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FTI Consulting, one of America’s largest publicly traded business advisory groups, is bracing for a wave of staff defections after one of its rainmakers launched a rival firm, taking top lieutenants and potentially tens of millions of dollars of business with him.
FTI fired Jonathan Orszag in 2023 in a dispute over profit sharing and control at its economic consulting practice, which supplies economists as expert witnesses for litigation. The consequences began to appear in FTI’s financial results last week.
Released a day after Orszag announced his new firm, they included a weaker-than-expected profit forecast for 2025 that the company blamed in part on Orszag poaching FTI professionals. FTI shares fell 14 per cent, cutting its market capitalisation to $5.9bn.
Management is scrambling to limit defections and says it faces a choice between increasing pay to retain staff or losing revenue, underscoring the fragile balance underlying professional services businesses.
“When clients hire an expert, they hire an individual not a brand,” Orszag told the Financial Times on the launch of his firm, Econic Partners.
“In the end, there is only one person on the witness stand, and it is about that individual’s analysis and credibility. The brand they are associated with is not that relevant, and that is different from banking or management consulting.”
Economic consulting has become a lucrative niche in professional services, rivalling investment banking and management consulting in pay for stars. Intensifying antitrust challenges to deals have created a cottage industry for scholars to provide testimony on financial damages, both on behalf of companies and regulators.
“It is no longer a professor above a garage working with some grad students”, Orszag said.
He argued that diversified publicly traded firms such as FTI were at a disadvantage versus private partnerships that could more generously share profits.
FTI’s economic consulting division, Compass Lexecon, was built out of a business called Competition Policy Associates, which it acquired in 2006 for $72mn. Orszag was one of five co-founders that included his brother Peter Orszag, the Obama administration economist who is now the chief executive of the investment bank Lazard.
Among Compass Lexecon’s recent assignments is financial analysis for Tesla in the carmaker’s effort to confirm Elon Musk’s $56bn pay package.
Econic launched on Wednesday with several FTI alumni, including Dennis Shaughnessy, FTI’s former chair. Goldman Sachs has invested in the firm.
“The gravitational pull to join Econic is very strong,” Orszag said. “We expect a large number of people to continue to join the firm.”
FTI executives on a Thursday earnings call said that the hit to operating profit from Orszag’s launch could be $35mn this year. FTI had overall operating profit of about $500mn in 2024.
“We expect that the resulting increased competitive pressures may impact our ability to attract and retain clients and will increase compensation costs to retain staff,” said Ajay Sabherwal, chief financial officer.
Steven Gunby, chief executive, added: “The people who are not leaving are just a fabulous group of people.”
FTI sued Orszag in late 2023 accusing him of breaching his fiduciary duty to FTI in threatening to launch a competitor, and stealing company secrets.
“We intend to pursue those claims vigorously, including seeking damages and disgorgement of all profits from Mr Orszag’s new venture,” the company said.
Orszag has countersued FTI and Gunby, saying he was improperly terminated and himself owed damages.
He told the FT that he “wouldn’t change what [he] did in 2023”, referring to his confrontations with Gunby.
“I was negotiating for better long-run outcomes, more control and better economics, for 800 people at Compass Lexecon.”
https://www.ft.com/content/aff9b298-7c3e-43bc-a8d5-d84ed17e11c1
