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Is McKinsey & Co. the Root of All Evil ?

Posted By Barry Ritholtz On March 2, 2011 @ 7:13 am In Legal,Really, really bad calls | Comments Disabled

“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.

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Rajat Gupta [1] 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 [2], BusinessWeek [3])

• Argued that NY was losing Derivative business to London, and should more aggressively pursue derivative underwriting  (Investment Dealers’ Digest [4])

• General Electric lost over $1 billion after following McKinsey’s advice in 2007 — just before the financial crisis hit. (The Ledger [5])

• Advising AT&T (Bell Labs invented cellphones) that there wasn’t much future to mobile phones (WaPo [6])

• Allstate reduced legitimate Auto claims payouts in a McK&Co strategem (Bloomberg [7], CNN [8] NLB [9])

• Swissair went into bankruptcy after implementing a McKinsey strategy (BusinessWeek [3])

• 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 [10], the Independent [11])

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 as [12]great 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 . . .
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See also:
Ex-McKinsey ‘High Priest’ Gupta Linked to Rajaratnam by SEC (Bloomberg [13])

Can McKinsey Keep a Secret? (NYT [14])

Books:
• The Witch Doctors: Making Sense of the Management Gurus [15] by John Micklethwait and Adrian Wooldridge

Dangerous Company: Management Consultants and the Businesses They Save and Ruin [16] by James O’Shea


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2011/03/is-mckinsey-co-the-root-of-all-evil/

URLs in this post:

[1] Rajat Gupta: http://www.mckinsey.com/ideas/wef2004/biographies/rajat.asp

[2] Guardian: http://www.guardian.co.uk/business/2002/mar/24/enron.theobserver

[3] BusinessWeek: http://www.businessweek.com/magazine/content/02_27/b3790001.htm

[4] Investment Dealers’ Digest: http://goliath.ecnext.com/coms2/gi_0198-394315/Are-Derivatives-Better-in-Britain.html

[5] The Ledger: http://www.theledger.com/article/20101205/ZNYT01/12053006/1001/BUSINESS?p=all&tc=pgall&tc=ar

[6] WaPo: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/22/AR2008022202283.html

[7] Bloomberg: http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aF0WchaAve9M&refer=insurance

[8] CNN: http://www.cnn.com/2007/US/02/09/insurance.hardball/index.html

[9] NLB: http://www.negotiationlawblog.com/conflict-resolution/the-zero-sum-game-allstates-mckinsey-documents/

[10] Property Week: http://www.propertyweek.com/the-land-that-timetables-forgot/3007470.article

[11] the Independent: http://www.independent.co.uk/news/business/analysis-and-features/the-might-of-the-mckinsey-mob-664081.html

[12] revealed as: http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

[13] Bloomberg: http://noir.bloomberg.com/apps/news?pid=20601087&sid=ai9rUd9FYidg&pos=3

[14] NYT: http://www.ritholtz.com/blog http://www.nytimes.com/2011/03/04/business/04views.html

[15] The Witch Doctors: Making Sense of the Management Gurus: http://www.amazon.com/exec/obidos/ASIN/0812929888/thebigpictu09-20

[16] Dangerous Company: Management Consultants and the Businesses They Save and Ruin: http://www.amazon.com/exec/obidos/ASIN/0140276858/thebigpictu09-20

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