrates, once again, its distinct perspective on being a publicly owned consultancy.

In a segment wracked by layoffs, Diamond opted to cut partner pay 10 percent and initiate a hiring freeze rather than cut staff. The announcement vaguely reminds us of Lee Iacocca’s early ‘80s gambit to run Chrysler for $1 per year. Compared with some other consultancies, Diamond comes across as downright humanitarian.

In fact, private partnerships routinely lop off bonuses and freeze hiring during down cycles. Many of the nonpublic consultancies have already made such moves within various practice groups to offset a rotten first quarter. How does Diamond get away with behaving like a private firm? Why didn’t the company pink-slip 10 percent of the workforce and hold onto the money?

Well, for those who know him, Diamond CEO Mel Bergstein might be audacious enough to play against normal slice-and-dice tactics. But in reality, Diamond built a self-defense mechanism into its governing process that forces consensus by compensation.

At the risk of oversimplifying a complex process, Diamond mandates that partners approve the compensation plans presented by the CEO. The CEO must get 70 percent approval from the partners in order to retain his job. Anything less than 70 percent triggers an automatic ousting of the CEO. Call it an internal poison pill that assures overwhelming agreement.

Balancing the workforce against profits is a game of chicken with almost any consultancy. The business forecasting tools are rudimentary when you’re selling ideas to a fickle client. Diamond partners are betting that business will be on the upswing by the third quarter. They also know that layoffs can scar a consultancy’s psyche and drive away even more folks.

Diamond had the foresight to build a mechanism that requires a united front during good times and bad. Obviously, a majority of partners would rather lighten their wallets than turn away staff. Let’s see if this is the right idea on which to agree.

Heard on the street
On May 13, The New York Times cites Consulting Information Services’ forthcoming collaboration with Alpha Publications—Consulting Services in the U.S.A: 2001-2006—to confirm that e-business will ultimately dominate consulting services. Our research indicates that by 2004, as much as 60 percent of services will be “e-related” at the largest consultancies. The Alpha report will be released in June. E-mail CIS now for more information and a special 10 percent prepublication discount.

About the author

Inside Consulting is written by Tom Rodenhauser as a free weekly supplement to The Rodenhauser Report. The report informs senior advisors and business executives of consulting trends and best practices. Subscription cost is $295 per year for 10 issues. Copyright 2001, Consulting Information Services, LLC. Reproduction is prohibited. Quotation with attribution is encouraged.