The book “When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm,” authored by investigative journalist Walt Bogdanich and writer Michael Forsythe, presents a detailed examination of the activities of the American consulting firm McKinsey & Company and the covert operations behind its activities. This initial attempt aims to uncover an organization long shrouded in secrecy. For decades, McKinsey has promoted a reputation as a provider of scientific solutions to complex problems. Major corporations and governments worldwide have hired its consultants, including entities like the CIA, FBI, and the Pentagon, believing that McKinsey possesses the wisdom and resources lacking in their management. Operating in over sixty-five countries, McKinsey has advised ministries of defense, police, justice, and military in fifteen of these nations. Although headquartered in New York City, McKinsey functions through semi-independent offices in various cities around the globe.
The Organization’s Vision
The book outlines the parameters of McKinsey’s operations according to its self-perception:
Firstly, the organization insists on the primacy of values. It asserts that McKinsey is driven by values and not merely by a profit motive, appealing to those interested in issues such as climate change, inequality, and racial justice. Despite being named after its founder, James McKinsey, the organization’s spiritual leader was Marvin Bower, who insisted that McKinsey refer to itself as an institution rather than a company; it does not run a conventional business, and client engagement is seen as a partnership, not a job.
Secondly, McKinsey employs a substantial number of distinguished professionals. For the brightest and most accomplished university students, a position at McKinsey represents a pathway to wealth and status and an opportunity to prove themselves by solving the toughest challenges in the business world. The firm employs approximately thirty-four thousand people, with some staying and others leaving. Those who remain not only demonstrate their consulting acumen but also show their ability to connect with influential individuals within the company, paving their way for advancement.
Thirdly, the firm actively leverages its former employees. According to the book, departing from McKinsey is not seen as a disgrace but rather akin to graduating from college, endowing former employees with high-level communication skills for future job opportunities. McKinsey understands that by placing its former employees in the business world, it can expect to gain new clients in return.
Fourthly, McKinsey conducts comprehensive assessments to enhance corporate profitability. The American Steel Company and Disneyland engaged McKinsey to undertake a thorough evaluation of their operations to maximize profits. McKinsey has established itself as a premier cost management expert, implementing strategies focused on economic profit, customer relations, cost structure, and innovation. While it is expected these strategies would not compromise safety or harm the environment, reality often proved otherwise, as both companies faced multiple safety violations. Yet, McKinsey was never held accountable or faced lawsuits, nor did any government agency accuse it of wrongdoing.
Negative Evaluations
The book discusses several instances of McKinsey’s operations that were deemed negatively impacting labor and wage justice:
One example is its support for managers in specific company evaluations. Executives at General Motors questioned whether they were paid adequately; the company asked McKinsey to analyze executive compensation across thirty-seven different firms, discovering that workers’ wages were rising at a faster rate than executive incentives.
Additionally, the culture of purging employees for cost reduction was evident in a company that consulted with McKinsey, which laid off many workers in pursuit of higher profits, arguing that job losses should be viewed as part of a continuous economic restructuring process familiar to the American economy. However, as the suffering of the middle class continued, McKinsey began to recognize that its short-sighted focus on shareholder profits might not be beneficial for society.
Furthermore, a former McKinsey consultant noted that the failure to address income inequality has led to individuals turning against the government, and even against each other. A study by the Federal Reserve in Washington documented that over the past four decades, the growing market power of corporations contributed to some of the most intractable social issues as production doubled and grew without a corresponding increase in wages.
Positive Areas
The book also highlights several of McKinsey’s efforts that reflect positively in some of its initiatives:
For instance, in the mid-1990s, a team of McKinsey consultants ventured to Illinois in pursuit of an idealistic dream—to break the cycle of poverty by separating the poor from the welfare system with the help of the state government. They believed that welfare systems often perpetuate poverty, hence pledging to assist recipients in achieving self-sufficiency. Notably, McKinsey conducted this initiative pro bono, representing a significant contribution valued in millions of dollars without seeking government contracts.
Moreover, the book details McKinsey’s involvement in expanding managed healthcare. As the U.S. began privatizing medical services through managed care systems designed to manage costs and quality partially by directing patients to specific doctors and hospitals, state officials sought McKinsey’s help to expand their programs—despite lacking a budget for more than two years, which forced the firm to limit its clientele. Realizing that healthcare could represent a substantial profit center, McKinsey delved deeply into government agencies by promoting the idea that ordinary government employees lacked the training and expertise to navigate the nuances of healthcare economics. This strategy led to McKinsey securing over a billion dollars in governmental consulting contracts, often without competitive bidding, leveraging its expertise to deliver value in healthcare economics while ensuring profitability for itself and its clients.
Additionally, McKinsey has significantly supported vital services. In recent years, British leaders have introduced major changes within the National Health Service (NHS), reallocating a growing portion of national healthcare spending to the private sector, thereby opening the door for American companies. McKinsey has been instrumental in shaping and implementing these changes, demonstrating a rapid penetration into the UK market not seen in the U.S. The COVID-19 pandemic posed a critical test of the revamped healthcare system, prompting senior health officials to seek private companies to manage the program.
Global Activities
McKinsey has a widespread presence across numerous countries, with the book mentioning several of its international activities:
One significant instance involves consulting for numerous Chinese companies. Recently, McKinsey provided advisory services to at least twenty-six firms in China, including the China Communications and Construction Company, a state-run entity vital for China’s national security. McKinsey’s early consultants in China realized that for their practice to thrive, they needed to attract local clients, including state-owned companies overseen by the Communist Party, which dominate the economy. For McKinsey, the Chinese communications firm represents an additional source of revenue. However, working with a state-owned company in China doesn’t conflict with serving a much more critical client, the Pentagon; internal records reveal that from 2018 to early 2020, the U.S. Department of Defense ranked among McKinsey’s top clients, with no Chinese firms appearing in its highest revenue rankings during that period.
Moreover, McKinsey played a crucial internal role in Saudi Arabia by assisting the state-owned oil giant, Aramco, and winning contracts to support the Kingdom’s economic diversification plans. As such, after more than forty years, McKinsey’s work in Saudi Arabia remains centered around two pillars: advising Aramco and the Ministry of Energy, while assisting the government in moving away from an economy entirely reliant on Aramco’s oil. By 2016, McKinsey had undertaken 137 projects in Saudi Arabia, establishing a firm foothold in the Kingdom’s affairs.
Additionally, McKinsey provided government consulting in South Africa during the apartheid era when a United Nations trade embargo pressured the nation’s leaders to alter their racial policies. The temptation to break this embargo was significant, given South Africa’s advanced economy and abundant natural resources. However, the task was complex, as Nelson Mandela’s African National Congress decided that a strong central government should lead societal change, a challenging stance for a country lacking democratic traditions. Thus, McKinsey, accustomed to advising corporations rather than governments, gradually felt compelled to engage in governmental work, along with the associated risks. Since 2005, McKinsey has been advising state-owned government agencies.
Finally, the firm has reconsidered its foreign collaborations following critical reports of its activities in China and Russia. McKinsey announced a shift in its client acceptance policy, declaring that it would no longer provide consulting to military, intelligence, police, or justice officials in non-democratic states or work for political parties or advocacy groups. Nevertheless, many current and former employees expressed skepticism about whether the firm would adhere to this new policy, noting that the success of such a strategy threatens to undermine McKinsey’s business model, which relies heavily on a vast amount of trust placed in its partners to make significant decisions.
Diverse Criticisms
The book accuses McKinsey of operating to serve its interests, regardless of values:
Firstly, client satisfaction is an absolute priority. The company’s foremost value remains that client interests supersede all other concerns. Numerous former consultants have disclosed their struggles in navigating relationships with notoriously poor clients, such as tobacco companies or non-democratic governments. This is likely due to full accountability to the client, with no accountability to society.
Secondly, there is excessive focus on achieving financial profits. For decades, McKinsey consultants have helped major tobacco companies sell more cigarettes. Prospective employees might wonder how marketing cigarettes aligns with the company’s “values,” yet tobacco companies proved alluring clients solely for their financial capabilities. Like many compulsive smokers, McKinsey found it challenging to resist the allure of tobacco profits, becoming, in essence, addicted to the lucrative returns that come with selling even the most controversial products.
Thirdly, McKinsey has indirectly contributed to promoting addiction. Purdue Pharma paid McKinsey $83.7 million for marketing advice concerning its painkiller, OxyContin—an addictive opioid. Thus, the consulting firm, which had kept a low profile for decades, suddenly found itself front-page news in America, facing public disdain for its role in the opioid crisis. Despite intense media scrutiny regarding its contributions to the opioid epidemic, many government officials remain loyal to the firm.
Lastly, McKinsey has been implicated in undermining climate efforts. The firm has consulted for institutions that significantly increase carbon emissions, providing advice to polluters for hundreds of millions of dollars without being compelled to sever ties with those clients, as it doesn’t serve the narrative of promoting the cause of environmentalism. Instead, it may reveal the total carbon emissions of these clients while focusing on assisting them in reducing those emissions.
In conclusion, one of the many challenges in writing a book about McKinsey lies in its culture of secrecy; this secrecy underpins its very operations. Consultants are trained from their earliest days within the firm to avoid disclosing client information publicly. Even decades after leaving, former employees remain hesitant to breach this vow. Thus, the significance of this book lies in its unveiling of the secretive trove of client identities and invoices associated with McKinsey, information that is typically off-limits to governments, clients, competitors, and even the firm’s own employees. Utilizing this information, numerous instances of potential conflicts of interest have emerged, including McKinsey’s longstanding policy of serving competing clients with conflicting interests. There’s no doubt of McKinsey’s desire to do good and give, but the firm must also find a way to minimize harm.
Source: Walt Bogdanich and Michael Forsythe, When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm, Doubleday, New York, 2022.
