Counselor To The King

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THE INVESTIGATION BEGAN IN DECEMBER OF 1986. Officials from Britain's Department of Trade and Industry descended upon the London headquarters of Guinness P.L.C., a huge liquor conglomerate. When the charges were lodged five months later, Ernest W. Saunders, the chairman, and a number of leading British business figures stood accused of stock manipulation in connection with Guinness' $4.1 billion takeover of Distillers Company. At the heart of the case was a letter to a lawyer from Olivier Roux, an executive of the Boston-based management consulting firm of Bain & Company. Roux, on loan to Guinness, had served as controller and financial director of the British company and as a member of its board of directors. In his letter he defended his own actions and implicated Ernest Saunders. Roux was not charged. Saunders, who says Bain's behavior in the case was ''ruthless,'' is scheduled to face trial in January.

The Guinness scandal rocked Britain's financial community, but it also raised a number of interesting questions about Bain, in particular, and the management consulting business in general. Aside from Roux, Bain had as many as 35 staffers at a time consulting for Guinness in Britain, for an annual fee estimated at $20 million. Was this typical of a consulting firm's involvement with a client? To what degree was it appropriate or desirable for consultants to take over the duties of management?

Jack Brennan, a professor of management at Skidmore College and a former C.E.O., offers one kind of response:

''Consultants are supposed to be advisers rather than executives. They are supposed to be counselors to the king. They are supposed to keep their skirts clean.''

William W. Bain Jr., the 52-year-old founder, chairman, president and chief executive officer of Bain & Company, takes a somewhat different tack. Erect in his chair, speaking, as always, with measured precision, he allows that the scandal might have put off some potential clients: ''You never know who almost picked up a telephone and didn't.'' Permitting Roux to join the Guinness board, he acknowledges, was a mistake: ''I wish we hadn't done it.'' (It was also, says James H. Kennedy, who tracks consulting trends from Fitzwilliam, N.H., ''conflict of interest with a capital C.'') Otherwise, Bain insists that his firm's behavior at Guinness was exemplary and productive. In fact, it was a classic exercise in the Bain way.

The $13.5 billion management consulting industry might be divided into two basic camps. Some firms concentrate on performing specific, case-by-case tasks for a client. Leading the pack are the consulting arms of the largest accounting firms (See box, Page 20). In the other corner are the firms that are known for their strategy consulting, whereby clients are advised on how to integrate new acquisitions or alter their product mix - issues that involve the whole company. The list includes the old-line, broad-based houses, such as McKinsey & Company and Booz-Allen & Hamilton, as well as the so-called strategy houses like the Boston Consulting Group and Bain.

Management consulting thrives on change, and has prospered of late, spurred by the torrent of corporate restructurings, in the United States and abroad, and the effort of American companies to position themselves for the economic unification of Europe in 1992. With an estimated $220 million in revenues last year, Bain is far from the largest of the major firms - McKinsey, for example, racked up $620 million. Within the industry, however, Bain has a force and a presence far beyond its size. The firm pioneered the concept known as implementation, whereby a strategy consultant not only offers a client a grand plan but also, like the man who came to dinner, stays on and on to see that the plan is carried out. Bain is the chief practitioner of ''relationship'' consulting, which calls for a remarkable level of intimacy with its major clients.

Beyond its reputation for innovation, though, Bain is famous for the iron discipline and gung-ho spirit of its troops (who are known throughout the industry as Bainies), and for its extraordinary secrecy. New employees must sign a nondisclosure form, promising never to reveal the names of clients, and everyone who works for the company must adhere to a ''code of confidentiality'' that includes instruction on how to discard sensitive documents.

This article is largely based on interviews with Bill Bain, who rarely speaks to the press, and with Bain employees, past and present, some of whom insisted on anonymity. Part of the reason, a former vice president explained, is loyalty to the firm, but another part ''is that these are bad people to have mad at you, that they are ruthless, hard and unfeeling.'' ONE DAY IN 1984, MARK A. GOTTFREDSON, a Bain vice president, found himself in Detroit, chatting with the director of the large-car division of the Chrysler Corporation, a longtime Bain client. The director wondered whether manufacturing quality might be improved by simplifying the process - for example, by cutting back the options Chrysler offered on its cars. As Gottfredson recalls, the director said he would ''kill'' to know, given the hundreds of choices facing a customer in terms of color, style and equipment, just how many possible combinations of options Chrysler plants had to be ready to provide. ''When a client would 'kill to know,' '' Gottfredson says, ''we're pretty quick to go after it.''

The particular answer was soon delivered: 10 billion. But the conversation led to a remarkable series of assignments for Bain, and a dramatic change, still being effected, in the company's manufacturing procedures. It was a classic case of management consulting a la Bain.

The consultants first explored the possibility of offering customers set packages of options - power windows and power doorlocks, for example, would be part of a package rather than provided as individual options. The Bain team also discovered that most American customers bought their cars directly off the lot without bothering to pick and choose among all the options available. Bain embarked on a six-month exploration of what Gottfredson calls ''the cost of complexity.'' A team of Bainies invaded one of the division's plants to determine the hypothetical savings achieved by manufacturing cars with set packages of options.

''There were 1,500 stations in the plant,'' he says, ''and we looked at every one.'' The savings were estimated at one-third.

Chrysler bought the idea of packaging options. Bain talked to salesmen, dealers and marketing executives and customers and came up with a list of 5,000 packages that would satisfy 99 percent of the company's customers.

The final step was to actually implement the decision on the factory floor. Bain showed how. First, the consultant team paid a visit to six Japanese auto plants and quizzed three Japanese industry consultants. Says Gottfredson, who speaks Japanese: ''We wanted to know how many people worked in each plant, the breakdown between direct and indirect labor, how often cars were pulled off the line. We learned a lot.'' He also found, tucked away in an obscure Japanese journal, an article dealing with plant scheduling; it contained a mathematical formula ''that allowed us to optimize for all of those things.''

The Bain team applied its new-won knowledge on the factory floor at Chrysler, identifying four major categories of systems that could be overhauled, advising on just how that might be accomplished. Bain likes to get down with the troops, Gottfredson says. Describing another Chrysler project, he tells how the Bainies swept into a plant, studying all three shifts, ''No ties, women in pants, on the line in the body shop 24 hours a day. They'd ask questions like, 'Why did this piece of equipment go down?' And a plant manager would say, 'Stick your head into this 20-ton jaw and find out.' ''

The consultants labored in 12 of Chrysler's plants, then trained Chrysler's people to handle the process in the others. ''They're rolling it out now,'' Gottfredson says. According to Chrysler, Bain's labors yielded gratifying results. On the Omni and Horizon models, for example, complexity reduction trimmed money off the sticker price.

IN THE HEADQUARTERS OF Bain & Company, which takes up four floors of an office tower in Boston's Copley Place, 700 staff members are crammed into open bays, 15 desks to a bay. Bill Bain's office is a world apart, a commodious room filled with antiques and fresh-cut flowers. A Boston Celtics basketball sits in a silver bowl near his desk. Bain, a trim 5-feet, 11-inches tall, plays basketball himself and is an avid Celtics fan.

He answers questions carefully and exhaustively, constantly sipping a glass of Dr Pepper. His pale face, a stark contrast to his dark suit and the royal blue walls of the room, registers little emotion.

Unlike almost everyone in the strategy consulting trade, Bill Bain does not possess an M.B.A. Born in Johnson City, Tenn., the son of a food wholesaler, he attended East Tennessee State College for two years, then transferred to Vanderbilt University, where he majored in history. By the time he graduated from college in 1959, he was married and a father; William III, now 30, is a freelance commercial artist in California. (Bain married a second time, in 1973, to Colleen Sullivan; they have three children.) Bain received a Woodrow Wilson Fellowship for an advanced degree in history, but found thesis-writing not to his taste. Instead, he joined a small steel-fabricating company, making sales calls and working up engineering studies. In 1960, he returned to Vanderbilt, as a development officer. It was in the course of soliciting alumni for funds for the university's proposed business school that Bain met Bruce Henderson, the founder of the Boston Consulting Group. Within months, Bain was on the B.C.G. payroll.

Management consulting had its roots in time-and-motion studies of the early 20th century. One of the first to apply these scientific ideas was Arthur D. Little, who incorporated his firm in 1909. Its clients today remain primarily in the world of science and technology. Booz-Allen was founded in 1914, followed by McKinsey in 1926.

A turning point in the history of management consulting arrived in 1963 when Bruce Henderson, an Arthur D. Little veteran, set up a firm dedicated to strategy consulting. Henderson's ''product portfolio'' or ''growth-share'' matrix has become a staple of modern management. In much simplified form, it proposes that managers should look at the parts of their companies under four basic headings and behave accordingly: Milk the slow-growing, cash-yielding ''cows,'' nurture the fast-growing, cash-gobbling ''stars,'' ditch the moribund ''dogs'' and convert the ''question marks.''

Before Henderson, says Patrick Graham, a Bain executive vice president and B.C.G. alumnus, ''Everything was a snapshot versus a movie. There wasn't any sense of the dynamic - that one event leads to another. That's what Bruce added.''

At B.C.G., Bill Bain rose quickly to the rank of group vice president, overseeing with Graham one of four operating groups. Their unit was soon producing an impressive share of the firm's revenues, but Bain was restless. He was convinced that the management consultant's role should extend to implementing strategy - he had tried the approach and achieved what he felt were spectacular results. But B.C.G. was then, and remains to this day, wary of such intrusions. Says John Clarkeson, the firm's current C.E.O., ''It's always risky to dilute management's responsibility for day-to-day operations.''

In 1973, Bain marched into Henderson's office and resigned, announcing his intention to start his own business. Henderson, now 76, recalls the moment well. He had thought Bain would be his successor. ''It was war,'' he says, ''the Japanese bombing of Pearl Harbor. I felt more betrayed and robbed and desecrated than ever before in my life.'' The parting was bitter, with Henderson accusing Bain of looking for business clients among B.C.G. clients, of stealing B.C.G. employees - even of soliciting financial backing from B.C.G.'s then parent, the Boston Company. Bain denies the charges.

In any event, it was not long before Bain & Company had two former B.C.G. clients, Black & Decker and Texas Instruments, and was joined by six B.C.G. professionals, including Graham. Bain was now free to practice his special brand of consulting. He would accept shorter, less all-encompassing assignments, but he was dedicated to building close, long-term relationships with companies. He would not only devise strategies, he would help carry them out. And, in another departure from the industry norm, he promised that he would represent no more than one such client in any given industry. For so intimate an adviser, almost a part of the company, anything else would be a conflict of interest.

Over the years, Bain's list of major clients grew to encompass some of the leading corporations of the nation, including the likes of Baxter International, Burlington Industries, Dun & Bradstreet, Hughes Tool, Iowa Beef, Monsanto and Wells Fargo. The results have often been impressive. In a March 1989 Price Waterhouse audit, the market value of all of Bain's clients was shown to have increased 456 percent since 1980. The audit was based on the in-house Bain Index. It compares the performance of clients' stocks with that of the Dow Jones industrial average, which was up only 192 percent. Bain claims that, for every dollar it charges clients, they increase their profits by a factor of 5 to 10.

Not everyone, however, is convinced of the value of strategy consultants. Some critics believe their chief function is as corporate lightning rod to draw criticism away from the C.E.O. ''The old saw,'' says Abraham Zaleznik, a professor of leadership at the Harvard Business School, ''was that the consultant came in and listened to what the C.E.O. wanted to do and then wrote it up. This is still a large part of the process. It doesn't take great intellectual powers, and there is a fair amount of psychodrama.'' Of Bain's approach, Zaleznik says, ''If the C.E.O. calls in the consulting firm to, in effect, run the business, it's a statement he doesn't know how to do it.''

THE ANNUAL MEETING OF the Boston staff of Bain & Company, a kind of modified pep rally, opened last May in a suburban Boston hotel. The highlight of the first evening's entertainment came when two vice chairmen of the firm, decked out in dark glasses, stormed into the hall on motorcycles. Then they jumped onto the stage, did a couple of back-flips and burst into a takeoff of ''Soul Man'' titled ''I'm a Ba-y-y-y-y-n Man.'' The musical accompaniment was provided by the Bain Band, composed of employees.

At meetings serious and social, in everyday contacts with senior officers, Bain seeks to steep its staff in the ways of the corporate culture. The firm's new mission statement sets the tone. The objective: ''to help our clients create . . . high levels of economic value.'' The means: ''the Bain community of extraordinary teams.''

For Bill Bain, teamwork is all. ''The great teams,'' he says, ''and I think of ourselves as being in that league, are made up of very powerful individuals. Think of the great Boston Celtics, guys like Bill Russell or Dave Cowens. Obviously the players were not subjugated in some oppressive way by the coach, but he got them to play as an incredibly productive team.''

Mark Nunnelly, a 30-year-old Bain vice president, puts it another way: ''Bain recruits Bruce Springsteens and figures out how to make them very strong first violin players.''

Like its competitors, the firm hunts for ''Springsteens'' who have M.B.A.'s from the leading schools, notably Harvard. The pursuit starts with the hiring of top students as summer interns; those who pass muster are courted in the months before graduation. Bain & Company offers candidates salaries well above $60,000, not counting the signing bonus and the year-end bonus. Only investment banks pay more for M.B.A. graduates.

Most of Bain's M.B.A. hires have some business experience, and they rapidly get more working with clients. ''One of Bill's tricks,'' says a former staffer, ''was to move people very quickly, maybe a little faster than they thought they deserved, to keep them on the edge of feeling grateful.'' But Bill Bain scoffs at the often-heard notion that his young consultants run around telling C.E.O.'s what to do. ''I'm amused,'' he says, ''at the idea of our three-year consultants somehow wresting all of this power from 50-year-old general managers who probably killed a couple of people to get their jobs.''

Under the Bain system, a vice president with five to eight years' tenure manages the client relationship, dealing with senior executives. A manager with four or five years' experience oversees the team, which includes a team leader who has had two or three years with Bain, a number of more junior consultants, a smattering of associate consultants and, in season, summer interns.

In a large conference room at Boston headquarters recently, a seven-person case team briefs Bain vice president Christopher Zook on its plans for a meeting with a client. The mission: to prepare the client's sales force to handle a more sophisticated product line.

Standing at the white board, John Flanigan, the team manager, attired like most Bainies in dark suit, blue shirt and red suspenders, outlines a proposal for having technical specialists accompany salespeople on their rounds. An associate consultant expresses concern - she has accompanied one of the salesmen on his rounds, and found him to be an independent type who would not take kindly to having a specialist tag along. Observes the team leader, ''You have to watch the Karma.''

Zook urges the team to be careful how its proposal is presented. ''Your job,'' he says, ''is to depict objective data objectively and let people look at the facts and migrate toward sensible solutions.''

For Bain vice presidents with five to eight years' experience, salaries range upward from $200,000. According to Kennedy, for the services of a $200,000-a-year consultant, clients pay between $600,000 and $800,000 on an annualized basis.

In matters of salary, and much else, Bill Bain maintains ultimate control. For a portion of its life, the firm operated under a partnership deed, what is referred to by one former partner as ''not a bill of rights, but the rights of Bill.'' When he read the document, he says, he discovered that ''I was signing myself up for unlimited liability, along with Bill. Otherwise, I was just going to be a salaried man. No right for compensation if I were to be fired. No tenure. No vote. It was a sham.'' In 1985, the partnership was replaced by a corporation.

Among consulting companies that do strategy work, most notably McKinsey, associates who fail to rise in the ranks often join client companies. Bain discourages the practice. Michael White, who is now a senior vice president of a division of Avon Inc. - not a Bain client - recalls that while he was still at Bain, he was approached by a client. One of Bain's top executives, he says, contacted the company to stop any further talks.

One of the side benefits of being a partner-vice president at Bain has been the opportunity to invest in Bain Capital, a venture capital fund. The affiliate's first fund, started in 1984, put almost $37 million in some 20 companies and has since been closed. Its annual rate of return has been more than 50 percent. The 1987 fund, still on-going, has a $106 million stake in 13 concerns.

Headed by W. Mitt Romney, son of the former president of American Motors, Bain Venture Capital has managed to steer clear of conflicts of interest by having Bain & Company retain veto power over investments. But it is not an entirely neutral relationship. When Bain & Company temporarily stopped consulting for Firestone in the mid-80's, Bain Capital bought a division of Firestone that made wheel rims. Then it retained a Bain team to help revitalize the company. I N ITS QUEST FOR CLIENTS, Bain & Company offers prospects ''acquaintanceships,'' under which the consultants work without charge for several weeks so that the two parties can look each other over. In some cases, Bain also offers to forego its fee if the consultant cannot live up to its promises. Harry C. Schell, chief executive of Cablec, a $500 million electrical cable company, likes the guarantee: ''We get very, very high return, but if they fall short of performance, they don't get paid. Period.''

In the best of all possible worlds, though, consultants prefer to lure new clients on the basis of their track records. That was the case with Alan P. Hoblitzell Jr., the C.E.O. of MNC Financial, a bank-holding company based in Baltimore, Md. Hoblitzell first retained Bain & Company in the early 1980's after having observed its teams in action at another company on whose board he served. The consulting firm has helped MNC introduce new products, such as so-called affinity credit cards issued in bulk to special-interest groups. It has advised the company on acquisitions. In sum, Hoblitzell says, Bain has been instrumental in lifting MNC's profit into the first quartile in the industry among companies of comparable size.

The specific advantages of using Bain, Hoblitzell says, are several. He wants to keep his in-house staff lean - a common desire in an era of corporate downsizing and restructuring - and the consultants can fill in the gaps, providing strategy and a sounding board. And he makes no bones about the value of consultants in shifting the blame for an unpopular decision to a presumably unbiased outsider. ''I felt that in order to bring about change,'' he says, ''it would be better facilitated by using a third party to help that and move it along.''

Frequently, in hopes of finding a new ''relationship'' client, Bain pursues a camel's-nose-in-the-tent policy. According to Bill Bain, his firm will take on a small assignment when the project has the wholehearted backing of the chief executive and the effort can produce spectacular results. If the C.E.O. is impressed, he will be inclined to welcome Bain into the fold.

In the process of getting acquainted, Bain teams ask a lot of questions. ''They're learning the business,'' says Jim Carey, a senior vice president of Fireman's Fund Insurance Company, ''which is the one thing you have to pay for in resources with a Bain that you wouldn't have to pay for with a B.C.G.'' But, he adds, ''They moved quickly with the learning curve, faster than I could have imagined. I thought they did a phenomenal job for us.''

Ironically, the very effectiveness of the Bain way can pose problems. At Western Digital, an Irvine, Calif., maker of chips and boards for computers, the consultants became so familiar with the company's operations that they sometimes had a better handle on what was going on than Western's own staffers. ''They can centralize information gathering,'' says John R. MacKay, senior vice president for worldwide operations, ''but that becomes bad when our people become dependent on them and stop trying.'' IN 1981, BAIN & COMPANY RE-ceived the kind of assignment that lies closest to its heart. Ernest Saunders, the newly named managing director of Guinness, needed help. After a distinguished career as a marketer, the 46-year-old Saunders had been brought in by Guinness to bring order out of chaos. Over the previous years, the company had gone on a diversification binge, buying some 300 disparate companies. Sales of its flagship product, Guinness stout, were declining. Its stock price was languishing.

Bain moved into action, sending teams of Bainies - including a 30-year-old consultant named Olivier Roux - from the London office to help devise a new strategy. In short order, Roux took on a second function as Guinness' controller; later he became the financial director. The loan of a consultant to a client was nothing new for Bain (according to Bill Bain, it has been done a dozen times), though the practice is shunned by most other firms.

Meanwhile, with Bain's guidance, Guinness was getting out of some 150 unprofitable companies, cutting costs, reviving sales of Guinness stout. Within a few years, pretax profits had doubled, and Guinness once again went hunting. It bought Arthur Bell & Sons, a maker of Scotch whisky, for more than $500 million. And it set its cap for Distillers.

What followed remains to be determined by the British courts. According to the Government, Saunders and his co-defendants arranged for a number of investors to take positions in Guinness, driving up the stock price, an illegal maneuver during a takeover. The bid for Distillers involved an exchange of shares, and a higher Guinness stock price raised the value of its bid - a much desired objective in light of a competing offer from the Argyll Group. Eventually, Guinness won out, paying $4.1 billion in stock and cash. It was, at the time, the biggest takeover in British history.

Today, Saunders faces 49 criminal charges and vehemently denies his guilt. He insists that he knew nothing about any stock-inflation scheme, that the man in charge was Bain's Olivier Roux, in his capacity as financial director. But Roux faces no charges, and will in fact be a witness for the prosecution. He has resigned from both Guinness and Bain and now works for a London investment concern called Talisman, founded by two former Bain consultants.

Roux, who was 36 when the scandal broke, also held a seat on the Guinness board, receiving a stipend of about $9,000 a year while remaining on the Bain payroll. The arrangement has drawn considerable criticism as representing a conflict of interest. Says Jack Brennan, the Skidmore professor: ''They were using their man in a nether world. Was this guy working for Bain or for Guinness?'' That is a question Bain declines to answer, on the grounds that it may be called to testify.

Saunders harbors bitter thoughts about Bain & Company. ''It would appear,'' he says, ''that Bain would do anything to save its own neck. Isn't that, in fact, a hell of a warning both for client companies and other strategy consultants?'' Asked to comment on Saunders' ''warning,'' Bill Bain's pale face momentarily reddens. ''I think that any client we have, or potential client,'' he says, ''understands very well that there are limits to the responsibilities we have to each other, and there are actions that either of us can take that cause the responsibility of the other party to cease.''

Bain & Company says that it has not lost any of its clients as a result of the Guinness scandal. For MNC's Hoblitzell, it's a ''nonissue'' because, he says, his company would never put a consultant on its staff. ''If I had a position to fill,'' he says, ''I would hire somebody internally.'' Kenneth Dawson, managing director of Alpha Publications, a British publishing firm, believes that Bain has held on to its European clients.

But as Bill Bain allows, potential clients may have been affected. One such instance is cited by Brennan - a company on whose board he sits. The company was recently looking for a consultant and ruled out Bain. ''Part of the reason,'' Brennan says, ''is that the board has been negatively influenced by that Guinness affair.'' A former Bain consultant adds, ''The scandal made it easier for McKinsey to tell prospects, 'Better to trust us than those guys.' ''

The scandal had a direct impact on Bain's bottom line as its annual Guinness billings shrank from a high of $20 million to, by one outside estimate, less than $10 million. Bill Bain will not confirm the figure, but he allows, ''Anytime you have a shortfall of a magnitude you're talking about there, there's naturally some reasonable period of time required to replace it.''

In the spring of 1988, Bain & Company discharged 90 professionals and administrators. One erstwhile vice president describes being called into his boss's office, only to be directed by the secretary to a room in the Marriott Hotel near Bain headquarters. There, his boss read from a prepared statement: ''We regret to inform you. . .'' The former officer, who had also been a partner, says, ''No one believed they'd just round up and shoot 90 people - that's the way you treat peons, not partners.'' He and some other Bainies still on staff believe that the targets were chosen at random.

Not so, says Bill Bain, who also points out that the firm hired outplacement consultants to ease the process. ''When you're dealing with something this emotional,'' he adds, ''what's best for all is a very counter-intuitive approach'' - which is to say, unemotional.

BAIN IS GENERALLY PER-ceived as holding its own. Between 1985 and 1987, James Kennedy claims, revenues doubled. According to Kennedy, revenues are now rising at an annual rate of about 10 percent. The fact that the client list has doubled in the last two years, while revenue growth was down, suggests that the firm has not had great success at attracting as many big-ticket, ''relationship'' clients.

One that got away, says a former Bain consultant, was Canadian Pacific. Bain handled projects for several of the company's divisions, but failed to penetrate the core railroad business. According to the Bain alumnus, instead of growing into a client on a par with Dun & Bradstreet, one of the firm's largest and oldest clients, Canadian Pacific ended its relationship after only a few years.

In Europe, where consultants are being deluged with business as companies prepare for economic unification, Bain has apparently been unable to find another client on the scale of Guinness. Still, with offices in London, Milan, Munich, Paris and Tokyo, the firm derives about a third of its revenue overseas.

Bill Bain contemplates the future with outward equanimity. He says all is well; that he would consider buying another firm, though he has nothing particular in mind; that he would consider a merger, though no company at the moment ''would make sense to us right now.'' There have been rumors in the industry that Bain might be bought by one of the big accounting firms. Would he sell his company? He responds, ''I always say never say never,'' but goes on to outline with his usual thoroughness just why it is not likely to happen.

At 9:30 on an August evening, Bill Bain sat in his office, listening patiently to the last question of the last interview, which had begun four hours earlier. Given the firm's obsession with secrecy, its determined public silence, why had he decided now to open up? He spoke of his pride in the firm and its accomplishments. ''What we actually do here,'' said Bill Bain firmly, ''isn't that mysterious.'' Enter The Accountants

IN 1971, MARVIN BOWER, A FORMER MANAGING DIRECTOR OF MCKINSEY & COMPANY, resigned as president of the Institute of Management Consultants, a leading professional association, to protest the admission of consultants from accounting firms. Such was the sentiment about letting mere number crunchers into the ranks of the prestige consulting firms.

The accountants ignored the slight and proceeded, in their methodical way, to take over. ''They just didn't pay attention to what the outside world said, and now they're the biggest players,'' says E. Michael Shays, the national director of the consulting practice at New York City-based BDO Seidman. Consulting revenues for the eight largest accounting firms last year totaled $3.9 billion, almost one-third of the consulting revenues tracked by Consultants News, a Fitzwilliam, N.H., publication.

Accounting firms got into consulting in a big way in the 50's with the advent of computerization. Early applications involved inventory control, payroll management and other back-office functions; the auditors were ideal candidates for advice on how to turn streams of data into useful information.

The upstarts were tolerated so long as they did not compete head-on with consultants. Ceding to accounting firms the more tedious tasks and ''cost-reduction studies'' - otherwise known as layoffs - that can leave middle management embittered, the consulting firms hoped to keep larger fields such as dereg-ulation, global competitiveness and mergers to themselves.

Still, all of those little pesky chores added up. ''When a $500 million company becomes a $2.7 billion one,'' says a McKinsey consultant, ''they'll remember Arthur Andersen helped them do it.'' And hire them again.

Indeed, Andersen recently helped the Swiss set up a computerized ''trading floor'' for futures and options. And a group of blue-jean-clad Andersen employees spent the summer videotaping workers on the factory floor of Harley-Davidson in an effort to foolproof a new line of small trucks. Andersen's contribution: color-coordinating the tools and chassis parts to insure proper assembly. Just in case a worker is color-blind, colors are spelled out on each part.

But the accounting firms' consultants have yet to parlay such experience into a reputation for getting big strategy engagements. ''They might have a little corner of the practice or a door with a sign on it that says 'strategic planning' division,'' says James H. Kennedy, publisher of Consultants News, ''but they're not in the same league.''

WITHIN SOME OF THE ACCOUNTING FIRMS, THE roaring success of the consulting operations has proven divisive, with consultants demanding an ever larger share of the firms' resources and profits. The two groups have also clashed over clients.

Two years ago, Andersen's consultants wanted to bid on a NASA contract jointly with Grumman Data Systems, a subsidiary of the Grumman Corporation; Andersen's accountants audit Grumman's books. But Securities and Exchange Commission rules ban auditors from having shared business interests with audit clients. That left Andersen with a choice: withdraw the bid or relinquish the audit. It kept the audit. ''When you're run by auditors, you tend to reach the former conclusion rather quickly,'' comments Gresham Brebach Jr., the former head of Andersen's American consulting practice, who says he left to form Information Consulting Group because of such clashes.

The risk of flare-ups is expected to increase now that a wave of mergers is whittling the Big Eight into a Big Five. But overall, the consulting arms of the accounting firms could emerge from the consolidation more formidable competitors than ever. A merger of Andersen and Price Waterhouse, still far from certain, would catapult the pair far ahead of the pack with $1.5 billion in consulting revenues - more than McKinsey, Booz-Allen & Hamilton, Bain & Company and the Boston Consulting Group combined.

Sheer size should help the accounting firms' consulting arms. Systems integration, a fast-growing niche wherein a consultant takes responsibility for a computer project from start to finish, may require that the consulting company make huge investments in technology. Being big may also yield dividends with managements, who prefer hiring large, established names, and in the recruiting wars, both on campus and in the ranks of the profession.

Touche Ross (which will merge with Deloitte, Haskins & Sells) snared 14 would-be consultants from the first-year class at the Harvard Business School by dangling salaries of $1,500 a week as bait. Coopers & Lybrand recently hired John Neuman, a former McKinsey specialist, while another well-regarded McKinsey consultant, Iain Somerville, joined Andersen.

It will be interesting to see how the accounting firms deal with their mergers. Andersen may seek outside help if it merges its operations with Price Waterhouse, even though Andersen itself counsels clients on consummating mergers. Says Peter H. Fuchs, head of strategic services at Andersen, ''It's often helpful to have an objective and outside perspective.'' ALISON LEIGH COWAN