Who Gets to Decide? McKinsey, Power, and Public Consequences

Key Concepts

• McKenzie & Company: A global management consulting firm.
• Investigative Journalism: The practice of in-depth reporting to uncover wrongdoing and hold institutions accountable.
• Corporate Misconduct: Unethical or illegal actions by corporations.
• Systemic Issues: Problems that are inherent in the structure or operation of a system, rather than isolated incidents.
• Cognitive Dissonance: The mental discomfort experienced by a person who holds two or more contradictory beliefs, ideas, or values, or participates in an action that goes against one of these.
• Moral Disengagement: A psychological process that allows individuals to rationalize and justify their unethical behavior.
• Fiduciary Duty: A legal or ethical relationship of trust between two or more parties, typically one party owing a duty of care and loyalty to the other.
• Transparency: The practice of operating in an open and understandable way, especially regarding financial matters.
• Conflict of Interest: A situation in which a person or organization is involved in multiple interests, one of which could corrupt their motivation.
• Securitization: The process of taking an illiquid asset, or group of assets, and transforming it into a security that can be sold to investors.

When McKenzie Comes to Town: An Investigation into Power, Secrecy, and Accountability

This summary details a discussion with investigative reporters Walt Bogdanich and Michael Forsythe, authors of "When McKenzie Comes to Town," exploring the pervasive influence and operational practices of the global consulting firm McKinsey & Company. The conversation, moderated by Wes Cash, delves into the motivations behind the investigation, the systemic issues identified, and the broader implications for corporate and governmental accountability.

Genesis of the Investigation

• Motivation for Targeting McKinsey: Walt Bogdanich, a seasoned investigative reporter with a history of exposing corporate misconduct, initially found McKinsey an unusual target. Unlike overtly harmful corporations, McKinsey was perceived as "squeaky clean." However, its immense size, power, and secrecy made it a compelling subject for investigative journalists, described as "catnip" for those seeking to uncover hidden truths.
• The "Black Box" of McKinsey: The firm's secretive nature, including client confidentiality and non-disclosure agreements (NDAs), presented a significant challenge for journalists. Bogdanich recalled the daunting realization of how to investigate a firm where they knew no one and which actively discouraged external communication.
• Organic Reporting Project: The book project evolved organically from a New York Times reporting initiative. Bogdanich's initial interest stemmed from exploring the deeper societal reasons behind Trump's 2016 election victory. This led him to investigate McKinsey, particularly after hearing about the firm's difficulties in South Africa.
• New York Times Connection: A significant backdrop to the investigation was McKinsey's advisory role to the New York Times itself, and the fact that a senior partner at McKinsey was married into the family that owned and controlled the Times. This created a complex dynamic, with McKinsey simultaneously advising both the Times and its competitor, The Washington Post.
• Snowballing Revelations: The initial reporting on McKinsey's South African work led to further discoveries about its involvement with ICE (Immigration and Customs Enforcement) and authoritarian regimes globally. The assassination of Jamal Khashoggi further prompted investigations into McKinsey's work in Saudi Arabia. As reporting progressed, individuals from within McKinsey began coming forward to share their experiences.

The Thesis of "When McKenzie Comes to Town"

• Scary Revelations: The book is characterized by its ability to expose deeply unsettling truths, with one reviewer likening it to a horror novel. The core argument is that McKinsey, despite its seemingly benign image, operates with a corporate slogan that should be "our business is none of your business."
• Common Theme: Public Harm: A recurring theme across the book's chapters is the harm inflicted upon the public through McKinsey's engagements. While acknowledging that journalists often focus on negative events ("planes that crash"), the book highlights significant societal problems stemming from McKinsey's work, both domestically and internationally.
• Not an Anti-Consultant Stance: The authors emphasize that they are not advocating against working for McKinsey. They acknowledge the firm's appeal to idealistic individuals seeking to make a difference and recognize that many friends still work there and are happy.
• Cognitive Dissonance Among Employees: A key insight is the "cognitive dissonance" experienced by McKinsey employees. Many are recruited with the promise of contributing to positive change, only to find themselves involved in ethically questionable projects, such as boosting OxyContin sales for Purdue Pharma or making deportation processes more efficient for ICE. This discrepancy between expectation and reality often leads employees to seek external avenues, like contacting the reporters.

Systemic Issues and Corporate Culture

• Decentralized Autonomy: A systemic issue identified is McKinsey's decentralized structure, modeled on law firms, where individual "thiefdoms" (offices) in different cities and countries possess significant autonomy. This was a deliberate design by founder Martin Bower.
• Financial Pressures: As the firm grew, there was an increasing need to generate more revenue to meet rising salary demands, driven by comparisons to higher-earning peers in finance. This "feeding the beast" mentality, coupled with decentralization, led to decisions being made without a clear oversight or understanding at higher levels.
• Client Interest First vs. Societal Harm: McKinsey's stated value of "client's interest first" is presented as a problematic principle when clients are unethical actors. The firm's approach of being "merely consultants" who advise rather than execute decisions allowed them to distance themselves from negative outcomes, placing responsibility on executives.
• Obligations to Clients vs. Society: The discussion highlights the complex balance professional services firms must strike between their obligations to clients and broader society. While law and accounting professions have established rules and ethical codes, consulting lacks such formal regulation, making accountability more challenging.
• Lack of Professional Regulation: Unlike lawyers or accountants, consultants are not subject to disbarment or a strict professional code of conduct. This absence of external regulation contributes to the difficulty in holding consulting firms accountable.

The Role of Consultants and Accountability

• "We do policy, we don't do execution": This recurring theme suggests a deliberate strategy by consulting firms to provide advice without direct responsibility for implementation, thereby deflecting blame when things go wrong.
• Individual vs. Systemic Responsibility: While acknowledging that individuals must bring their own ethics to their work and speak up, the authors suggest that systemic issues within firms like McKinsey contribute to unethical behavior.
• Self-Regulation and Its Limits: McKinsey has taken some steps towards self-regulation, such as ceasing work with the opioid and tobacco industries and implementing a client evaluation system. However, the authors express skepticism about the effectiveness of these measures, noting that a managing partner who pushed for such changes was quickly voted out.
• Transparency in Government Contracts: A significant concern is McKinsey's lack of transparency in government contracts. The firm often redacts crucial information, preventing public access to how tax dollars are being spent, which is seen as a violation of public trust.
• Investigative Journalism's Role: The authors emphasize the crucial role of investigative journalism in exposing "black boxes" of information and holding powerful entities accountable. A "low threshold of indignation" is identified as a key quality of successful investigative reporters.
• Erosion of Trust in Journalism: The decline in public trust in media is seen as a major tragedy, hindering the ability to address societal problems. However, the authors remain committed to investigative reporting, believing it will continue to break through and effect change.

McKinsey's Influence and Global Reach

• Pervasive Impact: McKinsey's influence extends to nearly every aspect of daily life, from education and healthcare to finance and government.
• Dual Advising: A striking example of potential conflict of interest is McKinsey advising both pharmaceutical companies (e.g., Purdue Pharma) and their regulators (e.g., the FDA) simultaneously.
• Governmental Engagements: McKinsey works extensively with governments worldwide, both democratic and authoritarian. This includes advising on policy, strategy, and even embedding consultants within ministries, blurring the lines between government decision-making and private consulting.
• Elite Networks: The firm has cultivated close relationships with powerful lawmakers and elites in various countries, with children of prominent political figures often working for McKinsey, leading to perceptions of it being a "finishing school for the children of billionaires."
• South China Sea Example: McKinsey's advisory role in China's construction of islands in the South China Sea, while simultaneously advising the Pentagon, highlights complex geopolitical conflicts of interest.
• "Iron Wall" of Information: McKinsey claims to maintain an "iron wall" of information between its different offices and client engagements. However, evidence suggests this is not always effective, with instances of consultants advising competing opioid manufacturers or leveraging FDA ties for client acquisition.
• Securitization and the Financial Crisis: While not solely responsible, McKinsey played a role in spreading the concept of securitization, which contributed to the global financial crisis through complex financial instruments like Collateralized Debt Obligations (CDOs).

Consequences and Future Outlook

• Legal and Reputational Consequences: The publication of "When McKenzie Comes to Town" has led to legal consequences for individuals, including former McKinsey partners facing prison time and the firm paying over $1.5 billion in fines.
• Continued Controversies: Despite the book's revelations, other consulting firms like BCG and Bain have also faced scrutiny for controversial engagements, indicating that systemic issues persist.
• Pessimism vs. Optimism: While Bogdanich expresses pessimism about immediate institutional change, Forsythe sees a glimmer of hope in the idealism of younger generations who are more likely to question unethical practices and come forward.
• Value of Consulting: The authors acknowledge that McKinsey does provide value, particularly in diffusing knowledge and expertise, citing its work in developing China's insurance industry. However, they caution that this knowledge diffusion can also spread problematic trends, as seen with securitization.
• The "No One Ever Got Fired for Hiring McKinsey" Mentality: This adage reflects the perceived safety of engaging McKinsey, even when internal solutions might be more cost-effective or appropriate, highlighting a reliance on external consultants without critical evaluation.
• Hope for Corporate Citizenship: The discussion concludes with a cautious hope that McKinsey will evolve into a better corporate citizen, with the expectation that future generations of employees will champion corporate responsibility.

Q&A Highlights

• Ethical North Star vs. Fiduciary Duty: The question of which takes precedence in an irreconcilable contradiction between ethical principles and fiduciary obligations remains complex. The authors suggest that "fiduciary duty" is often used to shield immoral behavior and that individuals should either quit or speak out when faced with such dilemmas.
• Moral Disengagement: The framework of moral disengagement was discussed as a potential tool for consulting firms to analyze and deconstruct unethical behavior, though its practical application and impact on the bottom line remain uncertain.
• Value of McKinsey and Government Need: While acknowledging McKinsey's value in knowledge diffusion, the authors question the necessity of governments relying on external consultants, especially when internal expertise could suffice, citing BART's successful in-house consulting.
• Impact on Daily Lives: McKinsey's work impacts daily lives in profound ways, from healthcare decisions and pharmaceutical pricing to the efficiency of government services and the financial instruments that shape the economy.
• ICE and Cost-Cutting: McKinsey actively proposed cost-cutting measures for ICE, including suggestions for food costs and the use of local jails, demonstrating proactive rather than reactive problematic proposals.
• Mirror of Society: The observation that McKinsey might be a mirror of the corporations and governments it serves is acknowledged, but the authors also highlight instances where McKinsey initiated problematic ideas.
• Accountability and Transparency: The core message reiterates the need for greater accountability and transparency from McKinsey and similar firms, particularly when engaging with government agencies and public funds.