NTRS Northern Trust Corporation

By Tatyana Shumsky 

U.S. corporations are spending more for sound advice. Finance chiefs at companies including Baxter International Inc., Northern Trust Corp. and Alaska Air Group Inc. are turning to outside consultants as they grapple with increasingly complex challenges ranging from shareholder activism to merger integration.

The U.S. consulting market, the world's largest, grew by $3.9 billion, or 7.7%, in 2015 to $54.7 billion, according to Source Global Research. That was on top of a $4.2 billion increase the year before. The market research firm, which focuses on large and midsize consultants, expects U.S. fees to grow another 10% this year.

In an era of slow economic growth, chief financial officers are looking for ways to expand revenue and profit while keeping head count low. Finance chiefs must weigh the steep costs of consulting services against the potential benefits that expert outside advice can deliver.

Fast-paced technological innovation, increased regulation and new competition are among the factors contributing to the demand for outside advice, according to consultants and market researchers.

"Consultants are like plumbers; they're hired when there's something wrong with your heating system and it's not economically worth you training to be a plumber," said Fiona Czerniawska, co-founder of Source Global.

For medical-equipment maker Baxter, the decision to call for expert help came last August, when executives were notified that activist hedge fund Third Point LLC had purchased a stake in the company that soon rose to nearly 10%.

"We brought in a number of advisers to ensure that we were taking the right steps at the right time," said Baxter CFO Jay Saccaro.

The consultants helped Baxter's team evaluate how management strategy and governance practices were perceived by shareholders, and identified key concerns, he said. They also helped Baxter craft and execute an agreement with the fund that included scrapping the board's staggered structure and adding Third Point partner Munib Islam to the board.

Since then, Mr. Islam has become a valuable asset to the Baxter team, Mr. Saccaro said. Mr. Islam helped the company hire José Almeida as chief executive officer and advised Baxter on the regulatory complexities of selling stock in spinoff Baxalta Inc., he said.

"In our case, the situation has worked out quite well," Mr. Saccaro said.

To be sure, shoveling money at consultants raises the hackles of some experts who say such reliance on outside advisers prompts questions about management's competence. Top executives should have the tools and techniques to cut costs, evaluate strategy or lead a restructuring, said Lawrence Hrebiniak, emeritus professor of management at the Wharton School of the University of Pennsylvania.

"The C-suite should know how to do most of these things. They should know how to do strategic thinking," he said.

However, sudden change may require temporary expertise. "Situations sometimes call for a surge of qualified, capable people that you need for a period of time but not forever," said Fred Crawford, senior vice chairman at consulting firm AlixPartners LLP. Mr. Crawford said the benefit of hiring consultants for a project is that after a defined period of time, CFOs can "then ask them to leave."

Northern Trust sought consulting help with Federal Reserve regulations that, beginning in 2014, required it to pass so-called stress tests, which are designed to show how the asset-custodian company would fare in an economic downturn.

"It's not like we've been doing this for 20 years," said Joyce St. Clair, chief capital management officer, who oversees Northern Trust's stress-test process. "One reason we work with outside consultants is so we have a solid understanding of best practices and to stay abreast with what our peers are doing."

Steve Sadove, CEO of retailer Saks Inc. from 2006 to 2013, said he engaged consultants on a variety of projects targeting cost-savings, strategy and technology. He said consultants often bring expertise that help companies save far more than they cost.

"I don't think you automatically bring in consultants unless you think the value added is going to be substantially more than the cost or when you absolutely don't believe you have the resources," Mr. Sadove said.

When considering the cost of engaging a consultant for a particular task, CFOs should evaluate whether the project makes economic sense once the fees are accounted for, said Christian Campagna, leader of Accenture Strategy's CFO & Enterprise Value group. Many consulting companies, including Accenture, now offer to link their fees to the realized cost reductions or benefits.

CFOs appreciate how this aligns consultants' interests with their own. "It gives them a better feeling that the consultants are really worth what they're spending on them," Mr. Campagna said.

Keeping costs down is a focus for Alaska Air CFO Brandon Pedersen as his team prepares to merge with Virgin America Inc. The company plans to use consultants in a variety of roles including the integration of technology systems and getting regulatory approval for the two carriers to operate as one, according to a company spokeswoman.

"Price matters a lot," Mr. Pedersen told investors on the company's earnings call in April. "While there will be consultants, the budget for consultants is going to be tightly controlled."

Write to Tatyana Shumsky at tatyana.shumsky@wsj.com

(END) Dow Jones Newswires

July 25, 2016 13:51 ET (17:51 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.