“Enron has built a reputation as one of the world’s most innovative companies by attacking and atomising traditional industry structures.”

-McKinsey report, published a few months before Enron’s collapse.

>

Rajat Gupta was more than a mere board member of Goldman Sachs, Procter & Gamble, and others. He ran McKinsey & Co. from 1994 to 2003, and was a senior McKinsey partner until 2007.

When the Securities and Exchange Commission brought insider trading charges against Gupta, it did more than merely accuse him of being a crook. It shined a long overdue light on a company that has successfully dodged responsibility for some of the worst financial ideas in history.

McKinsey, the global consulting firm, has created dubious strategies for all manners of companies ranging from Enron to General Electric. Indeed, where ever there has been a financial disaster in the world, if you look around, somewhere in the background, McKinsey & Co. is nearby.

That’s a pretty significant accusation. But it is bore out by the track record of the firm. Some of the more questionable strategies of McKinsey:

• Advocating side pockets and off balance sheet accounting to Enron, it became known as “the firm that built Enron” (Guardian, BusinessWeek)

• Argued that NY was losing Derivative business to London, and should more aggressively pursue derivative underwriting  (Investment Dealers’ Digest)

• General Electric lost over $1 billion after following McKinsey’s advice in 2007 — just before the financial crisis hit. (The Ledger)

• Advising AT&T (Bell Labs invented cellphones) that there wasn’t much future to mobile phones (WaPo)

• Allstate reduced legitimate Auto claims payouts in a McK&Co strategem (Bloomberg, CNN NLB)

• Swissair went into bankruptcy after implementing a McKinsey strategy (BusinessWeek)

• British railway company Railtrack was advised to “reduce spending on infrastructure” — leading to a number of fatal accidents, and a subsequent collapse of Railtrack. (Property Week, the Independent)

No consulting firm that has been around as long as McKinsey has a blemish free record. But the total number of clusterfucks and McKinsey foibles they are associated with goes on and on.

The question of today goes beyond the illegal insider trading of their former managing director — what is it about McKinsey that allows them to give some very awful, legally questionable advice, and yet escape blame?

Its ironic that their former chair was on the Board of Directors of GS — perhaps McKinsey can now join the ranks with Goldman Sachs, as the latest to be revealed asgreat vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

This looks like a job for Matt Taibbi . . .
>

See also:
Ex-McKinsey ‘High Priest’ Gupta Linked to Rajaratnam by SEC (Bloomberg)

Can McKinsey Keep a Secret? (NYT)

Books:
• The Witch Doctors: Making Sense of the Management Gurus by John Micklethwait and Adrian Wooldridge

Dangerous Company: Management Consultants and the Businesses They Save and Ruin by James O’Shea

Category: Legal, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

53 Responses to “Is McKinsey & Co. the Root of All Evil ?”

  1. Petey Wheatstraw says:

    Regardless of the advice they gave corporate persons, they and their counterparts have probably made billions off of their chicanery, fraud, and criminality. That’s why they continue to wreak havoc. The question is not why an honest manager would hire this firm, it’s why the people running it and the people looking to scam the public by adopting the advice and strategies they offer aren’t in prison.

  2. teraflop says:

    Right or wrong, I think they trump competitors when it comes to innovative ideas, major horizontal and vertical relationships, and a self-reinforcing cache. Right or wrong, the innovative ideas serve both their partners and their customers’ needs, not necessarily their customers’ owners or its own customers.

    Being able to see a wave coming, or even better, creating the wave then selling a surfboard to survive it until it crashes onshore is still a viable business model. For a time.

  3. michael-D says:

    you can add Q to that noble list of companies. mckinsey was brought in by the now imprisoned joe nacchio in the early oughts ['02 or '03 iirc]. they wreaked their patent brand of havoc upon the workforce and the company. mass layoffs, do more with less, and some really interesting flavors of accounting fraud. but hey, joe made out like a bandit until, well, until he didn’t.

  4. quillnotes says:

    There is no doubt these consulting firms are to blame for many of the management decisions. Their track record is just as bad, if not worse as wall street analyst. The issue at the end of the day is the lack of accountability, managements typically tell the board that well, we pursued “that” strategy because the consulting firm that we hired told us that would be the best for us.

  5. postman says:

    Excellent reporting, using disparate sources. I knew nothing about McKinsey’s true record. My primary contact with McKinsey over the years has been McKinsey alumni proudly presenting their former employment, much as one might be proud to present a degree from an Ivy League school.

  6. Petey Wheatstraw says:

    teraflop:

    Right is right and wrong is wrong. The root of our current predicament is that we never stop the wrongdoing, much less set right the damage it produces.

    Strange that so many of these folks’ innovative ideas seem to rely on fraud (or fraud disguised as poor business advice — plausible deniability being the first line defense to corporate criminality), and result in financial catastrophe and/or broken and irreparable balance sheets.

    Setting the timer on a bomb, or advising someone else to do so, does not excuse one from responsibility for the ensuing explosion (even if the person in question is miles, or continents, or years, away when the damage caused by their actions occurs).

    Apparently, there are always victims left in the wake of this firm’s operations (the general public among them). I’ll bet there are many insiders in cahoots with them who have profited handsomely from playing along. Acts of god/nature or random, unforeseeable events and acts of criminality disguised as such are difficult to distinguish from one another. One way of telling them apart is to determine if someone made a windfall profit from the disaster.

  7. ashpelham2 says:

    You list a pretty respectable assortment of f-ups by this outfit, McKinsey. I’ve heard of them, but didn’t really know that they were associated with some of the big dogs that they are. I only wish I could remember all of this stuff I read!

    Anyway, making a statement about an outfit like you have here of McKinsey, usually draws some sort of public defense by an organization. Even if the accusation is based in truth, which this one clearly is. I’m sure they’ve had some successes, because even a broken clock is right twice a day. Lots of idiots out there giving advice as experts.

  8. takloo says:

    @teraflop – that is probably why mckinsey ranked as the most coveted firm for MBA grads for many years

  9. b_thunder says:

    Isn’t a competitive marketplace should have “punished” them a long time ago?
    So, are they a monopoly of sorts? Is there anyone else who provides same “valuable” services as McKinsey?

    BTW, at least over the last decade McKinsey were rated as “No. 1″ or one of the best companies to work for. Isn’t McKinsey is the largest employer of Harvard MBA grads? Which always made me wonder:
    What can a 25-year with zero experience in a particular industry (even if he/she has a Harvard MBA diploma) advice to the people who worked in that industry for decades? How many “little things” about the industry those ‘consultants” do not know and fail to consider? I guess when their advice leads to fatal railroad crashes, business should reconsider who they take advise from.

  10. dead hobo says:

    BR wondered:

    Is McKinsey & Co. the Root of All Evil ?

    reply:
    ————-
    Probably not, although they work in an ‘industry’ (consulting) that sometimes adds value, but sometimes inflicts the corporate equivalent of untreated shingles on client victims.

    One favorite story is Figgie International, a marginally competently run conglomerate that turned to consultants and flopped miserably. They became ‘world class’ without any clue of how to even explain what ‘world class’ meant.

    http://articles.chicagotribune.com/1997-08-03/business/9708060012_1_official-supplier-fortune-corporations

    Or how about the time I overheard a pre bankruptcy Arthur Andersen consultant telling an interviewee that he frequently went to a client in the morning on an engagement without any idea what he was going to do that day, but he managed to stay busy and billable.

    Although my absolute favorite set of consultants were the sociopath project managers who flourished during Y2K in IT departments. If you could spell ‘IT’, project a good image, were willing to tell others what to do, and happy to persecute anyone who could see you were full of shit, you could make big bucks as a consulting computer professional.

    Hint to those who hire IT consultants … Back in the day it was common to double team, meaning put two people on a one person project. One was an ‘analyst’ who couldn’t code if their life depended on it and sneered at those who did. The other was a befuddled and brittle coder who hated being asked questions and depended on the analyst. I remember one project manager who had no clue as to what a file layout was. Of course, I’m sure this doesn’t happen today.

    These colorful characters could not exist, however, without strong assistance from incompetent company management. You likely have no idea the mountainous stupidity that exists in many corporations.

  11. Outlier says:

    The fun part is going to be when the McKinsey PR people start adding their defense to this thread. Love reading the thinly veiled rapid response comments…

  12. Julia Chestnut says:

    b_thunder, I don’t think that it is so much that they are great to work for as they are the MBA equivalent of the white shoe law firms: there’s prestige there. Purportedly the training that you receive, working on large projects for very large clients, is good. But my experience with friends who worked there is that it is, exactly like a white-shoe law firm, a really cultish work environment. What I mean by that is that there is always a threat of punishment in the background, a brutal fear that others will turn you in if you step out of line from the orthodoxy, absolute loyalty is demanded, and they engage in a certain amount of sleep deprivation and separating you from your outside life (through monumental work hours and severe time pressure) that one associates with a cult. All this happens at the lower echelons and isn’t necessary by the time you move up – you’ve learned how you need to behave.

    I’ve kind of always thought of them as that girl in high school who always knows all the rumors, knows what all the popular kids are doing on Saturday night. It’s not like there is anything particularly innovative associated with what they provide, but they are a repository of the current modes and methods and the scut under the table. Purely an outsider’s jaded view – I know people who swear that the projects that they worked on were creative and difficult.

  13. JSchmid says:

    Thanks for the amazing insight that I haven’t heard anywhere else.

  14. godot10 says:

    Nortel was also a McKinsey client. Nortel filed for bankruptcy in 2008.

  15. Matt S says:

    No, they are the advisor to all evil. Those who can’t be the root of all evil, consult.

  16. teraflop says:

    Petey,

    I agree with your sentiment. However, morality really doesn’t have a place at certain levels nor would I expect vendor-customer relationships to be bound by moral judgments until well after the fact. What I denote as “customers” of vendors is not the entire company but the quorum of individuals that agree to sign contracts with said vendors, what some would label as “management.” Their strength is a keen eye, which customers pay for and derive value from, even if it’s purely on a personal basis: “I re-engineered my company, thus increasing ROA, etc.” which is compensated for via short-term instruments such as cash bonuses or options with near-term strike dates. So do you necessarily fault the vendor who facilitates the exploitation of compensation rules that are pretty common in the circles the vendor addresses?

    takloo,

    Yep, I too have been guilty of looking at the ads in The Economist and considering reaching out to them.

    The squid family isn’t operating in a vacuum nor does it not have competitors. I’ll take a family of sharks ostensibly waving our flag than some domestic government or foreign oligarch’s.

  17. Greshams-law says:

    Consultancy firms are shrouded in paradox: They make money by appealing to the prejudices of their clients, but doing so implies that they sell them utterly atrocious advice at precisely the wrong time!

    If McKinsey & Co is the king of consultancies, then it also has to be the mother of all rubbish calls!

  18. tude says:

    This post reminds me of a funny story. I once met a Founding Partner for a consulting firm that is on par with McKinsey & Co (Presidential and Gubernatorial candidates have worked there). At a party, after much to drink, I asked him what he actually DID. He replied that he is a “BSD”, do you know what that is?

    It was a very enlightening conversation, changed my view of “power” and those in powerful positions quite a bit. The biggest thing I came away with is that those in the most powerful positions with the most money are not smarter than anyone else, just much more greedy and ruthless. I know, duh, right? I cannot help it, I am still desperate to think the best of people.

  19. KLO says:

    I hope this does not come across as a defense of McKinsey.

    The reality of the consulting business is that the ideas originate with management. The consultants’ job is to transform those ideas into “rigorous” and clever sounding action plans that make sense to Wall Street. Not infrequently, consultants will prepare reports after management has already made its decision. These reports will consider a number of different alternatives — many of which management never considered — and then present management’s chosen option as the likely best choice. In this way, management can make it seem as though it considered all the options without actually going to the trouble of doing so.

    The consultants also provide cover for management when things go wrong. “We studied the issue in detail and hired the best consultants, but, hey, sometimes unpredictable things happen.” When things go wrong, management will retrieve its dust-covered copy of the consultant’s report to show that, in their advice to management, the consultants failed to identify whatever eventually went wrong as a substantial risk. This failure is often used to show that either (a) the event was unpredictable or (b) the consultants — and not management — made the mistake.

  20. “The Fire jumped from my Hearth and burned the House down..Fire is Evil.”

    but, in this Case, McKinsey, just, might be..they’ve, certainly, been at the epicenter of many Corporate Failures..

  21. [...] Is McKinsey & Co. the Root of All Evil ? (TBP) Tweet [...]

  22. cognos says:

    Bear, AIG, and Citi were all McKinsey clients into the crisis.

    McKinsey does enormous work for the govt and gets paid WAY better than govt employees. Yet where is the effectiveness?

    In the recent paperwork for a Booz Allen Hamilton ipo (owned by the Carlyle Group) it was stated that they get 95% of their revenue from goverment consulting. Smell a rat?

  23. Did they create any orphan Christmas fund piggy bank debacles? Sounds like it

  24. ukarlewitz says:

    There’s a lot of garbage in these comments from people who have never worked with or for McKinsey. I spent many years there as a consultant and later was a client. I have also been a client of other consulting firms. McKinsey is not perfect, by any means, but there is an ocean of difference between their service and other firms’. It is a highly ethical firm and highly committed to its clients. It does not pander to management, at least not in my experience, and frequently tells management what it may not want to hear.

    The most valid criticism here is that it is staffed with consultants that are young and sometimes guided by older consultants that also lack operating experience. Perfect? No. Generally, it makes empirical and fact-based recommendations. Implementing recommendations is not a strong suit either and generally left to the management of the company. Strategies fail when either is done poorly. But to say that the firm is out to screw clients/management/investors is flat out wrong.

  25. croatian says:

    Since they do business with practically every major company in the world, they also participate in every big bankruptcy/ failure of big company that occurs. So, naming just failures is actually a bad performance indicator. We should be interested in net effect. Enron vs. some company that were consulted by McKinsey and had great performance. But they are secretive about it so…

  26. carleric says:

    Here is how it works in consulting….despite all the young brilliant Harvard-sourced MBAs, their only purpose is to bill. They do whaterver it takes to keep the project operating and the money rolling in. None of them have ever had an original thought and take directions from upper managment. Remember Dave Duncan of Enron fame?…the idea that he operated on his own is hysterically funny. Noone in consulting operates on their own. Management always has plausible deniability. Consulting is generally used to obscure inept managment. There are no qualified managments in place in American firms and anyone who thinks so is a damned fool. If consultants ever do any good, it is to force company’s to do what is in their best interests but none of the Big 4 firms give an single damn about that. You can find firms that actually make a difference but the big accounting firms are not in that company.

  27. Moss says:

    They give the incumbent “C” level management team cover. When the actual implementation effort of their ‘strategy’ takes form they are on to the next kool-aid drinker. When the strategy fails the “‘C” level suite always claims that is was not their idea. I have seen it in action, they have no concept of a corporations culture. Like the Wizard of OZ… somewhere over the rainbow.

  28. RC says:

    You can add Nortel Networks to the list of “accomplishments” of McKinsey. Accomplish, as in they helped Nortel accomplish the task to going bankrupt and killing a wonderful, over a century old, company. Well done!!

  29. mako says:

    Add Centex to the list of McKinsey’s failures. An earlier poster mentioned McKinsey ability to create horizontal and vertical relationships – as a former vendor of Centex, I came to understand that “innovation” all too well.

  30. greg says:

    Here’s a thought. If you’re running a company and you have to hire a consulting firm, FOR ANYTHING, maybe you shouldn’t be running the fucking company.
    In fact I’m going to open a consulting company, and that will be my advise to the board, fire the fucking idiot that hired me, and if any of you approved it, fire yourselves.

  31. ead says:

    Two things:

    Jeff Skilling came up with the idea to make Enron an energy trading company as a McKinsey consultant, then joined the company to make it happen. So they didn’t just advocate it and rubber stamp…

    I’ve heard that there’s a joke at Unilever that goes, “Once you call in McKinsey it takes 2 years to regain profitability.”

  32. [...] McKinsey, the Root of All Evil? Barry Ritholtz seems to think so: “Where ever there has been a financial disaster in the world, if you look around, somewhere in the background, McKinsey & Co. is nearby.” The Big Picture [...]

  33. Arequipa01 says:

    Here is my little story about big corporations and consultants.

    Once upon a time, a director with responsibilities for communications strategy for a number of international operations in the energy sector (one region, thankfully- two languages) decided that a ‘crisis communications strategy’ had to be developed and implemented (one size fits all- always a brilliant approach). So, she grabbed the ‘yellow pages’ and found two smooth-talking BSers from New Yawk whose monolinguism was the ‘best’ thing about them, their lack of international experience even better, and their lack of familiarity with the particularities of the client’s place in the region’s energy sector, well, that was the cherry on the sundae…
    So she flew them to Buenos Aires, put them up, paid them, flew in three of her subordinates (farflung across the region) and locked them in a conference room for 7+ hours while these two geniuses tag teamed the group with a stretched spandex smackdown of Randy MachoMan Savage Inanity. Piledriver dumbification. I know cuz I wuz there and as you all can tell, I’m still brain-damaged. So, a few days later an attached file is sent out with a format for laying the foundation for crisis communication (hallelujah). A format so brilliant, so perfect in conception, design and execution that it could be used only if you were operating in Wachtung, New Jersey, whatever.
    Completely unusable anywhere else humans live. So, crises still happen, right? And people still talk about them and chatter is how we monkeys manage it all, right? So, I tells my boss, Boss, this plan from those boys out of New York, like tits on a boar, here’s my plan. He looks at me and says ‘what all this about tits?’ so I realize he can only hear the pitch of a consultant so I bring in our local consultant who we’re paying 6300 USD a month to do exactly what I tell them, cuz they don’t have any capacity for original thought, and I tell the guy, listen, here’s a plan I have developed on my lonesome, go present it to my boss, maybe he’ll hear your dog whistle, and remind him he strokes you a check for 6300 semolians, ok? And he says, ‘claro, chochera, lo hago al toque, vas a ver cómo le abro el coco y le meto el plan…’ Plan submitted on a Tuesday. Thursday, switchyard blows up, transformer destroyed, major city loses power (for two weeks, yeah, two). Crisis meets plan. We were able to chatter about it and comunerkate wid the autoridades/prensa etc in a coordinated, disciplined and unified voice (in other words- prevaricate as much as possible).
    The only thing my boss could say to me was “How did you know?” So I sez to ‘im, you wouldn’t understand the answer.

  34. ashpelham2 says:

    Greg: Nice man. I laughed out loud when I read “fire yourselves”. Sounds like a line from Monthy Python’s Flying Circus.

  35. barbacoa666 says:

    I used to work in an organization that fulfilled a regulatory function for my previous employer. We collected data, and filed an annual report with the Feds describing the results of analysis of the data. My company hired McKinsey, whose consultant wanted to shut us down. That desire was defeated, since it would eventually resulted in a whopping fine. However, we were integrated into another group with a similar name, but completely dissimilar function, which of course did not yield efficiencies.

  36. greg says:

    @ash, glad you liked it. I’m expecting calls from several Wall Street firms, as we speak.

  37. Sally K says:

    They’re doing a great job of fucking up Smith Barney at the moment…

  38. [...] article at The Big Picture about McKinsey & Co, the firm for which Rajat Gupta worked. Gupta, was recently sued by the [...]

  39. Espad says:

    Joining McKinsey has always been the “dream” for Ivy League Business School graduates as it has acquired an aura of power, intellectual challenge, working among peers who are incredibly smart, aggressive achievers, gives an opportunity to rub shoulders with the high and mighty of the Corporate world, all of these along with fabulous monetary and psychic rewards. Yet its culture breeds smugness and arrogance even among the younger consultants who interact with CEOs, CFOs, COOs and other C suite executives in their assignments and get to see at close quarters their vulnerabilities, fears and the skeletons in their cupboards ! The very thought that one can and does dispense “advice” to these veterans gives a heady feeling of power and control to the consultant. In addition, they get access to privileged information not available to anyone; not even to outside Directors of the company they work on assignments. Many McKinsey consultants have used such privileged information to enrich themselves .

    But the more cynical use of McKinsey is when the CEO of a firm wants to get his way with his (obstinate) Board of Directors. He hires McKinsey and tailors their brief in a manner that these smart alecs know what is expected of them and they do they deliver ! It takes a very strong and secure Director to oppose a McKinsey suggested course of action in a Board meeting.

    That McKinsey is human like anyone else is borne by the fact that their track record for dispensing advice that truly benefits their clients is at best patchy. Then why do corporates hire them at fancy fees ? Primarily the CEO is buying insurance for himself by hiring these guys – when the company fails, he can always tell his Board that his strategy was “validated” by McKinsey and if he gets fired will get his golden parachute to land safely !

    There is one sector in the US that shuns McKinsey – the tech sector ! Why ? Because it is driven by innovators driven by vision and passion. Not for them the cautious world of extrapolating trends, market research, focus groups and above all the CYA (cover your ass) approach that characterizes the general world of business. McKinsey just muttered “amen” !

  40. skyrome says:

    One of their other “great hits” was advising the country’s biggest law firms to constantly open new offices overseas and tie their fortunes to the financial industry at the expense of traditional business like litigation. Law firms were devastated by the recession, leaving hundreds of thousands of lawyers unemployed.

  41. deaner66 says:

    Glorified bean counters…..

  42. Jenny says:

    All great comments – but nothing new!

    What is it going to take for companies to hold directors and managers who hire consultants accountable for the results? That is the core problem.

    Jenny Sutton, “Extract Value From Consultants: How to Hire, Control, and Fire Them

  43. [...] McKinsey & Co, Gupta, this looks like a job for Matt [...]

  44. This is a subject best discussed at length with a decent claret. Sharp knives and firearms however, should be kept well away from the participants lest rage overcome them and they either stab themselves in frustration at the stupidity of companies that hire consultants, or they rise from their chairs and attempt to seek out these arrogant miscreants who’s presence in a company is not dissimilar to the effect enjoyed by SE Asian jungles being sprayed with Agent Orange.

    Usually, the consultants are called in by the CEO or Chairman of a company largely on the basis that the boss needs some intellectual basis to help him persuade his board to agree to a decision that he’s already made. The boss simply calls his chum from the consultancy who he shared a room with at College who then dispatches some 25 year old minions to examine the problem, largely ignore what they are told by the company’s own experienced experts, and who then present the pre ordained report to the board. The same rules largely apply to the CEO’s investment banking advisors with whom he was also probably at school with.

    Obviously, it’s not easy to have an enlightened view like my own unless you have first hand experience of how these genius’s work. Don’t worry; I’m here to help. While working for an investment bank I welcomed the presence of the 25 year olds on my trading floor with the unbridled joy I would normally reserve for a diagnosis of genital warts. Actually, these boys did listen for the three weeks they were with us and disappeared to write, much to the boards horror, a not unfair commentary of the business. Unfortunately, they somewhat carelessly forgot the original instruction and were sent away to redraft it.

    A reasonably profitable and healthy, if somewhat vanilla, business was then shut down and assets redeployed to New York where apparently there was a lot more money to be made, “in the mortgage business.” Yes, German banks and consultants from New England really can be that stupid.

    It should be a mandatory for any public company hiring consultants to give full and timely disclosure to the market to give wiser, if battle weary, shareholders the chance to get out of Dodge before the next weapons grade cock-up.

  45. kksharma1 says:

    I have not worked for Mckinsey but am batting on behalf of a consultant.

    Picking up only the wrong examples without corresponding right ones is no proof of bad or good performance.
    Companies engage with consultants to get them out of something wrong/problematic at that moment or shape their future strategy or a publicity ploy (esp. a beleaguered company engaging a big name consultancy)..… Managements, in most cases, selectively implement recommendations….hence the quoted failures may not be right examples for an attempt to prove failure without the context of the consulting inputs.

    In most cases, the consultant input are advisory and is upon the management to implement. It would be expected that the firm capabilities and possible competitor responses are risked out in a proposed implementation strategy but ultimately the implementation is indeed done by the firm and not by the consultant. In quite a few cases, success or failure leads from the small numerous steps/decisions taken by all the actors in a firm environment rather than from the suitability of a few large major decisions taken by the top management. Also, competitor responses and economic environment are uncontrollable major reasons why a strategy could go wrong. Hence failure of a firm cannot be directly attributed to the quality of a consultant’s recommendation. So to repeat – …to say that the firm is out to screw clients/management/investors is flat out wrong”… they try to do the best they can…though capabilities and experience of the consultants could definitely be brought into question.

  46. SRS says:

    I am a former McK consultant and an Ivy League MBA (by way of full disclosure). I also was a part of their Houston office, right about the time that Enron crumbled. I have since worked close to the top of two F500 corporations, one in the technology space, and one in business services.

    Say what you will about the insightfulness of McK’s work, I have seen no other company whose management frowns as much on hand-waving their way through a discussion. There is a rigorous insistence on using facts – on quantitative analysis, on substantiating opinions obtained from one “expert” with real evidence, an unsentimental willingness to abandon a hypothesis that the facts don’t support – that is unparalleled in the business world. I have seen lots of unadulterated BS pass for high-quality work in the business world, with major decisions made by CEOs on the basis of no facts whatsoever. I have also seen McKinsey partners fearlessly tell their clients, including CEOs of companies, when their clients were flat-out wrong.

    In one case, the partner who was so bold was told by his client (the CEO) that he could hire other consultants who would come up with a different recommendation. The partner stuck by his guns, and, several years later, was heartily recommended by the self-same CEO for a sr. role at another company. I have also seen partners pay the price for their intellectual honesty by being, in some cases, ordered off the premises by their clients, with no penalty to their careers at McKinsey.

    However, it is also absolutely true that several of these cherished principles were bent out of shape by their work at Enron. There were several instances (recounted to me second-hand; I served Enron only briefly) when work that was clearly preliminary or “for example” (and labeled as such) would be used by Skilling (or his minions) as validation of their strategies through the simple artifice of removing the “DRAFT” or “PRELIMINARY” from the powerpoint slide. McKinsey ALLOWED THIS (and other similar shenanigans) TO HAPPEN. They HAD to know that they were being used by Enron’s management (not just Skilling, but several of his subordinates) to rubber-stamp some utterly ridiculous ideas (like broadband capacity trading), but allowed it to happen anyway, and were perfectly happy to live off the reflected glory of Enron’s purported success.

    This is why, when Enron collapsed and the indictments were flying, McKinsey got away scot-free. They had had NO real impact on Enron, with the bulk of their work being used to rubber-stamp whatever cockamamie idea Skilling or Lou Pai or Ken Rice or whoever had come up with. And, they certainly weren’t close to the accounting. In fact, in my opinion, most McKinsey partners outside the Corp Finance or Fin Institutions practice don’t really understand the ins and outs of Finance (which is also true of most Corp Execs outside the Finance and Acctg function).

    So, what’s the upshot? Most McKinsey guys are really good guys, believe me. There are, like any large firm, several a**holes in the organization, but even those guys mostly operate very ethically, by almost any standard of behavior. They do sometimes get too close to their clients and get burned by them. And, they do take credit for things they had little to do with (and then get burned when those things go bad, like Enron).

    But evil? I think not. You have to have some power and influence to be evil. It’s rare that a McKinsey partner has that much sway over an organization to drive it to do bad things. Do they give bad advice? Sometimes, maybe even often, and in most cases, it’s merely a validation of what management already wants to do. But that’s a long way from evil. If you think all management is evil, then, yes, McKinsey is perhaps an often all-too-willing handmaiden. But it’s rare that they are the instigators of “evil.”

    And, BTW, McKinsey is also not about “billable” hours. Their practice is to bill you what is effectively a “flat” rate for an engagement. While this is at least 50-75% higher than their nearest competition (BCG, Bain, Booz & Co., Mars, etc.), it is effectively a flat rate that changes only if the engagement extends beyond the agreed period. During that time, whether you work 20 hrs a week or 80, the client pays exactly the same.

  47. vk9141 says:

    Add another McKinsey f-up to the list: UBS.

    Who advised UBS to make Mortgages its flagship business?
    Where did the Peter Wuffli, CEO right up to and during the crisis, wrk previously?

  48. Can McKinsey Keep a Secret?
    http://www.nytimes.com/2011/03/04/business/04views.html

    Can clients still trust the mighty McKinsey & Company? That’s something they should be asking after the Securities and Exchange Commission, as part of its insider trading crackdown, accused Rajat K. Gupta, the elite consulting firm’s former chief, of betraying Goldman Sachs’s secrets.

    The quality of the firm’s advice has always been fair game, though not often publicly. Jeffrey R. Immelt, the General Electric chief executive, told The New York Times in December that the consulting firm offered costly advice in 2007, when it played down the risks of a financial crisis. But being wrong is a minor sin, and it’s not much of a fig leaf for Mr. Immelt, either.

    The charges against Mr. Gupta are potentially much more damaging. The S.E.C. says that he leaked inside information on Goldman and Procter & Gamble, whose boards he sat on, to the Galleon Group hedge fund. The fund, founded by the indicted Raj Rajaratnam, reaped tens of millions of dollars on the tips, according to the S.E.C. Mr. Gupta’s lawyer denies the claims.

    Mr. Gupta worked at McKinsey for 34 years until 2007, and the association continued thereafter. He was the firm’s managing director, equivalent to its chief executive, from 1993 to 2003. It seems fair to ask to what extent he became a product of the firm, or vice versa. Putting a generous spin on the S.E.C.’s detailed allegations, he enjoyed gossiping with his peers about what he was involved in — even confidential matters.

  49. ted_smith says:

    I worked at McK for several years before I decided I’d had enough. During my time there, I had seen members of the “firm” make recommendations that ranged from being stupid to, in one case, being downright illegal. On my last day at work, a senior partner at the firm advised me to keep my negative experiences to myself. “We are like the mafia” he said. He then proceeded to explain that if I did not keep my stories to myself, “we will find a way to ruin your career”. If anything, comparing oneself to a close-knit, secretive organization that was responsible for hundreds, if not thousands, of deaths was just in bad taste.

  50. [...] Barry Ritholtz (who I normally like) tried a drive by shooting that went wide of the mark: “Is McKinsey & Co. the Root of All Evil?’ His list of seriously bad ideas that McKinsey recommended to clients, including a strategy [...]

  51. GHG says:

    There is a use for a consultant, although I prefer the term advisor because it more fully states the relationship.

    An advisor should provide one of two useful things. The first is advice in a specialized area, for example finance, using knowledge/contacts/experience built up over years in that field that the client would not otherwise be able to access, or could do so only with great difficulty and expenditure of resources.

    The second is an outsourcing of work to someone with specialized knowledge (see above) in a specific area that could likey be done by the company equally or more efficiently, but its resources are limited as to either time or the project is a one-off.

    I have never seen the point of hiring McKinsey-type consultants who are in effect inexperienced generalists for advice on matters any competant management team should know by instinct, other than to provide window dressing for decisions already made (point made much earlier), or to provide advice to managers that are clearly out of their depth who should self select themselves for replacement with someone more competant (this point also made much earlier).

    I can see the point of window dressing, however, given the myriad hoops required by governments and the public markets. Good managers want to spend their time on creative endeavors, not justifying to various regulators why a course of action was taken that, while perfectly obvious at the time it was taken for some reason fails. This has the added benefit of potentially keeping lawsuit trolls at bay.

  52. [...] Is McKinsey & Co. the Root of All Evil ? Well, well. Read on to find why consultants are paid big bucks. [...]