McKinsey & Company

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McKinsey & Company is a huge global management consultancy company, advising senior management of many of the world's most powerful corporations, as well as a number of governments, institutions and foundations.

Advice spans a range of business practices, including technology, corporate finance, marketing and sales, operations, organisation, risk, and strategy.

Established in 1926, the company operates in more than 60 countries and made $8 billion in 2014. It remains privately-held.

Scandal

McKinsey's fingerprints can be found at the scene of some of the most spectacular corporate and financial debacles of recent decades.

Enron: 'the house that McKinsey rebuilt'

The collapse of energy-trading giant, Enron in 2001 was one of the most high-profile corporate scandals in recent decades. Its extraordinary growth – it become America's 7th biggest company in just 15 years – turned out to have involved an elaborate scam. Enron lied about its profits and concealed debts so they didn't show up in the company's accounts. Shareholders lots $74bn, thousands of investors lost their retirement pots, and many more lost their jobs. Enron CEO Jeffrey Skilling and former CEO Kenneth Lay, as well as its former chief financial officer, Andrew Fastow, were handed prison sentences for a range of crimes, including: fraud, money laundering, insider trading, making false statements to banks and auditors, and conspiracy.

The one Enron partner that was said to have escaped largely unscathed is McKinsey, which is odd, writes The New Yorker's Malcolm Gladwell, 'given that it essentially created the blueprint for the Enron culture.'[1] McKinsey were also directly employed by Enron and the consultancy was key in Enron's massive growth and diversification. Under Mr Skilling, himself a former McKinsey employee, Enron was reportedly paying the firm $10m (£6m) a year for advice. McKinsey fully endorsed the dubious accounting methods that caused the company to implode. The firm's dealings with Enron, however, were kept almost totally secret in the media despite McKinsey employees attending Enron board meetings and public appearances. [2] [3][4]

As the Observer noted in the wake of the scandal: 'Enron is the house that McKinsey rebuilt.' 'The processes and principles [Skilling] allowed were very McKinsey', it notes. Meanwhile, McKinsey 'used Enron as their sandbox'.

Encouraging risk on Wall Street

McKinsey has advised 'virtually all of the Wall Street banks' in recent years. According to Ben Chu, writing in the Independent, McKinsey's consultants promoted the securitisation of mortgage assets, 'the practice that poisoned the global financial system and precipitated the 2008 credit meltdown'. The firm also encouraged the banks to fund their balance sheets with debt, driving up risk.[5]

Insider trading

In recent years two former McKinsey senior executives were convicted of insider trading.

In January 2010 Anil Kumar, a former McKinsey director, pleaded guilty to insider trading charges and publicly acknowledged giving corporate secrets gleaned on the job to Raj Rajaratnam, a founder of the Galleon Group hedge fund, in return for cash. More damaging for the firm, however, was the conviction in 2012 for insider trading of Rajat Gupta, who ran McKinsey for ten years. He also leaked boardroom secrets to the hedge fund billionaire.[6][7]

Privatisations and public sector 'reform'

UK: healthcare and privatisation of NHS

In 2015 NHS England announced a new list of approved suppliers to the NHS. The list is dominated by outsourcing giants Capita; management consultancies PwC and KPMG; and US health insurer UnitedHealth. NHS England insists the companies who are bidding for contracts to supply support services to the GP-led commission groups will supply a range of back office functions, cutting procurement times and allowing doctors to focus on how best to spend their £70bn share of the NHS budget.' All of the firms are members of the Commissioning Support Industry Group, a 'low-profile body that affords them regular access to the senior NHS officials overseeing the creation of the new market in commissioning services.' Other members of the Group include management firms Ernst and Young and McKinsey who have also been awarded prominent roles.[8]


India: agricultural reform

In 2002 McKinsey were contracted by the Andhra Pradesh government in India to create a development plan which would bring them into the global economy.

The document it produced, entitled 'Vision 20/20, cost the Andhra government £3 million and advocates the industrialisation of farming and the influx of energy intensive industries to the region, boasting of India's exceptionally cheap wage labour (e.g $0.24/hour for textiles manufacture). The Department for International Development (DfID) offered £65 million to the project, which would benefit British corporations and industrial interests, but arguably exacerbate real poverty in the area.[9] According to a Corporate Watch article a DfID spokesman said:

'Vision 20/20 is going ahead…Our aim is to take farmers out of the poverty they and their families have been in for centuries. The only way to do so is by modernisation, commercial consolidation of farms and the introduction of up to date farming methods, including the use of pesticides and machines and GM crops.' [10]

In response the International Institute for Environment and Development, the University of Hyderabad and other bodies, created a 'citizens jury' which analysed the evidence around the Vision 20/20 strategy and unanimously rejected it. Their objections included claims that 20 million farmers would lose their land and livelihoods and fail to find other employment (being of lower castes); that there would be mass displacement; environmentally and socially destructive farming practices; bias towards export crops and goods at the expense of the local economy.[11]

Corporate Watch note the implicit bias in the involvement of McKinsey, who represent large corporate interests and help them to maximise profits, in developing a poverty alleviation plan, especially at great expense (£3m) to the local government, money which could arguably have gone some way towards really alleviating the poverty in the state. [12]


India: mining reforms

McKinsey's report 'Turning the minerals and metals potential of eastern India into a gold mine' suggests that exploiting the deposits (mostly bauxite, coal and iron ore) in three East Indian states - Chhattisgarh, Jharkhand and Orissa could lead to an 'unprecedented economic boom'. However, they note that;

Capturing this potential however will require a concerted and coordinated effort by industry players and the government.'[13]

This area of East India contains some of the largest concentrations of Scheduled tribes, and reserved forest in India, and has already been the subject of major controversy over mining and refinery projects which have destroyed forest reserves, displaced tribal communities and been approved despite massive local resistance. Felix and Padels book 'Out of This Earth: East India Adivasis and the Aluminium Cartel' documents mining and metals developments in these states highlighting the clash of cultures between companies and the Government- looking for profit, and the needs of local people, who's livelihoods are invariably left in tatters by the health, environmental, social and economic ill-effects of mining projects. The book documents hundreds of environmental and human rights abuses, and collaboration between the legal system, companies, foreign aid agencies, consultancies and the government which have led to illegal and damaging projects[14].

McKinsey's report recommends; reducing clearance ands approval time and hurdles for mining projects, de-regulating the mining sector and privatising government mining companies and bodies, creating faster and cheaper infrastructure, providing cheaper power supply (coal or hyrdo-power). Their more detailed recommendations include creating 'Special Mining Zones' where conservation areas such as reserved forest are de-registered[15].


Company policies

McKinsey has a strong reputation for advancing the interests of its clients partly through strict and ruthless employment rules and organisational strategy. These include:

  • The 'up or out' policy, whereby staff must either get regularly promoted or be fired, encouraging a particularly rapacious breed of employee, eager to maximise the profit of clients and the firm.
  • Non-exclusivity, whereby they will accept any client, even if they are direct competitors of another client. Though this rule requires absolute confidentiality, it works to their advantage as they can attract competing companies who are keen to get the same high profile advice.

Political reach

Alumni: the 'ultimate old boys' network

McKinsey has been described as acting as the "ultimate old boys' network" as past employees and clients become part of the 'alumni network' which includes Enron boss Jeffrey Skilling and Tory leader William Hague. According to a 2002 Independent article:

One source close to McKinsey says: "The alumni are seen as ambassadors to the McKinsey brand. The network isn't openly exploited, but the firm maintains a database of members and holds an annual reception for the alumni." [16]

Political connections: UK

Matthew Elson, a former McKinsey senior partner, has become transport adviser in the Downing Street Policy Unit. Also working on transport is Nick Lovegrove, another senior McKinsey partner. He has agreed to work for nothing with his old friend Lord Birt, the former BBC director-general, on a similar transport study.
It's not the first time Mr Lovegrove, who would normally charge clients well over £1,000 a day, has offered his services to the Government for free. In 1998 he wrote a report on productivity that formed the backbone of Lord Falconer's reforms to the town and country planning system.
Another ex-McKinsey partner drafted into Lord Birt's "Forward Strategy Unit" is Adair Turner. He is a former head of the Confederation of British Industry, which boasts three past and one present McKinsey-trained director-generals.[17]

Case study: the 'tangled web' of Railtrack

Railtrack, the track operator created in 1994 as part of the privatisation of British Rail, is a good example of McKinsey networks at work.

For example, Railtrack's former CEO Gerald Corbett has links with one of its former board members, the Tory MP and ex-McKinsey man, Archie Norman. There is also a link with Kingfisher chief Sir Geoff Mulcahy, who subsequently appointed Mr Corbett to run Woolworths, until recently owned by Kingfisher. Archie Norman was once Sir Geoff's finance director at Kingfisher. Kingfisher is a big customer of McKinsey, and the retail group's former chairman, Sir John Banham, is a former McKinsey partner.

McKinsey has been accused of contributing to and profiting from Railtrack's collapse in 2002. According to reports, in the late 1990s Corbett commissioned McKinsey to devise a blueprint for Railtrack. The central recommendation was that Railtrack should "sweat" its assets. This meant replacing its cyclical system of rail maintenance with a programme where infrastructure was mended on an as-and-when basis. "The theme was very much that we should get the most out of the assets before we renewed them," says a Railtrack insider. [18]

Railtrack's approach to limiting repairs on its infrastructure resulted in accidents and their ultimate demise. A 2002 article in the Independent commented on McKinsey's role:

'Once it has been paid millions to create something, it can knock it down again, as is about to happen at Railtrack.'


People

Senior managers/directors

Due partly to the company structure, which lacks an executive board, there is very little information on senior employees on the firm's website.

In 2009:

Alumni

A 2008 USA Today article reported that McKinsey were the top company worldwide for producing CEOs from its alumni. [21]

Some of McKinsey notable alumni are:

McKinsey Quarterly

McKinsey publish a quarterly journal giving advice on market exploitation in various areas. Their 'Food and Agriculture' section contains articles on supermarkets, the brewing industry, genetic modification and selling packaged food to the Chinese. [22]

Clients

Contact

55 East 52nd Street New York NY 10022 Phone: 212-446-7000 Fax: 212-446-8575

http://www.mckinsey.com

Resources

See: The Corporate Capture of the NHS

Notes

  1. ↑ Malcolm Gladwell, The Talent Myth, "The New Yorker", 22 July 2002
  2. ↑ Jamie Doward 'The firm that built the house of Enron' The Observer, 24 March 2002. Accessed 01/02/10
  3. ↑ Clayton Hirst, 'The might of the McKinsey mob: It's big in business and politics and is Britain's most powerful old boys' network' the Independent, 20 January 2002. Accessed 01/02/10
  4. ↑ Ben Chu, McKinsey: How does it always get away with it? Independent, 7 February 2014
  5. ↑ Ben Chu, McKinsey: How does it always get away with it? Independent, 7 February 2014
  6. ↑ Joanna Chung and Alan Rappeport, Ex-McKinsey director Kumar took $1.75m for tips to Galleon The Financial Times, January 8 2010. Accessed 01/02/10
  7. ↑ Rajat Gupta Convicted of Insider Trading, New York Times, 15 June 2012
  8. ↑ Jamie Doward Fears grow over ‘land grab’ of NHS by private suppliers Guardian, 2 May 2015, accessed 4 May 2015.
  9. ↑ Corporate Watch,'Vision 20/20: Blinded by Development' Newsletter 8, April-May 2002. accessed 1/01/10
  10. ↑ Corporate Watch,'Vision 20/20: Blinded by Development' Newsletter 8, April-May 2002. accessed 1/01/10
  11. ↑ Corporate Watch,'Vision 20/20: Blinded by Development' Newsletter 8, April-May 2002. accessed 1/01/10
  12. ↑ Corporate Watch,'Vision 20/20: Blinded by Development' Newsletter 8, April-May 2002. accessed 1/01/10
  13. ↑ McKinsey and Co, and the Confederation of Indian Industry, 'Turning the minerals and metals potential of eastern India into a gold mine accessed 19/07/10
  14. ↑ Das, S. and Padel, F. 2010,'Out of this earth: East India Adivasis and the aluminium cartel' Orient Blackswan
  15. ↑ McKinsey and Co, and the Confederation of Indian Industry, 'Turning the minerals and metals potential of eastern India into a gold mine accessed 19/07/10
  16. ↑ Clayton Hirst, 'The might of the McKinsey mob: It's big in business and politics and is Britain's most powerful old boys' network' the Independent, 20 January 2002. Accessed 01/02/10
  17. ↑ Clayton Hirst, 'The might of the McKinsey mob: It's big in business and politics and is Britain's most powerful old boys' network' the Independent, 20 January 2002. Accessed 01/02/10
  18. ↑ Clayton Hirst, 'The might of the McKinsey mob: It's big in business and politics and is Britain's most powerful old boys' network' the Independent, 20 January 2002. Accessed 01/02/10
  19. ↑ Forbes website America's Largest Private Companies October 28, 2009. Accessed 01/02/10
  20. ↑ McKinsey & Company website Who We Are accessed 01/01/10
  21. ↑ Del Jones 'Some firms' fertile soil grows crop of future CEOs' USA Today, 1/9/2008. Accessed 01/02/10
  22. ↑ Corporate Watch,'Vision 20/20: Blinded by Development' Newsletter 8, April-May 2002. accessed 1/01/10
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