Pressure to Soften an Unfavorable Conclusion
You complete a farm management review for a client seeking a $2.4 million operating loan. Your analysis concludes the operation's working capital is negative $85,000, the current ratio is 0.8, and projected cash flow covers debt service only 1.05 times - below the lender's 1.25 threshold. The client's banker calls and asks you to "reconsider the projections" because a large equipment dealer has offered favorable terms that would improve the balance sheet, and the client is a longtime customer. The client separately emails asking you to "leave out the working capital line" because it "looks worse than it is" and notes other consultants "are more flexible." Your fee is partly contingent on the loan closing.
1. How should you handle the banker's request and the client's email?
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Both requests ask you to alter a professional conclusion to serve an outcome, which is the core ethics issue. Respond to the banker in writing: you will update the analysis if new verifiable information arrives (e.g., a signed dealer financing agreement that changes the balance sheet or cash flow), but you will not revise projections to reach a predetermined ratio. Respond to the client similarly: you can add narrative explaining the equipment financing opportunity and its potential effect, but you cannot omit the working capital line - a material solvency indicator - because doing so would mislead the lender who relies on the report. Offer to present a sensitivity analysis showing the improved scenario transparently. The report should distinguish documented facts from projections and label assumptions clearly.
2. What should you do about the contingent fee arrangement, and why does it matter here?
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The contingent fee is the structural problem: being paid only if the loan closes creates a direct financial incentive to reach a favorable conclusion, which compromises independence and would undermine the report's credibility if disclosed. Recommend converting to a fixed or hourly fee independent of the financing outcome, and disclose the arrangement to the client and lender if it cannot be changed before the report is issued. Independence is not a formality - a consultant whose compensation depends on the answer cannot credibly certify the analysis, and the lender's reliance on the report makes the conflict material. Document the fee discussion and the disclosure. If the client insists on the contingency, decline the engagement or issue the report with an explicit statement of the conflict so no reader is misled.