Who’s in the wheelhouse at McKinsey and Co.?
McKinsey partners (yes it’s a hugh partnership, so things can get complicated, and have, as of recently), voted not to extend the three-year term of their current and twelfth global managing partner, Kevin Sneader. A successor has not been announced.
Sneader took over from No. 11, Dominic Barton, now global managing partner emeritus, who served nine years as the partner in charge. In the interim, Barton had overseen stupendous growth, with the McKinsey partnership almost doubling in size to over 2,000 partners, worldwide.
“My passion professionally is meeting and learning from extraordinary leaders around the world and sharing my views on the disruptive forces reshaping the global economy. My long-term goal is to help as many organizations as possible be successful in this new environment – by adapting to changing conditions and taking a longer-term view on value creation.”Dominic Barton, Linkedin
Is McKinsey & Co. Imploding?
On September 15, 2019, its client, Purdue Pharma L.P., sought protection from further litigation through bankruptcy proceedings. On November 24, 2020, Purdue pled guilty in federal court “to conspiracies to defraud the United States and violate the anti-kickback statute.” In a plea-bargain, Purdue agreed to a criminal fine of $3.544 billion and an additional $2 billion in criminal forfeiture, a record amount in the pharmaceutical industry.
Authorities then switched their focus to McKinsey, based on its Purdue Pharma nexus.
McKinsey has taken a pounding in the press and beyond from its own $573 million settlement last month with the attorney generals of 47 states, D.C., and five U.S. territories, as well as separate settlements with Washington and W. Virginia.
Particularly infuriating to many critics was the seemingly lack of a genuine mea culpa from McKinsey.
“As part of the agreement, the Attorneys General recognized McKinsey’s “good faith and responsible corporate citizenship in reaching this resolution.” McKinsey believes its past work was lawful and has denied allegations to the contrary. The settlement agreements themselves contain no admission of wrongdoing or liability.”– McKinsey & Company, February 4, 2021 Press Release
This begs the question, how did things get that bad? Will the masters of disruption survive their own disruptive forces? What lessons can be learned?
The place to start, might be at the beginning.
The McKinsey Connection
James “Mac” McKinsey studied at St. Louis University and in 1914 he taught bookkeeping. In the First World War, McKinsey served in the Army Ordnance Department, quickly picking up both a CPA designation and a Master’s after the war. McKinsey became a full-time academic at the University of Chicago, writing tomes on accounting. McKinsey’s fifth book, Budgetary Control (1922), was perhaps the first book to move accounting from being a historical look at an enterprise’s financial performance, to being a more future-oriented projection through the use of budgeting and variances, something at that time, unheard of in most organizations.
In 1924 this book was followed by two more: Managerial Accounting, and Business Administration. The last book contained McKinsey’s General Survey Outline, a means to view a company holistically and thoroughly and in a way suggestions could be made for improvements.
In 1926, Mac started James O. McKinsey & Company, Accountants and Management Engineers, in Chicago, working initially for Armour & Company (now Smithfield). McKinsey’s first partner was A. Tom Kearney, who later went on to found Kearney. McKinsey’s professional interests began to shift from accounting to management. In 1929 McKinsey wrote Accounting Principles, which remained in print in twelve subsequent editions until 1980.
On November 30, 1937, McKinsey’s firm weathered its first major crisis with the passing of its namesake from pneumonia.
Enter Marvin Bower
“I made it an immediate objective to learn why it had been so successful. From observation and analysis during my Jones, Day years began the formulation of the program that I later brought with me to McKinsey.”Marvin Bower, Founder
In 1928, Marvin Bower, a freshly minted esquire with a degree from Harvard Law School, was turned down for inadequate grades by Jones, Day, a Cleveland law firm. Fuming, Bower returned to Harvard, picking up an MBA, graduating in the top 5% of his class. He then reapplied at Jones, Day, and got the job.
After work as a corporate lawyer at Jones, Day, helping restructure businesses affected by the Great Depression, and another firm, in 1933 Bower joined the New York office of James O. McKinsey & Company.
In 1939, with the loss of James O. McKinsey, Marvin Bower and two associates, founded the professional service firm known today as McKinsey and Company. Bower changed $100 a day for his consultants and $500 a day for himself, making Bower the highest paid consultant in his day.
Bower kept the McKinsey & Co. name on the door because he wanted his freedom. Bower witnessed how clients would sometimes insist on having Mac on an engagement, and no client would be dictating how Bower spent his time.
It was Bower who instituted the practice of hiring grads directly out of business school as consultants. It was Bower who shaped McKinsey with its ‘up or out’ mandate for new associates. And it was Bower who instituted a number of modern business practices, beyond consulting, the topics of Harvard case studies and numerous papers and books.
By 1951 McKinsey and Company had 88 staff members. Over the years, it continued to grow, faster and faster.
To his distinction, Bower was elected to the National Business Hall of Fame and is considered by many as one of the great American business leaders of the 20th century. And the father of modern management consulting.
McKinsey and Co. would go on to dominate management consulting, becoming known simply as “the Firm.”
Bower had another idea for the firm, a rather grandiose idea, which, like his study of the success of Jones Day, when he first started there, he formulated at the beginning of McKinsey and Company. Not only would McKinsey, based on its internal values and principles, and high level of professionalism, become the premier firm in management consulting, but it would outlast, every other firm. McKinsey and Co. would become an institution that would last, well, forever.
Physician Heal Thyself . . .
Notable McKinsey alumni include Tom Peters, Kenichi Ohmae, and Richard Pascale, and many others who went on to distinguished careers in academia, business, consulting and other fields. Financial writer Brett Arends, for example. Another is Pete Buttigieg, current U.S. Secretary of Transportation. This list would also include four managers at Valeant Pharmaceuticals, a company allegedly in a financial relationship with McKinsey’s investment arm.
During a growth spurt over the last decade, McKinsey, dubbed, “the world’s most influential consultancy,” by the New York Times, has recruited a new breed of consultants and partners, perhaps taking on the type of risky work that would have been declined in the past. While the firm has doubled in size over the span of the last ten years, under Marvin Bower and his immediate successors, McKinsey was known as much for the clients it didn’t take on, as for the work it had agreed to do. Potential clients like Howard Hughes, for example, or companies they judged not yet ready to change would be routinely denied the Firm’s services.
Besides the Pharma imbroglio, McKinsey has had to deal with a scandal in South Africa costing the firm $100 million, and fallout from consultations and the resulting ripples from the relationships with the ex-president of Ukraine, Russian companies under sanctions, controversial foreign governments as Saudi Arabia and others, and recent Covid-related work for the embattled Gov. Andrew Cuomo. The NY Times reported McKinsey has advised 22 of the 100 largest Chinese state-owned enterprises.
McKinsey also operates the McKinsey Investment Office, or MIO Partners, a private, secretive hedge fund with an estimated $12 Billion or so under its management. MIO has been accused of various alleged conflicts of interest.
There can be no doubt at this time current events point to the fact that McKinsey is at a critical inflection point.
The next move it makes will determine its trajectory, perhaps even its survival. Its options, however, are limited.
Option 1: Do nothing.
This seems to be McKinsey’s current strategy. Keep growing, take a hit now and then, but weather the storm.
This is probably not a viable option as McKinsey does not have time on its side. Who really knows how many other client relationships out there are smoldering, waiting for the right conditions to fan into a roaring flame?
Even if time was on their side, the partnership can only underwrite so many maelstroms before running out of money.
Option 2: Create touchstones to a new paradigm
McKinsey could recast its vision and vision statement.
To help our clients make distinctive, lasting, and substantial improvements in their performance and to build a great firm that attracts, develops, excites, and retains exceptional people.McKinsey and Co., Mission statement
A new mission statement could say, if we can’t make things better, then we will strive not to make things worse for our clients—or ourselves.
Or something along those lines . . .
Option 3: Undergo a complete transformation
McKinsey could transform itself, positioning itself as the consulting firm of the future. McKinsey has strengths and resources available, which makes it unique. It needs to build on its reserves and whatever remaining goodwill it has left.
All transformations carry risk. Most transformations are neither easy nor successful.
Is McKinsey nearing the end to business as usual?
Has McKinsey reached its nadir? What has it done in a remarkable way since 2007, when, for example, it released its forward-thinking McKinsey Solutions? Will mad growth alone continue to be the magic elixir to carry it forward?
McKinsey has survived other scandals like its failed strategic plans for Swissair (1990s), and later, its link to the Galleon insider trading scandal. But both the frequency and severity of its payouts and reputational risk seem to be exponentially increasing. It cannot afford any future hits in the Billion-dollar range. Few service organizations could and still survive.
Whether it sets its sights future forward, or backwards to the edicts of Marvin Bower, who impressed upon the partnership that everyone put the interests of the client and the firm above their own, the ultimate question for Mckinsey might be, Is it ready to change?
Would McKinsey take itself on as a client?
Or is it too late?
Will it be said, in spite of the great hopes of Marvin Bower, that nothing lasts forever?
Will 13 be a lucky number for the next global managing partner? Stay tuned . . . ■
Thank you for reading this.