Two long-standing clients on opposite sides of the same advice
A regional business advisory firm has prepared the accounts of Client B, a wholesale food supplier, for nine years. It also knows B's gross margins in detail from that work. Client A, a bakery chain with 12 stores, now engages the firm to advise on expanding into a nearby town. The engagement would include site selection, market analysis, lease negotiation support, and a review of A's supplier arrangements, including what A should be paying for wholesale inputs. Client B derives roughly 30% of its revenue from Client A. Separately, the partner leading the A engagement mentions that their brother-in-law owns a commercial property in the target town and has a suitable site listed for lease. The firm's fee from A would be approximately four times the annual fee from B.
1. Identify every conflict in this situation, distinguishing the ones that are real from the ones that only look real.
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Three distinct conflicts, with different weights:
- Client against client (real, and the serious one). The firm would use knowledge of B's margins - obtained in confidence - to advise A on what it should pay for wholesale inputs. Even if the firm never quotes a number traceable to B, advice that A should push supplier pricing down operates directly against B. This is not a theoretical conflict: the confidential information and the adverse advice are the same subject matter.
- The firm's own interest (real, but manageable). The A fee is roughly four times the B fee. That is a structural incentive to resolve any doubt in A's favour. It does not disqualify the firm, but it means the conflict assessment must be made by someone whose income is not affected by it.
- The partner's personal interest (real, specific and narrow). A relative's property is a candidate site. The conflict is confined to the site-selection component and can be ring-fenced precisely - unlike the client-client conflict, which runs through the whole engagement.
The distinction matters because the remedy differs: conflict 3 can be managed by disclosure and exclusion; conflict 1 may not be manageable at all.
2. What would you do about each conflict - manage, disclose, or decline - and what is the reasoning?
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Conflict 1 - the supplier review. Decline that component.
Managing it would require B's informed consent to the firm using its margin data against it. B will not sensibly give that, and asking damages the relationship regardless of the answer. The alternative - carving the supplier review out but keeping the rest - is workable only if the market analysis and site selection do not reveal supplier economics. Test it concretely: would the market analysis report contain anything A could use to squeeze B? If yes, the carve-out is cosmetic. Recommend A use a separate firm for the supplier work, and be explicit with A about why.
Conflict 2 - the fee imbalance. Disclose internally, not to the client. It is not a disclosable conflict to A, but it is exactly why the decision on conflict 1 should not be made by the partner whose revenue depends on A.
Conflict 3 - the brother-in-law's site. Manage, with precision. Disclose to A before any site list is prepared, in writing, naming the relative and the property. Exclude that site from the firm's analysis, or have the comparison of it done by someone independent of the partner. A client can consent to a disclosed personal interest; it cannot consent to one it never hears about.
The reasoning running through all three: you manage conflicts by narrowing what you do, not by promising to be careful.
3. Client A says: 'We don't mind about the supplier review - just do it, we trust you.' What is the correct response?
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Client consent does not transfer. There are two clients, and only one of them has been asked.
The response: explain that the constraint is not A's trust in the firm, but the firm's duty to B. Consent from A cannot authorise the use of B's confidential information, and B has not been asked - and should not be asked, because the request itself signals that the firm sees B's information as available for use against it.
What to offer instead: the site selection, market analysis, lease support and general operational advice, with a written statement in the engagement letter that the supplier review is excluded and why. If A needs that work, refer it out and say so plainly.
What to avoid: the middle path of doing a 'light touch' supplier review on the basis that A has accepted the risk. That is the version of this decision that looks defensible in the meeting and is indefensible on the file.
Record the conversation. If A later asks why the firm declined a component A was willing to pay for, the file should show the conflict identified, the reasoning, and A's informed acceptance of the reduced scope.