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Has McKinsey given the consulting industry a black eye?
A new best-selling book from journalists at The New York Times, “McKinsey Comes To Town,” documents decades of scandalous behavior by the consultancy, raising questions to some about the legitimacy of the consulting industry and whether regulation is required.
The charges outlined in the book include how the firm worked with insurers to slash claim payouts to poor households, its involvement in South Africa’s post-apartheid corruption scandal and its work supporting authoritarian regimes in China and Saudi Arabia.
In its highest-profile scandal, McKinsey in November 2021 agreed to pay nearly $600 million to settle investigations into its role helping “turbocharge” opioid sales that the authors noted followed support of tobacco and vaping firms. Walmart, Kroger, CVS and Walgreens have all been sued over not flagging suspicious opioid orders to authorities.
With controversies also faced by Bain and Boston Consulting Group, an article from The Economist, “Do McKinsey and other consultants do anything useful?,” explored whether ethical lapses, questionable conduct and often-hidden conflicts are hurting the consulting industry’s reputation and whether their advice is worth the risks for any organization, including consumer brands and retailers.
On a follow-up podcast, Thomas Lee Devlin, the author and a former Bain consultant, believes consultants still provide value in offering a “second opinion” in tackling major resets and their “specialist knowledge.”
He believes, however, that the consulting industry’s outsized growth — catapulted in recent years by digital transformation, ESG goals and consultancies taking on more active roles in projects beyond advice — has been accomplished without enough oversight and risk assessment.
Mr. Devlin believes “thorny questions,” such as consultants advising both “regulators and the regulated” and working with governments and state-owned enterprises, may require regulation. A “clear and transparent code of conduct at least is required” to ensure consultancies aren’t profiting by harming customers.
Mr. Devlin said, “It’s fair to say that years of rapid growth have created conditions for disreputable behavior to thrive. A firm with a few 100 partners can get by on the basis of personal ties and a sense of mutual duty, but a firm with a few 1,000 partners requires something different.”
- McKinsey Is a Consulting Powerhouse. But Is It a Force for Good? – The New York Times
- The scandals and hypocrisy behind McKinsey’s sterling reputation – The Washington Post
- Advising both Chinese state companies and the Pentagon, McKinsey & Co. comes under scrutiny – NBC News
- How McKinsey cashed in by consulting for both companies and their regulators – NPR
- When McKinsey Comes To Town — inside the global consulting giant – Financial Times
- Statement on the future of the EY organization – Ernst & Young
- Money Talks: Managing The Consultants – Spotify
- Do McKinsey and other consultants do anything useful? – The Economist
Discussion Questions
DISCUSSION QUESTIONS: Have the scandals at McKinsey and other larger consulting firms in any way impacted the retail consulting world? Does the consulting space need regulation, a code of conduct or at least reputational repair?
Poll
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Bob McCann used to say that a consultant is someone who takes your watch and then tells you what time it is. We should always have been wary of consultants. When I was at Quaker Oats in the 1980s, they told us to diversify – in the 1990s they told us to consolidate to our core. There are some very good people at McKinsey and Bain (I’m sure elsewhere too) – but if you’re not working with someone who’s really good, it’s your job to beware.
Sometimes the best way to get the top management to hear you is to tell the consultant, who then advises the top management. And yes, gets paid for it.
Like any corporation, some oversight and regulation is necessary to ensure accountability. But consulting is a form of work that somewhat defies logic because it demands complete focus on the customer’s success rather than a focus on one’s own revenue.
And often, the best best solution for the client is the simplest and the cheapest. We’re back to “doing the right thing” again.
I have worked for one of the “big four.” The culture in these firms is sometimes questionable but they know better. Everyone knows the difference between right and wrong. The issue is to always pick “right.” Regrettably, when firms decide to stray from the path, they bring additional scrutiny upon themselves and their entire industry. Bad decisions may have impacted the retail consulting world but that does not mean that there are not very good consultants within all of these firms.
McKinsey scandalous? Ya think? Wow. They are now synonymous with consulting gone bad and capitalism at its worst. Having said that, I can’t think of a similar case where something as directly evil as their newly uncovered deeds has happened in retail consulting. Perhaps because the “sell” and even the product is much simpler in most cases, I’m not sure, but figuring out a way that stores can be more productive in the path of the e-commerce tsunami certainly seems more benign right from the start than scheming out a way to sell more addictive drugs.
It is all about the money.
But it is also about doing business. The judgment should not be who you work for but the job you are doing. If the country’s largest buyer of military equipment is Saudi Arabia, how can we criticize another organization for doing business with this authoritarian regime? Should I not teach college students in China because China’s government is authoritarian?
Transparency is the answer. If there were transparency, they would not be involved in the opioid crisis or government scandals internationally. If they are engaged in unlawful projects, they, too, should go to jail.
Do they need regulation? That would be another can of worms. In many cases, that won’t happen as they are intimately involved in the government and with our politicians. A code of conduct would be nice.
Having worked at both Accenture and Deloitte I can firmly say that regulation is not needed. Senior leadership at the major consulting firms knows full well that their reputation is essential in order to maintain business continuity. Clear policies and practices are in place to ensure confidentiality as well as prevent conflict of interest. If one group of consultants is advising a manufacturer and a different set is advising a government regulatory entity those involved know full well how to practice ethical methods and processes. If they do not, it is their career that is at risk.
Now the issues cited relative to McKinsey, especially the South Africa story, are well known and while it happened many years ago it did inform their practices over the past several decades. I look at consulting the same way I do representing defendants vs. being the prosecution in court. As a defense lawyer you take on a case because the defendant needs your expert assistance. Are some of those defendants risky and could cause a black eye? Yes. But you take on the assignment because there is a need to fulfill.
The same holds true for consultants. By the same token some consulting firms as well as law firms as well as marketing or ad agencies will not take on tobacco clients or other categories due to philosophical or foundational policies. That is their right to do so.
Consulting is an advisory service and, yes, what they deliver may not always be in the best interests of the general public or a select segment of the population, but the client has a need for advice, and it is up to the client as to whether or not to implement what is recommended.
It’s amazing that the consulting industry has made it this far without some sort of oversight. Government regulation won’t stop these behaviors, mostly because business will always drive the engagement. But consulting firms should be pro-active in setting standards before the lawmakers step in.
Elite advisory groups have always been secretive – with an air of superiority – about their skills, clients, strategies and any tangible business value provided. Ultimately working with bad actors absolutely gives them a black eye.
One would hope that individuals involved in the consulting industry, not dissimilar to other industries, are acting professionally and with good intent. That said, consulting often gets low marks when it comes to honesty and reliability. More regulation will not overcome those who have less-than-reputable approaches.
If a consultancy practice earns a bad reputation due to systemic illegitimacy, they will likely have a difficult time regaining their footing. I believe that because of a few bad apples you don’t chop down the entire tree.
Properly aligned and with good practices, an outside viewpoint from a consultancy can bring significant value. Personally speaking, the insights and experience offered by our firm’s boutique and focused consulting for more than 40 years has certainly served our industry partners well!
McKinsey and other major consultancies are profit-seeking enterprises. How they get their revenues and continuously secure YoY growth is a function of their network/relationships, the quality and impact of the deliverables, and thought leadership which is more important here than in other industries. As comps get more difficult, lapses in ethics are more likely. Senior partners set the tone and expectations and realize firm and personal reputations are crucial to long-term success. The luster and seduction of large deals test principles.
The largest consultancies need strong internal controls and oversight mechanisms combined with clear guiding principles that shape decisions within a transparent framework. When engagements hit nine or 10 figures, ethics becomes the first casualty.
There are many smaller consulting companies that do tremendous work. While they also need guiding principles, the probability of an ethics lapse is significantly lower as they live or die according to their reputation.
Clients need to do their homework, be internally clear as to why they are hiring, understand the motivations of the consultants and take responsibility for the project. Having a board meeting and relying solely on a McKinsey report as the reason to move forward on a strategic project is not leadership but an abdication of fiduciary responsibility.
So, what do you think about public defenders selected by the courts? Their job is to defend those who otherwise might not afford attorneys — and that includes those who are guilty of a crime. I think it’s impossible and not in the interest of free enterprise to set criteria for consulting companies. And for those companies, countries and agencies that are bad actors, there will always be those who assist them, whether they are grouped in the category of consultancies, foreign agents or those individuals who get paid to advise.
I have never been fond of the big consulting firms and made a conscious decision not to ever use them as a CIO – especially after cleaning up a big mess they’d made at one shop.
I used to say about a different one, “Have a five minute conversation over dinner, watch the consultant scribble on a napkin and the answer is always seven figures.”
None of this is new, though the scale and scope are sort of shocking. There was some oversight instituted, I think when the same firm that would audit would then send in its own consultants to “fix the problems they’d found.” I believe they can’t do that anymore. For the rest? Well…
The problems with global consultancy are two-fold and the path to solution is unique to each issue.
1. What to do about suspect business practices and the improprieties noted?
This is not a problem that needs to be solved through regulatory oversight. The solution is best originated by the leadership of the Big 4 cleaning up their respective shops.
Firms can differentiate by electing to not participate in certain types of projects or to represent bad actors. David Slavick commented how the option always exists to avoid specific categories due to philosophical or foundational policies. Those choices paint the firms’ brand and over time the marketplace will (or should) walk away from firms that continually pursue questionable clients and projects.
2. Do their services bring value for money?
As I understand it, the biz dev process in this sector revolves around the C-Suite. When CEOs gain the confidence to not hire one of the Big 4, the balance of fees and services will begin to balance out. Maybe CEOs and their Boards need to have candid discussions about “why” they need to hire Big 4.
The slogan “you can’t get fired by buying IBM” dates to the ’70s. It represents dated thinking and should not apply to global consulting going forward. There are plenty of alternate options available and the C-Suite needs to garner the courage to pursue them.
Geesh! How broad a brush do you want to use? Of course there are bad actors in consulting or any industry, but it’s absurd to extrapolate that to everyone. Basically you get what you pay for: if you want to pay someone to show you how to do wrong, you will always be able to find someone … unfortunately.
As far as the bigger question (“do retail consultants actually do anything useful”)
they can, but as always “caveat emptor.”
McKinsey has over 30,000 employees. I seriously doubt my one instance (good or bad) will influence the company or its market reputation. The company has been embroiled in scandals, political and apolitical because of one key fact — they work with powerful people at the heads of organizations. There will always be temptation and working with power means the allure of power and in turn scandal at all levels. However, consultants serve a critical need and sometimes they are used as a scapegoat for power, which the best firms have learned how to manage and mitigate. Even if they needed oversight, the independent nature of the business makes it almost impossible.
McKinsey has been under scrutiny because of its numerous connections to scandals. Their activities have been incredibly fallacious. Retailers are already struggling with the economic crisis. On top of that, wrong advice from such consulting firms can potentially do irreparable damage. However, everyone is aware of the housing crisis in 2008. Every accused party managed to bail out. In a similar vein, there’s a possibility McKinsey will be able to do so too.