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McKinsey & Company

January 06, 2023

"McKinsey" redirects here. For other uses, see McKinsey (disambiguation).

McKinsey & Company is a global management consulting firm founded in 1926 by University of Chicago professor James O. McKinsey, that offers professional services to corporations, governments, and other organizations. McKinsey is the oldest and largest of the "Big Three" management consultancies (MBB), the world's three largest strategy consulting firms by revenue. The firm mainly focuses on the finances and operations of their clients.

McKinsey & Company
TypeIncorporated partnership
IndustryManagement consulting
Founded1926; 97 years ago (1926)
FounderJames O. McKinsey
Headquarters
None[1]
Area served
Worldwide
Key people
Bob Sternfels,
Global Managing Partner[2]
Revenue $15+ billion (2021)[3]
Number of employees
38,000 (2021)[3]
Websitemckinsey.com

Under the leadership of Marvin Bower, McKinsey expanded into Europe during the 1940s and 1950s. In the 1960s, McKinsey's Fred Gluck—along with Boston Consulting Group's Bruce Henderson, Bill Bain at Bain & Company, and Harvard Business School's Michael Porter—transformed corporate culture.[4][5] A 1975 publication by McKinsey's John L. Neuman introduced the business practice of "overhead value analysis" that contributed to a downsizing trend that eliminated many jobs in middle management.[6][7]

McKinsey has a notoriously competitive hiring process,[8][9] and is widely seen as one of the most selective employers in the world.[10] McKinsey recruits primarily from the world's top business schools[11][12][13] and was one of the first management consultancies to recruit a limited number of candidates with advanced academic degrees (e.g. PhD, MD) and deep field expertise, and who have demonstrated business acumen and analytical skills.[14][15] McKinsey publishes a business magazine, the McKinsey Quarterly.

McKinsey has been the subject of significant controversy related to its business practices. Among other things, the company has been criticized for its role promoting OxyContin use in the context of the opioid crisis in North America, its work with Enron, and its work for authoritarian regimes like Saudi Arabia.

Historical

Early history

 
James O. McKinsey (1889–1937) founder of the company

McKinsey & Company was founded in Chicago under the name James O. McKinsey & Company in 1926 by James O. McKinsey, a professor of accounting at the University of Chicago.[16][17] He conceived the idea after witnessing inefficiencies in military suppliers while working for the United States Army Ordnance Department.[18]: 4  The firm called itself an "accounting and management firm" and started out giving advice on using accounting principles as a management tool.[19]: 3  McKinsey's first partners were Tom Kearney, hired in 1929,[20][a] and Marvin Bower, hired in 1933.[22][23]: 133 [b]

 
Marvin Bower, founder of modern-day McKinsey and its corporate culture

Marvin Bower is credited with establishing McKinsey's values and principles in 1937, based on his experience as a lawyer. The firm developed an "up or out" policy, where consultants who are not promoted are asked to leave. In 1937,[24][25] Bower established a set of rules: that consultants should put the interests of clients before McKinsey's revenues, not discuss client affairs, tell the truth even if it means challenging the client's opinion, and only perform work that is both necessary and that McKinsey can do well.[26][25] Bower created the firm's principle of only working with CEOs, which was later expanded to CEOs of subsidiaries and divisions. He also created McKinsey's principle of only working with clients the firm felt would follow its advice.[27][28] Bower also established the firm's language.[25]

In 1932, the company opened its second office in New York City.[19]: 20  In 1935, McKinsey left the firm temporarily to serve as the chairman and CEO of client Marshall Field's.[18]: 5 [23]: 133 

In 1935, McKinsey merged with accounting firm Scovell, Wellington & Company, creating the New York-based McKinsey, Wellington & Co. and splitting off the accounting practice into Chicago-based Wellington & Company.[18]: 5  A Wellington project that accounted for 55 percent of McKinsey, Wellington & Company's billings was about to expire[29] and Kearney and Bower had disagreements about how to run the firm. Bower wanted to expand nationally and hire young business school graduates, whereas Kearney wanted to stay in Chicago and hire experienced accountants.[23]: 134 

In 1937, James O. McKinsey died after catching pneumonia.[19][21] This led to the division of McKinsey, Wellington & Company in 1939. The accounting practice returned to Scovell, Wellington & Company, while the management engineering practice was split into McKinsey & Company and McKinsey, Kearney & Company.[20][29] Bower had partnered with Guy Crockett from Scovell Wellington, who invested in the new McKinsey & Company and became managing partner, while Marvin Bower is credited with founding the firm's principles and strategy as his deputy.[29][30] The New York office purchased exclusive rights to the McKinsey name in 1946.[31]: 25 

Years of growth

McKinsey & Company grew quickly in the 1940s and 50s, especially in Europe.[18]: 12–13 [31]: 25 [32] It had 88 staff in 1951[33] and more than 200 by the 1960s,[31] including 37 in London by 1966.[33] In the same year, McKinsey had six offices in major US cities, including San Francisco, Cleveland, Los Angeles and Washington D.C., as well as six abroad. These foreign offices were primarily in Europe, such as in London, Paris, and Amsterdam, as well as in Melbourne.[18]: 12–13  By this time, one third of the company's revenues originated from its European offices.[31] Guy Crockett stepped down as managing director in 1959, and Marvin Bower was elected in his place.[29][27]: 61  McKinsey's profit-sharing, executive and planning committees were formed in 1951.[29] The organization's client base expanded especially among governments, defense contractors, blue-chip companies and military organizations in the post–World War II era.[24] McKinsey became a private corporation with shares owned exclusively by McKinsey employees in 1956.[18]: 12 [29]

After Bower stepped down in 1967, the firm's revenues declined.[citation needed] New competitors like the Boston Consulting Group and Bain & Company created increased competition for McKinsey by marketing specific branded products, such as the Growth-Share Matrix, and by selling their industry expertise.[32][34][26]

In 1971, McKinsey created the Commission on Firm Aims and Goals, which found that McKinsey had become too focused on geographic expansion and lacked adequate industry knowledge. The commission advised that McKinsey slow its growth and develop industry specialties.[18]: 14 [32]

In 1975, John L. Neuman, a McKinsey consultant at the time, published "Make Overhead Cuts That Last" in Harvard Business Review,[35] in which he introduced new rules for scientific management such as "overhead valuation analysis" (OVA).[6]: 65  OVA guided McKinsey's "path to downsizing", responding to the "mid-century corporation's excessive reliance on middle management".[7] Neuman wrote that the "process, though swift, is not painless. Since overhead expenses are typically 70% to 85% people-related and most savings come from work-force reductions, cutting overhead does demand some wrenching decisions."[35]

In 1976, Ron Daniel was elected managing director, serving until 1988.[19]: 42  Daniel and Fred Gluck helped shift the firm away from its generalist approach by developing 15 specialized working groups within McKinsey called Centers of Competence and by developing practice areas called Strategy, Operations and Organization. Daniel also began McKinsey's knowledge management efforts in 1987.[18]: 15–17  This led to the creation of an IT system that tracked McKinsey engagements, a process to centralize knowledge from each practice area and a resource directory of internal experts."[18]: 6–7  By the end of his tenure in 1988 the firm was growing again and had opened new offices in Rome, Helsinki, São Paulo and Minneapolis.[18]: 15–17 [32]

Fred Gluck served as McKinsey's managing director from 1988 to 1994.[36] The firm's revenues doubled during his tenure.[26] He organized McKinsey into 72 "islands of activity" that were organized under seven sectors and seven functional areas.[18]: 18  By 1997, McKinsey had grown eightfold over its size in 1977.[25] In 1989 the firm tried to acquire talent in IT services through a $10 million purchase of the Information Consulting Group (ICG), but a culture clash caused 151 out of the 254 ICG staff members to leave by 1993.[26][36]

In 1994, Rajat Gupta became the first non-American-born partner to be elected as the firm's managing director.[37] By the end of his tenure, McKinsey had grown from 2,900 to 7,700 staff and 58 to 84 locations.[38] He opened new international offices in cities such as Moscow, Beijing and Bangkok.[18]: 20  Continuing the structure developed by prior directors, Gupta also created 16 industry groups charged with understanding specific markets and instituted a three-term limit for the managing director.[18]: 22  McKinsey created practice areas for manufacturing and business technology in the late 1990s.[18]: 21, 23 

McKinsey set up "accelerators" in the 1990s, where the firm accepted stock-based reimbursement to help internet startups;[38][39] the company performed more than 1,000 e-commerce projects from 1998 to 2000 alone.[18]: 24 

An October 1, 2000 article in the New York Times described the compulsory mini-courses that McKinsey—and its two largest rivals Boston Consulting and Bain—offered their "hyper-educated" young new recruits. Once completed, these newly certified management consultants would begin their work of "advising the executives of multibillion-dollar companies" on "projects" not related to their academic backgrounds"—"[l]awyers would help packaged-foods companies develop new products, and physicists would tell Internet start-ups how to stand out from the crowd."[40]

The burst of the dot-com bubble led to a reduction in utilization rates of McKinsey's consultants from 64 to 52 percent. Though McKinsey avoided dismissing any personnel following the decline,[38] the decline in revenues and losses from equity-based payments as stock lost value, together with a recession in 2001, meant the company had to reduce its prices, cut expenses and reduce hiring.[18]: 25 

In 2001, McKinsey launched several practices that focused on the public and social sector. It took on many public sector or non profit clients on a pro bono basis.[24] By 2002 McKinsey had invested a $35.8 million budget on knowledge management, up from $8.3 million in 1999.[24]: 1  Its revenues were 50, 20, and 30 percent from strategy, operations, and technology consulting, respectively.[18]: 20 

In 2003, Ian Davis, the head of the London office, was elected to the position of managing director.[41] Davis promised a return to the company's core values after a period in which the firm had expanded rapidly, which some McKinsey consultants felt was a departure from the company's heritage.[42] Also in 2003, the firm established a headquarters for the Asia-Pacific region in Shanghai. By 2004, more than 60 percent of McKinsey's revenues were generated outside the U.S.[24] The company started a Social Sector Office (SSO) in 2008, which is divided into three practices: Global Public Health, Economic Development and Opportunity Creation (EDHOC) and Philanthropy. McKinsey does much of its pro-bono work through the SSO, whereas a Business Technology Office (BTO), founded in 1997, provides consulting on technology strategy.[43][44][45]

By 2009, the firm consisted of 400 directors (senior partners), up from 151 in 1993.[26][46] Dominic Barton was elected as managing director, a role he was re-elected for in 2012 and 2015.[46]

Recent history

See also: Rajat Gupta and Anil Kumar

Rajat Gupta along with another McKinsey executive, Anil Kumar, were among those convicted in a government investigation into insider trading for sharing inside information with Galleon Group hedge fund owner Raj Rajaratnam.[47][48] Though McKinsey was not accused of any wrongdoing, the convictions were embarrassing for the firm, since it prides itself on integrity and client confidentiality.[49][50][51] McKinsey no longer maintains a relationship with either senior partner.[52][53]

Senior partner Anil Kumar, described as Gupta's protégé,[54] left the firm after the allegations in 2009 and pleaded guilty in January 2010.[55][56] While he and other partners had been pitching McKinsey's consulting services to the Galleon Group, Kumar and Rajaratnam reached a private consulting agreement, violating McKinsey's policies on confidentiality.[57] Gupta was convicted in June 2012 of four counts of conspiracy and securities fraud, and acquitted on two counts.[58] In October 2011, he was arrested by the FBI on charges of sharing insider information from these confidential board meetings with Rajaratnam.[59][60] At least twice, Gupta used a McKinsey phone to call Rajaratnam and retained other perks—an office, assistant, and $6 million retirement salary that year[61]—as a senior partner emeritus.[53]

After the scandal McKinsey instituted new policies and procedures to discourage future indiscretions from consultants,[62] including investigating other partners' ties to Gupta.[63][64]

In February 2018, Kevin Sneader was elected as managing director. He is serving a three-year term that began on July 1, 2018.[65]

McKinsey has consulted for multiple cities, states and government organizations during the 2019 coronavirus pandemic. During the first four months of the pandemic, McKinsey obtained in excess of $100 million in consulting work, including no-bid contracts with the United States Department of Veterans Affairs and Air Force.[66] The reopening guidelines for Florida's Miami-Dade County, produced with McKinsey's input, were criticized by local media and officials for complexity and lack of clarity.[66]

McKinsey discontinued its investment banking advisory unit in 2021, citing "personnel matters" as the reason.[67]

In December 2021, Puneet Dikshit, a McKinsey partner, pled guilty to insider trading.[68] Dikshit advised Goldman Sachs about its acquisition of GreenSky, a fintech company, and used that confidential information to trade call options.[69]

On June 1, 2022, McKinsey announced that it had acquired Caserta, a data engineering firm.[70]

Organization and services

Structure

 
McKinsey office in Bucharest, Romania

McKinsey & Company was originally organized as a partnership[71] before being legally restructured as a private corporation with shares owned by its partners in 1956.[29][72] It mimics the structure of a partnership and employees are called "partners".[42][71] The company has a flat hierarchy and each member is assigned a mentor.[73]: 65, 142  Since the 1960s, McKinsey's managing director has been elected by a vote of senior directors to serve up to three, three-year terms or until reaching the mandatory retirement age of 60.[74] The firm is also managed by a series of committees that each has its own area of responsibility.[18]: 22 [25]: 6 

By 2013, McKinsey was described as having a decentralized structure, whereby different offices operate similarly, but independently.[27][28] The company's budgeting is centralized, but individual consultants are given a large degree of autonomy.[75] As a truly global firm McKinsey does not have a traditional "headquarters," but it is usually the home office of the current Managing Partner.[76]

List of global managing partners

  1. James O. McKinsey (1926–1935), Chicago office
  2. Guy Crockett (1939–1950)
  3. Marvin Bower (1950–1967), New York office
  4. Gil Clee (1967–1968)
  5. Chester Walton (1968–1976)
  6. Alonzo L. McDonald (1973–1976)
  7. Ron Daniel (1976–1988)
  8. Frederick Gluck (1988–1994), New York office
  9. Rajat Gupta (1994–2003), New York office
  10. Ian Davis (2003–2009), London office
  11. Dominic Barton (2009–2018), London office
  12. Kevin Sneader (2018–2021), Hong Kong office
  13. Bob Sternfels (2021– ), San Francisco office

Consulting services

McKinsey & Company provides strategy and management consulting services, such as providing advice on an acquisition, developing a plan to restructure a sales force, creating a new business strategy or providing advice on downsizing, according to the 2013 book, The Firm.[27][73] The 1999 book, The McKinsey Way said that McKinsey consultants designed and implemented studies to evaluate management decisions using data and interviews to test hypotheses.[73] which were then presented to senior management, typically in a PowerPoint presentation and a booklet.[73]

McKinsey & Company has traditionally charged approximately 25 percent more than competing firms.[43]

A typical McKinsey engagement can last between two and twelve months and involves three to six McKinsey consultants.[43] An engagement is usually managed by a generalist that covers the region the client's headquarters are located in and specialists that have either an industry or functional expertise.[26] Unlike some competing consulting firms, McKinsey does not hold a policy against working for multiple competing companies (although individual consultants are barred from doing so).

Recruiting

McKinsey & Company was the first management consultancy to hire recent graduates instead of experienced business managers, when it started doing so in 1953.[77]

According to a 1997 article in The Observer, McKinsey recruited recent graduates and "imbue[d] them with a religious conviction" in the firm, then cull[ed] through them with its "up-or-out" policy.[25] The "up or out" policy, which was established in 1951, meant that consultants that were not being promoted within the firm were asked to leave.[33]: 208 [78] By 1997, about one-fifth of McKinsey's consultants departed under the up or out policy each year.[25][75] McKinsey's practice of hiring recent graduates and the "up-or-out" philosophy, were originally based on Marvin Bower's experiences at the law firm Jones Day in the 1930s, as well as the "Cravath system" used at the law firm Cravath, Swaine and Moore.[33]: 206 

In recent years, it has consistently been recognized by Vault as the most prestigious consulting firm employer in the world.[79] In 2018, 800,000 candidates applied for 8,000 jobs.[80]

While many recruits have MBAs, by 2009, less than half of the firm's recruits were business majors;[43]: 7  by 1999, recruits had advanced degrees in science, medicine, engineering or law.[73][81][82]

Culture

A November 1, 1993, profile story in Fortune magazine said that McKinsey & Company was "the most well-known, most secretive, most high-priced, most prestigious, most consistently successful, most envied, most trusted, most disliked management consulting firm on earth".[26] In the article, McKinsey was cited as claiming that its consultants were not motivated by money,[26] and that partners talked to each other with "a sense of personal affection and admiration".[26] The article described a culture clash that occurred in the early 1990s, leading to the departure of 151 out of the 254 ICG staff members.[26]

In their 1997 book Dangerous Company: Management Consultants and the Businesses They Save and Ruin, authors James O'Shea and Charles Madigan said that McKinsey's culture had often been compared to religion, because of the influence, loyalty and zeal of its members.[28][83] The firm has a policy against discussing specific client situations.[28] A September 1997 The News Observer story said that McKinsey's internal culture was "collegiate and ruthlessly competitive" and has been described as arrogant.[25] Ethan Rasiel's 1999 book entitled The McKinsey Way, described a culture at McKinsey's whereby members were not supposed to "sell" their services.[73][84]

The Sunday Times wrote that McKinsey was a pioneer in the industry—the "first firm to hire MBA graduates from the top business schools to staff its projects, rather than relying on older industry personnel." They were still trying to keep a "very low profile public image" in 2005.[77] That year, an article in The Guardian said that McKinsey "hours are long, expectations high and failure not acceptable".[84] According to an October 2009 Reuters article, the firm had a "button-down culture" focused on "playing by the rules".[85] In his 2013 book, The Firm: The Story of McKinsey and Its Secret Influence on American Business, Duff McDonald described how McKinsey's consultants were expected to become a part of the community and recruit clients from church, charitable foundations, board positions and other community involvements.[27] McDonald wrote that McKinsey calls itself "The Firm" and its employees "members".[27][26] BusinessWeek summarized The Firm's description of McKinsey as a "fading empire, where hubris and changing times have diminished the firm's statures."[86]

In his February 2020 in-depth article in The Atlantic, Daniel Markovits argues that McKinsey promotes "intellect and elite credentials" and "Meritocrats" over "directly relevant experience".[7]

Conflicts of interest between McKinsey and MIO partners

In February 2019, The New York Times ran a series of articles about McKinsey[87] and the in-house hedge fund it operates – McKinsey Investment Office, or MIO Partners. The articles claimed that there was "potential for undisclosed conflicts of interest between the fund's investments and the advice the firm sells to clients", since the hedge fund could benefit from the inside knowledge obtained through management consulting services.[88]

The firm responded that "MIO and McKinsey employ separate staffs. MIO staff have no nonpublic knowledge of McKinsey clients. For the vast majority of assets under management, decisions about specific investments are made by third-party managers".[88]

The firm has agreed to repay fees it earned in three bankruptcy cases, approximately $15 million worth.[89] MIO Partners was fined $18 million by SEC in 2021.

Influence

Main article: List of former employees of McKinsey & Company

Many of McKinsey's alumni become CEOs of major corporations or hold important government positions.[77] In doing so, they influence the other organization with McKinsey's values and culture.[28][77][83] McKinsey's alumni have been appointed as CEOs or high-level executives.[83][90]

In his 2010 publication, The Lords of Strategy: The Secret Intellectual History of the New Corporate World, business journalist Walter Kiechel traced the roots of a profound change in corporate management to "four mavericks" in the 1960s—Fred Gluck at McKinsey & Company, Boston Consulting Group's Bruce Henderson, Bill Bain at Bain & Company, and Harvard Business School professor, Michael Porter.[4] Kiechel recounted how they "revolutionized the way we think about business, changed the very soul of the corporation, and transformed the way we work," according to the Harvard Business Press synopsis.[5]

McKinsey has been either directly involved in, or closely associated with, a number of notable scandals,[91] involving Enron in 2001,[91][92] Galleon in 2009,[47] Valeant in 2015,[93] Saudi Arabia in 2018,[94] China in 2018,[95] ICE in 2019,[96] an internal conflict of interest in 2019[88] and Purdue Pharma in 2019,[97] among others. By 2019, major news outlets, including The New York Times and ProPublica, had raised concerns about McKinsey's business practices.[98]

Research and publishing

McKinsey & Company consultants regularly publish books, research and articles about business and management.[73]: 51 [99]: 55  The firm spends $50–$100 million a year on research.[99]: 54  McKinsey was one of the first organizations to fund management research, when it founded the Foundation for Management Research in 1955.[19] The firm began publishing a business magazine, The McKinsey Quarterly, in 1964.[100] It funds the McKinsey Global Institute, which studies global economic trends and was founded in 1990.[24] It also launched the McKinsey Institute for Black Economic Mobility in 2020 to fund research focused on advancing inclusive growth & racial equity globally.[101] Many consultants are contributors to the Harvard Business Review.[83] McKinsey consultants published only two books from 1960 to 1980, then more than 50 from 1980 to 1996.[99]: 55  McKinsey's publications and research give the firm a "quasi-academic" image.[99]

A McKinsey book, In Search of Excellence, was published in 1982.[102] It featured eight characteristics of successful businesses based on an analysis of 43 top performing companies.[99]: 87–89 [102]: 348  It marked the beginning of McKinsey's shift from accounting to "softer" aspects of management, like skills and culture.[102]: 359  According to David Guest from King's College, In Search of Excellence became popular among business managers because it was easy to read, well-marketed and some of its core messages were valid. However, it was disliked by academics because of flaws in its methodology. Additionally, a 1984 analysis by BusinessWeek found that many of those companies identified as "excellent" in the book no longer met the criteria only two years later.[102]

A 1997 article and a book it published in 2001 on "The War for Talent"[103] prompted academics and the business community to start focusing more on talent management.[104]: 163  The authors found that the best-performing companies were "obsessed" with acquiring and managing the best talent.[105] They advocated that companies rank employees by their performance and promote "stars", while targeting under-performers for improvement or layoffs.[105][106] After the book was published, Enron, a company which followed many of its principles, was involved in a scandal that led to its bankruptcy.[105] In May 2001, a Stanford professor wrote a paper critical of the "War on Talent" arguing that it prioritized individuals at the expense of the larger organization.[103]

McKinsey consultants published Creative Destruction in 2001.[27]: 247  The book suggested that CEOs need to be willing to change or rebuild a company, rather than protect what they have created.[107] It found that out of the first S&P 500 list from 1957, only 74 were still in business by 1998.[107][108] The New York Times said it "makes a cogent argument that in times of rampant, uncertain change ... established companies are handcuffed by success."[109] In 2009, McKinsey consultants published The Alchemy of Growth, which established three "horizons" for growth: core enhancements, new growth platforms and options.[110]

In February 2011, McKinsey surveyed 1,300 US private-sector employers on their expected response to the Affordable Care Act (ACA).[111][112] Thirty percent of respondents said they anticipated they would probably or definitely stop offering employer sponsored health coverage after the ACA went into effect in 2014.[113][114] These results, published in June 2011 in the McKinsey Quarterly,[111] became "a useful tool for critics of the ACA and a deep annoyance for defenders of the law" according to an article in Time magazine.[115] Supporters of healthcare reform argued the survey far surpassed estimates by the Congressional Budget Office and insisted that McKinsey disclose the survey's methodology.[116][117][118] Two weeks after publishing the survey results,[115] McKinsey released the contents of the survey including the questionnaire and 206-pages of survey data.[119] In its accompanying statement,[120] McKinsey said it was intended to capture the attitude of employers at a certain point in time, not make a prediction.[121][122]

Since 1990, McKinsey has been publishing Valuation: Measuring and Managing the Value of Companies, a textbook on valuation.[123]

In 2022, McKinsey senior partners Carolyn Dewar, Scott Keller, and Vikram Malhotra authored the book CEO Excellence, which was published by Scribner.[124]

Environmental consulting

Marginal abatement cost curves attempt to compare the financial costs of different options for reducing pollution in a region and are used in emissions trading, policy discussions and incentive programs.[125] McKinsey & Company released its first marginal abatement cost (MAC) curve for greenhouse gas emissions in February 2007, which was updated to version two in January 2009.[126][127] McKinsey & Company's MAC curve has become the most widely used[128] and is the basis for McKinsey's consulting on climate change and sustainability.[129]

McKinsey's curve predicts negative cost abatement strategies, which has been controversial among economists.[130] The International Association for Energy Economics said in The Energy Journal that McKinsey's cost-curve was popular among policymakers, because it suggests they can take "bold action towards improving energy efficiency without imposing costs on society."[131]

In a 2010 report, the Rainforest Foundation UK said McKinsey's cost curve methodology was misleading for policy decisions regarding the Reduced Emissions from Deforestation and Forest Degradation (REDD) program. The report argued that McKinsey's calculations exclude certain implementation and governance costs, which makes it favor industrial uses of forests while discouraging subsistence projects.[132] Greenpeace said the curve has allowed Indonesia and Guyana to win financial incentives from the United Nations by creating inflated estimates of current deforestation so they could demonstrate reductions in comparison.[133][134][135] McKinsey said they had made it clear in the cost-curve publications that cost curves do not translate "mechanically" into policy implications and that policymakers should consider "many other factors" before introducing new laws.[133][134]

Significant consulting projects

McKinsey & Company's founder, James O. McKinsey, introduced the concept of budget planning as a management framework in his fifth book Budgetary Control in 1922.[31]: 25 [136]: 422  The firm's first client was the treasurer of Armour & Company, who, along with other early McKinsey clients, had read Budgetary Control. In 1931 McKinsey created a methodology for analyzing a company called the General Survey Outline (GSO), which was established based on ideas introduced in the 1924 book Business Administration. It was also known as the Banker's Survey, because McKinsey's clients who used it in the 1930s were predominantly banks.[27]: 22  After the Wagner Act gave certain rights to employees to organize into unions in 1935, McKinsey started consulting corporations on employee relations. Later in the 1950s, the work of a McKinsey consultant on compensation was influential in "skyrocketing executive pay".[27] It also helped many companies such as Heinz, IBM and Hoover expand into Europe.[27]

In the 1940s, McKinsey helped many corporations convert into wartime production for World War II.[27] It also helped organize NASA into an organization that relies heavily on contractors in 1958.[137]: 105  McKinsey created a report in 1953 for Dwight D. Eisenhower that was used to guide government appointments.[138] In 1973, McKinsey & Company led a project for a consortium of grocery chains represented by the U.S. Supermarket Ad Hoc Committee on a Uniform Grocery Product Code to create the barcode.[139][140] According to the book "Business Research Methods", the barcode became commonplace after a study by McKinsey persuaded Kroger to adopt it.[141]

In the 1970s and 1980s, McKinsey helped European companies change their organizational structure to M-form (Multidivisional Form), which organizes the company into semi-autonomous divisions that function around a product, industry or customer, rather than a function or expertise.[142]: 208 [143]: 110 

In the 1980s, AT&T reduced investments in cell towers due to McKinsey's prediction that there would only be 900,000 cell phone subscribers by 2000. According to The Firm this was "laughably off the mark" from the 109 million cellular subscribers by 2000. At the time cell phones were bulky and expensive. The firm helped the Dutch government facilitate a turnaround for Hoogovens, the world's largest steel company as of 2013, through a $1 billion bankruptcy bailout. It also implemented a turnaround for the city of Glasgow, which had problems with unemployment and crime. McKinsey created the corporate structure for NationsBank, when it was still a small company known as North Carolina National Bank. McKinsey was hired by General Motors to do a large-scale re-organization to help it compete with Japanese auto-makers. The book The Firm said it was an "unmitigated disaster" because McKinsey focused on corporate structure, whereas GM needed to compete with Japanese automakers through manufacturing process improvement. A McKinsey consultant said GM did not follow their advice.[27]

A 2002 article in BusinessWeek said that a series of bankruptcies of McKinsey clients, such as Swissair, Kmart, and Global Crossing, in the 1990s raised questions as to whether McKinsey was responsible or had a lapse in judgement.[38] McKinsey recommended that Swissair avoid high operating costs in its home country by developing partnerships with airlines based in other regions. In order to attract partners, Swissair acquired more than $1 billion in shares of other airlines, many of which were failing. This led to huge losses and even bankruptcy for Swissair.[144]

As part of a lawsuit against Allstate, 13,000 McKinsey documents were released, showing that McKinsey recommended that Allstate reduce payouts to insurance claimants by offering low settlements, delaying processing to wear out claimants through attrition, and fighting customers that protest in court. Allstate's profits doubled over ten years after adopting McKinsey's strategy, but it also led to lawsuits alleging they were cheating claimants out of legitimate insurance claims.[145][146]

Controversies

The firm has been associated with a number of notable scandals including the collapse of Enron in 2001,[91] 2007–2008 financial crisis,[91] and facilitating state capture in South Africa.[147] It has also drawn controversy for involvement with Purdue Pharma,[148] U.S. Immigration and Customs Enforcement[96] and authoritarian regimes.[95][94]

Enron

Main article: Enron scandal

Enron was the creation of Jeff Skilling, a McKinsey consultant of 21 years, who was jailed after Enron reportedly used McKinsey on 20 different projects,[92] and McKinsey consultants had "used Enron as their sandbox."[92]

Prior to the Enron scandal, McKinsey helped it shift from an oil and gas production company into an electric commodities trader, which led to significant growth in profits and revenues.[75] According to The Independent, there was "no suggestion that McKinsey was complicit in the subsequent scandal, [but] critics say the arrogance of Enron's leaders is emblematic of the McKinsey culture."[149] The government did not investigate McKinsey, who said they did not provide advice on Enron's accounting.[59] The Wall Street Journal questioned McKinsey's "liability" and its "close relationship with Enron",[150] and a 2002 BusinessWeek article suggested that they had ignored warning signs.[38]

In his July 2002 in-depth BusinessWeek article on the aftermath of the Enron scandal, John Bryne wrote that McKinsey had been a "key architect of the strategic thinking that made Enron a Wall Street darling. In books, articles, and essays, its partners regularly stamped their imprimatur on many of Enron's strategies and practices, helping to position the energy giant as a corporate innovator worthy of emulation. The firm may not be the subject of any investigations, but its close involvement with Enron raises the question of whether McKinsey, like some other professional firms, ignored warning flags in order to keep an important account."[38] BusinessWeek described how McKinsey's culture had changed, as the "number of partners grew from 427 to 891" making it a "less personal place".[38] According to the article, "some current and former McKinsey consultants" said that McKinsey had lost their "ingrained values" that used to guide the firm. Citing the example of the dot-com bubble, McKinsey had begun to have "less prestigious companies" as clients and had allowed "its focus on building agenda-shaping relationships with top management at leading companies to slip."[38] As well, "there was a noticeable tilt toward bringing in revenue at the expense of developing knowledge."[38] McKinsey denied this.[38]

McKinsey denied giving Enron advice on financing issues or having suspicions that Enron was using improper accounting methods.[92]

2008 financial crisis

Main article: Financial crisis of 2007–2008

McKinsey is said to have played a significant role in the 2008 financial crisis by promoting the securitization of mortgage assets and encouraged the banks to fund their balance sheets with debt, driving up risk, which "poisoned the global financial system and precipitated the 2008 credit meltdown".[91] Furthermore, McKinsey advised Allstate Insurance to purposely give low offers to claimants. The Huffington Post revealed that the strategy was to make claims "so expensive and so time-consuming that lawyers would start refusing to help clients."[151] Next to this, 2016 McKinsey partner Navdeep Arora was convicted for illegally depleting State Farm of over $500,000 over a period of 8 years, in collaboration with a State Farm employee.[152]

Valeant

Valeant, a Canadian pharmaceutical company investigated by the SEC in 2015, has been accused of improper accounting, and that it used predatory price hikes to boost growth.[153] The Financial Times states that "Valeant's downfall is not exactly McKinsey's fault but its fingerprints are everywhere."[93] Three out of six senior executives were recent ex-McKinsey employees, as well as the chair of the 'talent and compensation' committee.[93] MIO Partners was a private investor of Valeant and McKinsey consulted Valeant on drug prices and acquisitions.[154]

Role in opioid epidemic

Further information: Opioid epidemic in the United States

McKinsey advised opioid makers on how to "turbocharge" sales of OxyContin, proposed strategies to counter the emotional messages from mothers with teenagers who overdosed on OxyContin, and helped opioid makers circumvent regulation.[97] The firm also advised Purdue Pharma to offer pharmacies rebates based on the number of overdoses and addictions they caused.[148] In 2019, McKinsey projected that over 2,400 CVS customers would have an overdose or become reliant on opioids.[155] McKinsey estimated that a rebate of $14,810 per "event" would mean that Purdue would have to pay CVS $36.8 million that year.[156] In February 2021, McKinsey reached agreements with attorneys general in 49 states, five U.S. territories, and the District of Columbia. Across the settlements, the firm agreed to pay nearly $600 million to settle investigations into its role in promoting sales of OxyContin.[157] McKinsey has since apologized for its advice to opioid makers.[158]

Records show that McKinsey worked for Purdue Pharma and other opioid makers in a 15 year period, from 2004 to 2019.[159] During 2018 and 2019, McKinsey collected at least $400 million consulting pharmaceutical companies. McKinsey advised Mallinckrodt, the largest manufacturer of generic opioids, as well as Endo for which McKinsey consulted on marketing Opana.[160] McKinsey's consultation grew Endo into a leading generics manufacturer. McKinsey recommended targeted and influenced doctors who treat back pain in elderly and long-term care patients.[161]

In April 2022, the New York Times reported that McKinsey had frequently allowed partners and other consultants to work for both government clients, such as the FDA and pharmaceutical clients, such as Purdue.[162] These actions violated McKinsey's own internal ethical guidelines.[162]

Rikers Island jail complex

New York City paid McKinsey $27.5 million between 2014 and 2017 to reduce prison assaults in Rikers Island; but the violence grew and the city abandoned many of the firm's recommendations.

The consultancy's alleged failings included not soliciting the views of inmates or clinic staff; using an encrypted messaging app that deletes messages, allegedly to avoid transparency; initiatives involving the expanded use of Tasers, shotguns and K9 patrol dogs; replacing troublesome inmates with more accommodating ones in the test area, which skewed the data in favor of the project; the use of ineffective data-analytics software; and spreadsheet errors that inflated the baseline rate of violence, against which the project was measured.[163]

McKinsey advised New York City's Rikers Island jail complex and tested an anti-violence strategy named "Restart" which occurred in Rikers housing units.[164] The results of the strategy reported that violent crimes dropped more than 70% inside the Rikers housing units.[165] Later, it was found that McKinsey consultants and jail officials rigged the program by grouping compliant inmates into the housing units.[166]

Fine for insider trading by investment affiliate

In 2019, McKinsey paid the Justice Department $15 million to settle allegations relating to failure to disclose potential conflict in three bankruptcy cases that the firm advised.[167] In 2021, MIO Partners, an affiliate of McKinsey & Co. that invests almost $31 billion of money on behalf of its employees, was fined US$18 million by the US regulator, SEC. The SEC said some of the same people making investment decisions for MIO Partners were McKinsey & Co. employees who had visibility into confidential information for companies for which McKinsey was consulting.[168] The SEC claimed that MIO Partners had advanced knowledge of upcoming mergers, bankruptcy, and financial results announcements for companies that the firm was consulting.[169]

Accusations of conflicts of interest in US bankruptcies

In January 2022, the Second U.S. Circuit Court of Appeals in Manhattan revived a lawsuit against McKinsey & Co. filed by retired turnaround specialist Jay Alix, accusing the consulting firm of concealing potential conflicts when seeking permission from bankruptcy courts to perform lucrative work on corporate restructurings.[170]

GreenSky Insider Trading

An ex-partner at McKinsey was sentenced to 24 months in prison for insider trading.[171] The ex-partner helped advise Goldman Sachs Group on the recent purchase of fintech company GreenSky Inc.[172] The ex-partner bought 2,500 GreenSky call options before the $2.24 billion merger and sold the call options shortly after the merger was announced on September 15, 2021.[173] The ex-partner was ordered to hand over approximately $450,000 of illegal profit.[174]

Controversial clients and association with authoritarian regimes

Role in U.S. Immigration and Customs Enforcement (ICE)

McKinsey stopped working for U.S. Immigration and Customs Enforcement (ICE) after it was disclosed that the firm had done more than $20 million in consulting work for the agency. McKinsey managing partner Kevin Sneader said the contract, not widely known within the company until The New York Times reported it, had "rightly raised" concerns.[175] In 2019, The New York Times and ProPublica reported on newly uncovered documents which showed that McKinsey, as part of its work with ICE, proposed cuts in spending on food and medical care for migrants.[96] McKinsey also advocated for an acceleration of the deportation process, causing concerns among ICE staff that the due process rights of the migrants would be violated.[96] Previously, McKinsey managing partner, Kevin Sneader, had claimed that McKinsey had done no work for ICE in terms of developing and implementing immigration policy; the uncovered documents showed that to be false.[96][176]

Role in Saudi clampdown on dissidents

In October 2018, in the wake of the assassination of Jamal Khashoggi, a Saudi dissident and journalist, The New York Times reported that McKinsey had identified the most prominent Saudi dissidents on Twitter and that the Saudi government subsequently repressed the dissidents and their families. One of the dissidents, Khalid al-Alkami, was arrested. Another dissident identified by McKinsey; Omar Abdulaziz in Canada, had two brothers imprisoned by the Saudi authorities, and his cell phone hacked. McKinsey issued a statement, saying "We are horrified by the possibility, however remote, that [the report] could have been misused. We have seen no evidence to suggest that it was misused, but we are urgently investigating how and with whom the document was shared."[94] In December 2018, The New York Times reported that "the kingdom is a such a vital client for the firm—the source of nearly 600 projects from 2011 to 2016 alone—that McKinsey chose to participate in a major Saudi investment conference in October 2018 even after the killing and dismemberment of a Washington Post columnist by Saudi agents."[95]

On February 12, 2019, the European Parliament Greens/EFA group presented a motion for a resolution on the situation on women's rights defenders in Saudi Arabia denouncing the involvement of foreign public relations companies in representing Saudi Arabia and handling its public image, particularly McKinsey & Company.[177]

Support of authoritarian regimes

McKinsey's business and policy support for authoritarian regimes came under scrutiny in December 2018, in the wake of a lavish company retreat in China held adjacent to Chinese government internment camps where thousands of Uyghurs were being detained without cause.[95][178] In December 2021, NBC News reported McKinsey's connection to a manufacturing facility owned by DJI, a drone maker sanctioned by the United States Department of the Treasury for alleged complicity in aiding the Uyghur genocide.[179] In the preceding few years, McKinsey's clients included Saudi Arabia's absolute monarchy,[94][180][181] Turkey's autocratic leader Recep Tayyip Erdogan, ousted former president of Ukraine Viktor Yanukovych, and several Chinese and Russian companies under sanctions.[95]

South African corruption scandal

The Gupta family (no relation to Rajat Gupta) had strategically placed corrupted individuals in various South African government, utilities and infrastructure sectors. It is alleged that McKinsey was complicit in this corruption by using the Guptas to obtain consulting contracts from certain state-owned enterprises, including Eskom and Transnet.[182] Working with Trillian Capital Partners (a consultancy which was owned by a Gupta associate),[183] they provided services to the value of R1 billion ($75 million) annually. Trillian was paid a commission for facilitating the business for McKinsey.[184] McKinsey hired law firm Norton Rose Fulbright to carry out an internal investigation over the allegations. McKinsey's then Managing Partner, Dominic Barton, issued a statement following an internal investigation, in which the firm "admitted that it found violations of its professional standards but denied any acts of bribery, corruption, and payments to Trillian."[185]

Corruption Watch, a South African non-governmental organization, filed a complaint about the controversial contract to the US Department of Justice, alleging that there was a criminal conspiracy between McKinsey, Trillian and Eskom in contravention of US and South African law.[186] It was revealed in January 2018 that criminal complaints were filed against McKinsey & Company by the South African Companies and Intellectual Property Commission. South African prosecutors confirmed that they would enforce the seizing of assets from McKinsey.[187]

South Africa's National Prosecuting Authority concluded in early 2018 that the payments to McKinsey and its local business partner, Trillian, were illegal, involving crimes such as fraud, theft, corruption and money laundering. McKinsey had subsequently been in discussion with Eskom and the National Prosecuting Authority's Asset Forfeiture Unit to agree on a transparent, legally appropriate process for returning the R1-billion (US$74m) it had been paid – it was confirmed on 6 July 2018 that this had been concluded.[188] Eskom confirmed it received R99.5 million in interest from McKinsey on July 23, 2018. The interest payment covers the two years since McKinsey was paid almost R1-billion in 2016.[189]

Information relating to allegedly corrupt practices by McKinsey at Transnet in 2011 and 2012 came to light in late July 2018. The weekly Mail & Guardian newspaper reported that a "...new forensic treasury report shows how controversial former Transnet and Eskom chief financial officer Anoj Singh enjoyed overseas trips at the expense of international consulting firm McKinsey, which scored multi-billion rand contracts at the state owned entities." The "...report reiterates treasury's recommendations that Singh's conduct with regards to McKinsey should be referred to the elite crime-fighting unit, the Hawks, for investigations under the Prevention and Combating of Corrupt Activities Act (Precca). Under Precca, Singh would be investigated for allegations of corruption as payment for the overseas trips alone would constitute a form of gratification, which is illegal."[190] The Sunday City Press reported that the forensic report in turn reported that "multinational advisory firm McKinsey paid for Singh to go on lavish international trips to Dubai, Russia, Germany and the UK, after which their contract with Transnet was massively extended."[191] McKinsey issued a statement that the allegations were incorrect. McKinsey stated that "based on an extensive review encompassing interviews, email records and expense documents, our understanding is that McKinsey did not pay for Mr. Singh's airfare and hotel lodgings in connection with the CFO Forum and the meetings that took place around the CFO Forum in London and elsewhere in 2012 and 2013."[192] On 11 October 2019, the United States Treasury department announced that it had imposed wide-ranging financial sanctions on three Gupta brothers, Ajay, Atul and Rajesh (aka Tony) and their business associate Salim Essa under the United States Magnitsky Act.[193]

The Economist reported in November 2019, that McKinsey's scandals, such as the 2016 South Africa scandal and the allegations of conflict of interest tied to its $12.7bn investment affiliate, McKinsey Investment Office (MIO), are relatively recent in terms of its long history.[194] The article said that McKinsey's legal challenges facing McKinsey's new global managing partner, Kevin Sneader, may be related to the company's fast-paced growth with an increase of 2,200 partners compared to 2009. During that same time period, the number of employees increased to 30,000 worldwide from 17,000.[194]

In 2020 McKinsey representatives giving testimony to the Zondo Commission of Inquiry into State Capture placed blame for the firm's involvement in the corruption scandal on former McKinsey partner, Vikas Sagar.[195] During 2021 McKinsey & Co. agreed to repay R 870 million (US$63 million) in fees to South African state logistics company Transnet SOC Ltd., seeking to distance itself from contracts linked to corruption allegations.[196] In April 2022 the Zondo Commission recommended that key Eskom executives be criminally investigated for improperly awarding consulting contracts to McKinsey & Company.[197]

South Africa's National Prosecuting Authority announced on Friday, 30 September 2022 that it had criminally charged both McKinsey South Africa and former McKinsey partner, Vikas Sagar, with fraud, corruption and theft related to a contract to advise Transnet on buying new locomotives.[198]

OxyContin promotion and involvement in opioid epidemic

In February 2021, McKinsey paid $600 million to settle investigations into its role in promoting sales of OxyContin and fueling the greater opioid epidemic.[157]

See also

Explanatory notes

  1. ^ Some sources say he was hired in 1930, instead of 1929.[21]
  2. ^ Some sources say he was hired in 1932,[18] while others say that they first met in 1932, but he was not hired until 1933.[20]

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Further reading

  • Bogdanich, Walt; Forsythe, Michael (2022). When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm. New York: Doubleday. ISBN 9780385546232. OCLC 1345467322.

External links

 
Wikimedia Commons has media related to McKinsey & Co..
  • Official website
  • McKinsey Quarterly

January 06, 2023
mckinsey, company, mckinsey, redirects, here, other, uses, mckinsey, disambiguation, global, management, consulting, firm, founded, 1926, university, chicago, professor, james, mckinsey, that, offers, professional, services, corporations, governments, other, o. McKinsey redirects here For other uses see McKinsey disambiguation McKinsey amp Company is a global management consulting firm founded in 1926 by University of Chicago professor James O McKinsey that offers professional services to corporations governments and other organizations McKinsey is the oldest and largest of the Big Three management consultancies MBB the world s three largest strategy consulting firms by revenue The firm mainly focuses on the finances and operations of their clients McKinsey amp CompanyTypeIncorporated partnershipIndustryManagement consultingFounded1926 97 years ago 1926 FounderJames O McKinseyHeadquartersNone 1 Area servedWorldwideKey peopleBob Sternfels Global Managing Partner 2 Revenue 15 billion 2021 3 Number of employees38 000 2021 3 Websitemckinsey wbr comUnder the leadership of Marvin Bower McKinsey expanded into Europe during the 1940s and 1950s In the 1960s McKinsey s Fred Gluck along with Boston Consulting Group s Bruce Henderson Bill Bain at Bain amp Company and Harvard Business School s Michael Porter transformed corporate culture 4 5 A 1975 publication by McKinsey s John L Neuman introduced the business practice of overhead value analysis that contributed to a downsizing trend that eliminated many jobs in middle management 6 7 McKinsey has a notoriously competitive hiring process 8 9 and is widely seen as one of the most selective employers in the world 10 McKinsey recruits primarily from the world s top business schools 11 12 13 and was one of the first management consultancies to recruit a limited number of candidates with advanced academic degrees e g PhD MD and deep field expertise and who have demonstrated business acumen and analytical skills 14 15 McKinsey publishes a business magazine the McKinsey Quarterly McKinsey has been the subject of significant controversy related to its business practices Among other things the company has been criticized for its role promoting OxyContin use in the context of the opioid crisis in North America its work with Enron and its work for authoritarian regimes like Saudi Arabia Contents 1 Historical 1 1 Early history 1 2 Years of growth 1 3 Recent history 2 Organization and services 2 1 Structure 2 1 1 List of global managing partners 2 2 Consulting services 2 3 Recruiting 2 4 Culture 2 5 Conflicts of interest between McKinsey and MIO partners 3 Influence 3 1 Research and publishing 3 1 1 Environmental consulting 3 2 Significant consulting projects 4 Controversies 4 1 Enron 4 2 2008 financial crisis 4 3 Valeant 4 4 Role in opioid epidemic 4 5 Rikers Island jail complex 4 6 Fine for insider trading by investment affiliate 4 7 Accusations of conflicts of interest in US bankruptcies 4 8 GreenSky Insider Trading 4 9 Controversial clients and association with authoritarian regimes 4 9 1 Role in U S Immigration and Customs Enforcement ICE 4 9 2 Role in Saudi clampdown on dissidents 4 9 3 Support of authoritarian regimes 4 10 South African corruption scandal 4 11 OxyContin promotion and involvement in opioid epidemic 5 See also 6 Explanatory notes 7 References 8 Further reading 9 External linksHistorical EditEarly history Edit James O McKinsey 1889 1937 founder of the company McKinsey amp Company was founded in Chicago under the name James O McKinsey amp Company in 1926 by James O McKinsey a professor of accounting at the University of Chicago 16 17 He conceived the idea after witnessing inefficiencies in military suppliers while working for the United States Army Ordnance Department 18 4 The firm called itself an accounting and management firm and started out giving advice on using accounting principles as a management tool 19 3 McKinsey s first partners were Tom Kearney hired in 1929 20 a and Marvin Bower hired in 1933 22 23 133 b Marvin Bower founder of modern day McKinsey and its corporate culture Marvin Bower is credited with establishing McKinsey s values and principles in 1937 based on his experience as a lawyer The firm developed an up or out policy where consultants who are not promoted are asked to leave In 1937 24 25 Bower established a set of rules that consultants should put the interests of clients before McKinsey s revenues not discuss client affairs tell the truth even if it means challenging the client s opinion and only perform work that is both necessary and that McKinsey can do well 26 25 Bower created the firm s principle of only working with CEOs which was later expanded to CEOs of subsidiaries and divisions He also created McKinsey s principle of only working with clients the firm felt would follow its advice 27 28 Bower also established the firm s language 25 In 1932 the company opened its second office in New York City 19 20 In 1935 McKinsey left the firm temporarily to serve as the chairman and CEO of client Marshall Field s 18 5 23 133 In 1935 McKinsey merged with accounting firm Scovell Wellington amp Company creating the New York based McKinsey Wellington amp Co and splitting off the accounting practice into Chicago based Wellington amp Company 18 5 A Wellington project that accounted for 55 percent of McKinsey Wellington amp Company s billings was about to expire 29 and Kearney and Bower had disagreements about how to run the firm Bower wanted to expand nationally and hire young business school graduates whereas Kearney wanted to stay in Chicago and hire experienced accountants 23 134 In 1937 James O McKinsey died after catching pneumonia 19 21 This led to the division of McKinsey Wellington amp Company in 1939 The accounting practice returned to Scovell Wellington amp Company while the management engineering practice was split into McKinsey amp Company and McKinsey Kearney amp Company 20 29 Bower had partnered with Guy Crockett from Scovell Wellington who invested in the new McKinsey amp Company and became managing partner while Marvin Bower is credited with founding the firm s principles and strategy as his deputy 29 30 The New York office purchased exclusive rights to the McKinsey name in 1946 31 25 Years of growth Edit McKinsey amp Company grew quickly in the 1940s and 50s especially in Europe 18 12 13 31 25 32 It had 88 staff in 1951 33 and more than 200 by the 1960s 31 including 37 in London by 1966 33 In the same year McKinsey had six offices in major US cities including San Francisco Cleveland Los Angeles and Washington D C as well as six abroad These foreign offices were primarily in Europe such as in London Paris and Amsterdam as well as in Melbourne 18 12 13 By this time one third of the company s revenues originated from its European offices 31 Guy Crockett stepped down as managing director in 1959 and Marvin Bower was elected in his place 29 27 61 McKinsey s profit sharing executive and planning committees were formed in 1951 29 The organization s client base expanded especially among governments defense contractors blue chip companies and military organizations in the post World War II era 24 McKinsey became a private corporation with shares owned exclusively by McKinsey employees in 1956 18 12 29 After Bower stepped down in 1967 the firm s revenues declined citation needed New competitors like the Boston Consulting Group and Bain amp Company created increased competition for McKinsey by marketing specific branded products such as the Growth Share Matrix and by selling their industry expertise 32 34 26 In 1971 McKinsey created the Commission on Firm Aims and Goals which found that McKinsey had become too focused on geographic expansion and lacked adequate industry knowledge The commission advised that McKinsey slow its growth and develop industry specialties 18 14 32 In 1975 John L Neuman a McKinsey consultant at the time published Make Overhead Cuts That Last in Harvard Business Review 35 in which he introduced new rules for scientific management such as overhead valuation analysis OVA 6 65 OVA guided McKinsey s path to downsizing responding to the mid century corporation s excessive reliance on middle management 7 Neuman wrote that the process though swift is not painless Since overhead expenses are typically 70 to 85 people related and most savings come from work force reductions cutting overhead does demand some wrenching decisions 35 In 1976 Ron Daniel was elected managing director serving until 1988 19 42 Daniel and Fred Gluck helped shift the firm away from its generalist approach by developing 15 specialized working groups within McKinsey called Centers of Competence and by developing practice areas called Strategy Operations and Organization Daniel also began McKinsey s knowledge management efforts in 1987 18 15 17 This led to the creation of an IT system that tracked McKinsey engagements a process to centralize knowledge from each practice area and a resource directory of internal experts 18 6 7 By the end of his tenure in 1988 the firm was growing again and had opened new offices in Rome Helsinki Sao Paulo and Minneapolis 18 15 17 32 Fred Gluck served as McKinsey s managing director from 1988 to 1994 36 The firm s revenues doubled during his tenure 26 He organized McKinsey into 72 islands of activity that were organized under seven sectors and seven functional areas 18 18 By 1997 McKinsey had grown eightfold over its size in 1977 25 In 1989 the firm tried to acquire talent in IT services through a 10 million purchase of the Information Consulting Group ICG but a culture clash caused 151 out of the 254 ICG staff members to leave by 1993 26 36 In 1994 Rajat Gupta became the first non American born partner to be elected as the firm s managing director 37 By the end of his tenure McKinsey had grown from 2 900 to 7 700 staff and 58 to 84 locations 38 He opened new international offices in cities such as Moscow Beijing and Bangkok 18 20 Continuing the structure developed by prior directors Gupta also created 16 industry groups charged with understanding specific markets and instituted a three term limit for the managing director 18 22 McKinsey created practice areas for manufacturing and business technology in the late 1990s 18 21 23 McKinsey set up accelerators in the 1990s where the firm accepted stock based reimbursement to help internet startups 38 39 the company performed more than 1 000 e commerce projects from 1998 to 2000 alone 18 24 An October 1 2000 article in the New York Times described the compulsory mini courses that McKinsey and its two largest rivals Boston Consulting and Bain offered their hyper educated young new recruits Once completed these newly certified management consultants would begin their work of advising the executives of multibillion dollar companies on projects not related to their academic backgrounds l awyers would help packaged foods companies develop new products and physicists would tell Internet start ups how to stand out from the crowd 40 The burst of the dot com bubble led to a reduction in utilization rates of McKinsey s consultants from 64 to 52 percent Though McKinsey avoided dismissing any personnel following the decline 38 the decline in revenues and losses from equity based payments as stock lost value together with a recession in 2001 meant the company had to reduce its prices cut expenses and reduce hiring 18 25 In 2001 McKinsey launched several practices that focused on the public and social sector It took on many public sector or non profit clients on a pro bono basis 24 By 2002 McKinsey had invested a 35 8 million budget on knowledge management up from 8 3 million in 1999 24 1 Its revenues were 50 20 and 30 percent from strategy operations and technology consulting respectively 18 20 In 2003 Ian Davis the head of the London office was elected to the position of managing director 41 Davis promised a return to the company s core values after a period in which the firm had expanded rapidly which some McKinsey consultants felt was a departure from the company s heritage 42 Also in 2003 the firm established a headquarters for the Asia Pacific region in Shanghai By 2004 more than 60 percent of McKinsey s revenues were generated outside the U S 24 The company started a Social Sector Office SSO in 2008 which is divided into three practices Global Public Health Economic Development and Opportunity Creation EDHOC and Philanthropy McKinsey does much of its pro bono work through the SSO whereas a Business Technology Office BTO founded in 1997 provides consulting on technology strategy 43 44 45 By 2009 the firm consisted of 400 directors senior partners up from 151 in 1993 26 46 Dominic Barton was elected as managing director a role he was re elected for in 2012 and 2015 46 Recent history Edit See also Rajat Gupta and Anil Kumar Rajat Gupta along with another McKinsey executive Anil Kumar were among those convicted in a government investigation into insider trading for sharing inside information with Galleon Group hedge fund owner Raj Rajaratnam 47 48 Though McKinsey was not accused of any wrongdoing the convictions were embarrassing for the firm since it prides itself on integrity and client confidentiality 49 50 51 McKinsey no longer maintains a relationship with either senior partner 52 53 Senior partner Anil Kumar described as Gupta s protege 54 left the firm after the allegations in 2009 and pleaded guilty in January 2010 55 56 While he and other partners had been pitching McKinsey s consulting services to the Galleon Group Kumar and Rajaratnam reached a private consulting agreement violating McKinsey s policies on confidentiality 57 Gupta was convicted in June 2012 of four counts of conspiracy and securities fraud and acquitted on two counts 58 In October 2011 he was arrested by the FBI on charges of sharing insider information from these confidential board meetings with Rajaratnam 59 60 At least twice Gupta used a McKinsey phone to call Rajaratnam and retained other perks an office assistant and 6 million retirement salary that year 61 as a senior partner emeritus 53 After the scandal McKinsey instituted new policies and procedures to discourage future indiscretions from consultants 62 including investigating other partners ties to Gupta 63 64 In February 2018 Kevin Sneader was elected as managing director He is serving a three year term that began on July 1 2018 65 McKinsey has consulted for multiple cities states and government organizations during the 2019 coronavirus pandemic During the first four months of the pandemic McKinsey obtained in excess of 100 million in consulting work including no bid contracts with the United States Department of Veterans Affairs and Air Force 66 The reopening guidelines for Florida s Miami Dade County produced with McKinsey s input were criticized by local media and officials for complexity and lack of clarity 66 McKinsey discontinued its investment banking advisory unit in 2021 citing personnel matters as the reason 67 In December 2021 Puneet Dikshit a McKinsey partner pled guilty to insider trading 68 Dikshit advised Goldman Sachs about its acquisition of GreenSky a fintech company and used that confidential information to trade call options 69 On June 1 2022 McKinsey announced that it had acquired Caserta a data engineering firm 70 Organization and services EditStructure Edit McKinsey office in Bucharest Romania McKinsey amp Company was originally organized as a partnership 71 before being legally restructured as a private corporation with shares owned by its partners in 1956 29 72 It mimics the structure of a partnership and employees are called partners 42 71 The company has a flat hierarchy and each member is assigned a mentor 73 65 142 Since the 1960s McKinsey s managing director has been elected by a vote of senior directors to serve up to three three year terms or until reaching the mandatory retirement age of 60 74 The firm is also managed by a series of committees that each has its own area of responsibility 18 22 25 6 By 2013 McKinsey was described as having a decentralized structure whereby different offices operate similarly but independently 27 28 The company s budgeting is centralized but individual consultants are given a large degree of autonomy 75 As a truly global firm McKinsey does not have a traditional headquarters but it is usually the home office of the current Managing Partner 76 List of global managing partners Edit James O McKinsey 1926 1935 Chicago office Guy Crockett 1939 1950 Marvin Bower 1950 1967 New York office Gil Clee 1967 1968 Chester Walton 1968 1976 Alonzo L McDonald 1973 1976 Ron Daniel 1976 1988 Frederick Gluck 1988 1994 New York office Rajat Gupta 1994 2003 New York office Ian Davis 2003 2009 London office Dominic Barton 2009 2018 London office Kevin Sneader 2018 2021 Hong Kong office Bob Sternfels 2021 San Francisco officeConsulting services Edit McKinsey amp Company provides strategy and management consulting services such as providing advice on an acquisition developing a plan to restructure a sales force creating a new business strategy or providing advice on downsizing according to the 2013 book The Firm 27 73 The 1999 book The McKinsey Way said that McKinsey consultants designed and implemented studies to evaluate management decisions using data and interviews to test hypotheses 73 which were then presented to senior management typically in a PowerPoint presentation and a booklet 73 McKinsey amp Company has traditionally charged approximately 25 percent more than competing firms 43 A typical McKinsey engagement can last between two and twelve months and involves three to six McKinsey consultants 43 An engagement is usually managed by a generalist that covers the region the client s headquarters are located in and specialists that have either an industry or functional expertise 26 Unlike some competing consulting firms McKinsey does not hold a policy against working for multiple competing companies although individual consultants are barred from doing so Recruiting Edit McKinsey amp Company was the first management consultancy to hire recent graduates instead of experienced business managers when it started doing so in 1953 77 According to a 1997 article in The Observer McKinsey recruited recent graduates and imbue d them with a religious conviction in the firm then cull ed through them with its up or out policy 25 The up or out policy which was established in 1951 meant that consultants that were not being promoted within the firm were asked to leave 33 208 78 By 1997 about one fifth of McKinsey s consultants departed under the up or out policy each year 25 75 McKinsey s practice of hiring recent graduates and the up or out philosophy were originally based on Marvin Bower s experiences at the law firm Jones Day in the 1930s as well as the Cravath system used at the law firm Cravath Swaine and Moore 33 206 In recent years it has consistently been recognized by Vault as the most prestigious consulting firm employer in the world 79 In 2018 800 000 candidates applied for 8 000 jobs 80 While many recruits have MBAs by 2009 less than half of the firm s recruits were business majors 43 7 by 1999 recruits had advanced degrees in science medicine engineering or law 73 81 82 Culture Edit A November 1 1993 profile story in Fortune magazine said that McKinsey amp Company was the most well known most secretive most high priced most prestigious most consistently successful most envied most trusted most disliked management consulting firm on earth 26 In the article McKinsey was cited as claiming that its consultants were not motivated by money 26 and that partners talked to each other with a sense of personal affection and admiration 26 The article described a culture clash that occurred in the early 1990s leading to the departure of 151 out of the 254 ICG staff members 26 In their 1997 book Dangerous Company Management Consultants and the Businesses They Save and Ruin authors James O Shea and Charles Madigan said that McKinsey s culture had often been compared to religion because of the influence loyalty and zeal of its members 28 83 The firm has a policy against discussing specific client situations 28 A September 1997 The News Observer story said that McKinsey s internal culture was collegiate and ruthlessly competitive and has been described as arrogant 25 Ethan Rasiel s 1999 book entitled The McKinsey Way described a culture at McKinsey s whereby members were not supposed to sell their services 73 84 The Sunday Times wrote that McKinsey was a pioneer in the industry the first firm to hire MBA graduates from the top business schools to staff its projects rather than relying on older industry personnel They were still trying to keep a very low profile public image in 2005 77 That year an article in The Guardian said that McKinsey hours are long expectations high and failure not acceptable 84 According to an October 2009 Reuters article the firm had a button down culture focused on playing by the rules 85 In his 2013 book The Firm The Story of McKinsey and Its Secret Influence on American Business Duff McDonald described how McKinsey s consultants were expected to become a part of the community and recruit clients from church charitable foundations board positions and other community involvements 27 McDonald wrote that McKinsey calls itself The Firm and its employees members 27 26 BusinessWeek summarized The Firm s description of McKinsey as a fading empire where hubris and changing times have diminished the firm s statures 86 In his February 2020 in depth article in The Atlantic Daniel Markovits argues that McKinsey promotes intellect and elite credentials and Meritocrats over directly relevant experience 7 Conflicts of interest between McKinsey and MIO partners Edit In February 2019 The New York Times ran a series of articles about McKinsey 87 and the in house hedge fund it operates McKinsey Investment Office or MIO Partners The articles claimed that there was potential for undisclosed conflicts of interest between the fund s investments and the advice the firm sells to clients since the hedge fund could benefit from the inside knowledge obtained through management consulting services 88 The firm responded that MIO and McKinsey employ separate staffs MIO staff have no nonpublic knowledge of McKinsey clients For the vast majority of assets under management decisions about specific investments are made by third party managers 88 The firm has agreed to repay fees it earned in three bankruptcy cases approximately 15 million worth 89 MIO Partners was fined 18 million by SEC in 2021 Influence EditMain article List of former employees of McKinsey amp Company Many of McKinsey s alumni become CEOs of major corporations or hold important government positions 77 In doing so they influence the other organization with McKinsey s values and culture 28 77 83 McKinsey s alumni have been appointed as CEOs or high level executives 83 90 In his 2010 publication The Lords of Strategy The Secret Intellectual History of the New Corporate World business journalist Walter Kiechel traced the roots of a profound change in corporate management to four mavericks in the 1960s Fred Gluck at McKinsey amp Company Boston Consulting Group s Bruce Henderson Bill Bain at Bain amp Company and Harvard Business School professor Michael Porter 4 Kiechel recounted how they revolutionized the way we think about business changed the very soul of the corporation and transformed the way we work according to the Harvard Business Press synopsis 5 McKinsey has been either directly involved in or closely associated with a number of notable scandals 91 involving Enron in 2001 91 92 Galleon in 2009 47 Valeant in 2015 93 Saudi Arabia in 2018 94 China in 2018 95 ICE in 2019 96 an internal conflict of interest in 2019 88 and Purdue Pharma in 2019 97 among others By 2019 major news outlets including The New York Times and ProPublica had raised concerns about McKinsey s business practices 98 Research and publishing Edit McKinsey amp Company consultants regularly publish books research and articles about business and management 73 51 99 55 The firm spends 50 100 million a year on research 99 54 McKinsey was one of the first organizations to fund management research when it founded the Foundation for Management Research in 1955 19 The firm began publishing a business magazine The McKinsey Quarterly in 1964 100 It funds the McKinsey Global Institute which studies global economic trends and was founded in 1990 24 It also launched the McKinsey Institute for Black Economic Mobility in 2020 to fund research focused on advancing inclusive growth amp racial equity globally 101 Many consultants are contributors to the Harvard Business Review 83 McKinsey consultants published only two books from 1960 to 1980 then more than 50 from 1980 to 1996 99 55 McKinsey s publications and research give the firm a quasi academic image 99 A McKinsey book In Search of Excellence was published in 1982 102 It featured eight characteristics of successful businesses based on an analysis of 43 top performing companies 99 87 89 102 348 It marked the beginning of McKinsey s shift from accounting to softer aspects of management like skills and culture 102 359 According to David Guest from King s College In Search of Excellence became popular among business managers because it was easy to read well marketed and some of its core messages were valid However it was disliked by academics because of flaws in its methodology Additionally a 1984 analysis by BusinessWeek found that many of those companies identified as excellent in the book no longer met the criteria only two years later 102 A 1997 article and a book it published in 2001 on The War for Talent 103 prompted academics and the business community to start focusing more on talent management 104 163 The authors found that the best performing companies were obsessed with acquiring and managing the best talent 105 They advocated that companies rank employees by their performance and promote stars while targeting under performers for improvement or layoffs 105 106 After the book was published Enron a company which followed many of its principles was involved in a scandal that led to its bankruptcy 105 In May 2001 a Stanford professor wrote a paper critical of the War on Talent arguing that it prioritized individuals at the expense of the larger organization 103 McKinsey consultants published Creative Destruction in 2001 27 247 The book suggested that CEOs need to be willing to change or rebuild a company rather than protect what they have created 107 It found that out of the first S amp P 500 list from 1957 only 74 were still in business by 1998 107 108 The New York Times said it makes a cogent argument that in times of rampant uncertain change established companies are handcuffed by success 109 In 2009 McKinsey consultants published The Alchemy of Growth which established three horizons for growth core enhancements new growth platforms and options 110 In February 2011 McKinsey surveyed 1 300 US private sector employers on their expected response to the Affordable Care Act ACA 111 112 Thirty percent of respondents said they anticipated they would probably or definitely stop offering employer sponsored health coverage after the ACA went into effect in 2014 113 114 These results published in June 2011 in the McKinsey Quarterly 111 became a useful tool for critics of the ACA and a deep annoyance for defenders of the law according to an article in Time magazine 115 Supporters of healthcare reform argued the survey far surpassed estimates by the Congressional Budget Office and insisted that McKinsey disclose the survey s methodology 116 117 118 Two weeks after publishing the survey results 115 McKinsey released the contents of the survey including the questionnaire and 206 pages of survey data 119 In its accompanying statement 120 McKinsey said it was intended to capture the attitude of employers at a certain point in time not make a prediction 121 122 Since 1990 McKinsey has been publishing Valuation Measuring and Managing the Value of Companies a textbook on valuation 123 In 2022 McKinsey senior partners Carolyn Dewar Scott Keller and Vikram Malhotra authored the book CEO Excellence which was published by Scribner 124 Environmental consulting Edit Marginal abatement cost curves attempt to compare the financial costs of different options for reducing pollution in a region and are used in emissions trading policy discussions and incentive programs 125 McKinsey amp Company released its first marginal abatement cost MAC curve for greenhouse gas emissions in February 2007 which was updated to version two in January 2009 126 127 McKinsey amp Company s MAC curve has become the most widely used 128 and is the basis for McKinsey s consulting on climate change and sustainability 129 McKinsey s curve predicts negative cost abatement strategies which has been controversial among economists 130 The International Association for Energy Economics said in The Energy Journal that McKinsey s cost curve was popular among policymakers because it suggests they can take bold action towards improving energy efficiency without imposing costs on society 131 In a 2010 report the Rainforest Foundation UK said McKinsey s cost curve methodology was misleading for policy decisions regarding the Reduced Emissions from Deforestation and Forest Degradation REDD program The report argued that McKinsey s calculations exclude certain implementation and governance costs which makes it favor industrial uses of forests while discouraging subsistence projects 132 Greenpeace said the curve has allowed Indonesia and Guyana to win financial incentives from the United Nations by creating inflated estimates of current deforestation so they could demonstrate reductions in comparison 133 134 135 McKinsey said they had made it clear in the cost curve publications that cost curves do not translate mechanically into policy implications and that policymakers should consider many other factors before introducing new laws 133 134 Significant consulting projects Edit McKinsey amp Company s founder James O McKinsey introduced the concept of budget planning as a management framework in his fifth book Budgetary Control in 1922 31 25 136 422 The firm s first client was the treasurer of Armour amp Company who along with other early McKinsey clients had read Budgetary Control In 1931 McKinsey created a methodology for analyzing a company called the General Survey Outline GSO which was established based on ideas introduced in the 1924 book Business Administration It was also known as the Banker s Survey because McKinsey s clients who used it in the 1930s were predominantly banks 27 22 After the Wagner Act gave certain rights to employees to organize into unions in 1935 McKinsey started consulting corporations on employee relations Later in the 1950s the work of a McKinsey consultant on compensation was influential in skyrocketing executive pay 27 It also helped many companies such as Heinz IBM and Hoover expand into Europe 27 In the 1940s McKinsey helped many corporations convert into wartime production for World War II 27 It also helped organize NASA into an organization that relies heavily on contractors in 1958 137 105 McKinsey created a report in 1953 for Dwight D Eisenhower that was used to guide government appointments 138 In 1973 McKinsey amp Company led a project for a consortium of grocery chains represented by the U S Supermarket Ad Hoc Committee on a Uniform Grocery Product Code to create the barcode 139 140 According to the book Business Research Methods the barcode became commonplace after a study by McKinsey persuaded Kroger to adopt it 141 In the 1970s and 1980s McKinsey helped European companies change their organizational structure to M form Multidivisional Form which organizes the company into semi autonomous divisions that function around a product industry or customer rather than a function or expertise 142 208 143 110 In the 1980s AT amp T reduced investments in cell towers due to McKinsey s prediction that there would only be 900 000 cell phone subscribers by 2000 According to The Firm this was laughably off the mark from the 109 million cellular subscribers by 2000 At the time cell phones were bulky and expensive The firm helped the Dutch government facilitate a turnaround for Hoogovens the world s largest steel company as of 2013 through a 1 billion bankruptcy bailout It also implemented a turnaround for the city of Glasgow which had problems with unemployment and crime McKinsey created the corporate structure for NationsBank when it was still a small company known as North Carolina National Bank McKinsey was hired by General Motors to do a large scale re organization to help it compete with Japanese auto makers The book The Firm said it was an unmitigated disaster because McKinsey focused on corporate structure whereas GM needed to compete with Japanese automakers through manufacturing process improvement A McKinsey consultant said GM did not follow their advice 27 A 2002 article in BusinessWeek said that a series of bankruptcies of McKinsey clients such as Swissair Kmart and Global Crossing in the 1990s raised questions as to whether McKinsey was responsible or had a lapse in judgement 38 McKinsey recommended that Swissair avoid high operating costs in its home country by developing partnerships with airlines based in other regions In order to attract partners Swissair acquired more than 1 billion in shares of other airlines many of which were failing This led to huge losses and even bankruptcy for Swissair 144 As part of a lawsuit against Allstate 13 000 McKinsey documents were released showing that McKinsey recommended that Allstate reduce payouts to insurance claimants by offering low settlements delaying processing to wear out claimants through attrition and fighting customers that protest in court Allstate s profits doubled over ten years after adopting McKinsey s strategy but it also led to lawsuits alleging they were cheating claimants out of legitimate insurance claims 145 146 Controversies EditThe firm has been associated with a number of notable scandals including the collapse of Enron in 2001 91 2007 2008 financial crisis 91 and facilitating state capture in South Africa 147 It has also drawn controversy for involvement with Purdue Pharma 148 U S Immigration and Customs Enforcement 96 and authoritarian regimes 95 94 Enron Edit Main article Enron scandal Enron was the creation of Jeff Skilling a McKinsey consultant of 21 years who was jailed after Enron reportedly used McKinsey on 20 different projects 92 and McKinsey consultants had used Enron as their sandbox 92 Prior to the Enron scandal McKinsey helped it shift from an oil and gas production company into an electric commodities trader which led to significant growth in profits and revenues 75 According to The Independent there was no suggestion that McKinsey was complicit in the subsequent scandal but critics say the arrogance of Enron s leaders is emblematic of the McKinsey culture 149 The government did not investigate McKinsey who said they did not provide advice on Enron s accounting 59 The Wall Street Journal questioned McKinsey s liability and its close relationship with Enron 150 and a 2002 BusinessWeek article suggested that they had ignored warning signs 38 In his July 2002 in depth BusinessWeek article on the aftermath of the Enron scandal John Bryne wrote that McKinsey had been a key architect of the strategic thinking that made Enron a Wall Street darling In books articles and essays its partners regularly stamped their imprimatur on many of Enron s strategies and practices helping to position the energy giant as a corporate innovator worthy of emulation The firm may not be the subject of any investigations but its close involvement with Enron raises the question of whether McKinsey like some other professional firms ignored warning flags in order to keep an important account 38 BusinessWeek described how McKinsey s culture had changed as the number of partners grew from 427 to 891 making it a less personal place 38 According to the article some current and former McKinsey consultants said that McKinsey had lost their ingrained values that used to guide the firm Citing the example of the dot com bubble McKinsey had begun to have less prestigious companies as clients and had allowed its focus on building agenda shaping relationships with top management at leading companies to slip 38 As well there was a noticeable tilt toward bringing in revenue at the expense of developing knowledge 38 McKinsey denied this 38 McKinsey denied giving Enron advice on financing issues or having suspicions that Enron was using improper accounting methods 92 2008 financial crisis Edit Main article Financial crisis of 2007 2008 McKinsey is said to have played a significant role in the 2008 financial crisis by promoting the securitization of mortgage assets and encouraged the banks to fund their balance sheets with debt driving up risk which poisoned the global financial system and precipitated the 2008 credit meltdown 91 Furthermore McKinsey advised Allstate Insurance to purposely give low offers to claimants The Huffington Post revealed that the strategy was to make claims so expensive and so time consuming that lawyers would start refusing to help clients 151 Next to this 2016 McKinsey partner Navdeep Arora was convicted for illegally depleting State Farm of over 500 000 over a period of 8 years in collaboration with a State Farm employee 152 Valeant Edit Valeant a Canadian pharmaceutical company investigated by the SEC in 2015 has been accused of improper accounting and that it used predatory price hikes to boost growth 153 The Financial Times states that Valeant s downfall is not exactly McKinsey s fault but its fingerprints are everywhere 93 Three out of six senior executives were recent ex McKinsey employees as well as the chair of the talent and compensation committee 93 MIO Partners was a private investor of Valeant and McKinsey consulted Valeant on drug prices and acquisitions 154 Role in opioid epidemic Edit Further information Opioid epidemic in the United States McKinsey advised opioid makers on how to turbocharge sales of OxyContin proposed strategies to counter the emotional messages from mothers with teenagers who overdosed on OxyContin and helped opioid makers circumvent regulation 97 The firm also advised Purdue Pharma to offer pharmacies rebates based on the number of overdoses and addictions they caused 148 In 2019 McKinsey projected that over 2 400 CVS customers would have an overdose or become reliant on opioids 155 McKinsey estimated that a rebate of 14 810 per event would mean that Purdue would have to pay CVS 36 8 million that year 156 In February 2021 McKinsey reached agreements with attorneys general in 49 states five U S territories and the District of Columbia Across the settlements the firm agreed to pay nearly 600 million to settle investigations into its role in promoting sales of OxyContin 157 McKinsey has since apologized for its advice to opioid makers 158 Records show that McKinsey worked for Purdue Pharma and other opioid makers in a 15 year period from 2004 to 2019 159 During 2018 and 2019 McKinsey collected at least 400 million consulting pharmaceutical companies McKinsey advised Mallinckrodt the largest manufacturer of generic opioids as well as Endo for which McKinsey consulted on marketing Opana 160 McKinsey s consultation grew Endo into a leading generics manufacturer McKinsey recommended targeted and influenced doctors who treat back pain in elderly and long term care patients 161 In April 2022 the New York Times reported that McKinsey had frequently allowed partners and other consultants to work for both government clients such as the FDA and pharmaceutical clients such as Purdue 162 These actions violated McKinsey s own internal ethical guidelines 162 Rikers Island jail complex Edit New York City paid McKinsey 27 5 million between 2014 and 2017 to reduce prison assaults in Rikers Island but the violence grew and the city abandoned many of the firm s recommendations The consultancy s alleged failings included not soliciting the views of inmates or clinic staff using an encrypted messaging app that deletes messages allegedly to avoid transparency initiatives involving the expanded use of Tasers shotguns and K9 patrol dogs replacing troublesome inmates with more accommodating ones in the test area which skewed the data in favor of the project the use of ineffective data analytics software and spreadsheet errors that inflated the baseline rate of violence against which the project was measured 163 McKinsey advised New York City s Rikers Island jail complex and tested an anti violence strategy named Restart which occurred in Rikers housing units 164 The results of the strategy reported that violent crimes dropped more than 70 inside the Rikers housing units 165 Later it was found that McKinsey consultants and jail officials rigged the program by grouping compliant inmates into the housing units 166 Fine for insider trading by investment affiliate Edit In 2019 McKinsey paid the Justice Department 15 million to settle allegations relating to failure to disclose potential conflict in three bankruptcy cases that the firm advised 167 In 2021 MIO Partners an affiliate of McKinsey amp Co that invests almost 31 billion of money on behalf of its employees was fined US 18 million by the US regulator SEC The SEC said some of the same people making investment decisions for MIO Partners were McKinsey amp Co employees who had visibility into confidential information for companies for which McKinsey was consulting 168 The SEC claimed that MIO Partners had advanced knowledge of upcoming mergers bankruptcy and financial results announcements for companies that the firm was consulting 169 Accusations of conflicts of interest in US bankruptcies Edit In January 2022 the Second U S Circuit Court of Appeals in Manhattan revived a lawsuit against McKinsey amp Co filed by retired turnaround specialist Jay Alix accusing the consulting firm of concealing potential conflicts when seeking permission from bankruptcy courts to perform lucrative work on corporate restructurings 170 GreenSky Insider Trading Edit An ex partner at McKinsey was sentenced to 24 months in prison for insider trading 171 The ex partner helped advise Goldman Sachs Group on the recent purchase of fintech company GreenSky Inc 172 The ex partner bought 2 500 GreenSky call options before the 2 24 billion merger and sold the call options shortly after the merger was announced on September 15 2021 173 The ex partner was ordered to hand over approximately 450 000 of illegal profit 174 Controversial clients and association with authoritarian regimes Edit Role in U S Immigration and Customs Enforcement ICE Edit McKinsey stopped working for U S Immigration and Customs Enforcement ICE after it was disclosed that the firm had done more than 20 million in consulting work for the agency McKinsey managing partner Kevin Sneader said the contract not widely known within the company until The New York Times reported it had rightly raised concerns 175 In 2019 The New York Times and ProPublica reported on newly uncovered documents which showed that McKinsey as part of its work with ICE proposed cuts in spending on food and medical care for migrants 96 McKinsey also advocated for an acceleration of the deportation process causing concerns among ICE staff that the due process rights of the migrants would be violated 96 Previously McKinsey managing partner Kevin Sneader had claimed that McKinsey had done no work for ICE in terms of developing and implementing immigration policy the uncovered documents showed that to be false 96 176 Role in Saudi clampdown on dissidents Edit In October 2018 in the wake of the assassination of Jamal Khashoggi a Saudi dissident and journalist The New York Times reported that McKinsey had identified the most prominent Saudi dissidents on Twitter and that the Saudi government subsequently repressed the dissidents and their families One of the dissidents Khalid al Alkami was arrested Another dissident identified by McKinsey Omar Abdulaziz in Canada had two brothers imprisoned by the Saudi authorities and his cell phone hacked McKinsey issued a statement saying We are horrified by the possibility however remote that the report could have been misused We have seen no evidence to suggest that it was misused but we are urgently investigating how and with whom the document was shared 94 In December 2018 The New York Times reported that the kingdom is a such a vital client for the firm the source of nearly 600 projects from 2011 to 2016 alone that McKinsey chose to participate in a major Saudi investment conference in October 2018 even after the killing and dismemberment of a Washington Post columnist by Saudi agents 95 On February 12 2019 the European Parliament Greens EFA group presented a motion for a resolution on the situation on women s rights defenders in Saudi Arabia denouncing the involvement of foreign public relations companies in representing Saudi Arabia and handling its public image particularly McKinsey amp Company 177 Support of authoritarian regimes Edit McKinsey s business and policy support for authoritarian regimes came under scrutiny in December 2018 in the wake of a lavish company retreat in China held adjacent to Chinese government internment camps where thousands of Uyghurs were being detained without cause 95 178 In December 2021 NBC News reported McKinsey s connection to a manufacturing facility owned by DJI a drone maker sanctioned by the United States Department of the Treasury for alleged complicity in aiding the Uyghur genocide 179 In the preceding few years McKinsey s clients included Saudi Arabia s absolute monarchy 94 180 181 Turkey s autocratic leader Recep Tayyip Erdogan ousted former president of Ukraine Viktor Yanukovych and several Chinese and Russian companies under sanctions 95 South African corruption scandal Edit The Gupta family no relation to Rajat Gupta had strategically placed corrupted individuals in various South African government utilities and infrastructure sectors It is alleged that McKinsey was complicit in this corruption by using the Guptas to obtain consulting contracts from certain state owned enterprises including Eskom and Transnet 182 Working with Trillian Capital Partners a consultancy which was owned by a Gupta associate 183 they provided services to the value of R1 billion 75 million annually Trillian was paid a commission for facilitating the business for McKinsey 184 McKinsey hired law firm Norton Rose Fulbright to carry out an internal investigation over the allegations McKinsey s then Managing Partner Dominic Barton issued a statement following an internal investigation in which the firm admitted that it found violations of its professional standards but denied any acts of bribery corruption and payments to Trillian 185 Corruption Watch a South African non governmental organization filed a complaint about the controversial contract to the US Department of Justice alleging that there was a criminal conspiracy between McKinsey Trillian and Eskom in contravention of US and South African law 186 It was revealed in January 2018 that criminal complaints were filed against McKinsey amp Company by the South African Companies and Intellectual Property Commission South African prosecutors confirmed that they would enforce the seizing of assets from McKinsey 187 South Africa s National Prosecuting Authority concluded in early 2018 that the payments to McKinsey and its local business partner Trillian were illegal involving crimes such as fraud theft corruption and money laundering McKinsey had subsequently been in discussion with Eskom and the National Prosecuting Authority s Asset Forfeiture Unit to agree on a transparent legally appropriate process for returning the R1 billion US 74m it had been paid it was confirmed on 6 July 2018 that this had been concluded 188 Eskom confirmed it received R99 5 million in interest from McKinsey on July 23 2018 The interest payment covers the two years since McKinsey was paid almost R1 billion in 2016 189 Information relating to allegedly corrupt practices by McKinsey at Transnet in 2011 and 2012 came to light in late July 2018 The weekly Mail amp Guardian newspaper reported that a new forensic treasury report shows how controversial former Transnet and Eskom chief financial officer Anoj Singh enjoyed overseas trips at the expense of international consulting firm McKinsey which scored multi billion rand contracts at the state owned entities The report reiterates treasury s recommendations that Singh s conduct with regards to McKinsey should be referred to the elite crime fighting unit the Hawks for investigations under the Prevention and Combating of Corrupt Activities Act Precca Under Precca Singh would be investigated for allegations of corruption as payment for the overseas trips alone would constitute a form of gratification which is illegal 190 The Sunday City Press reported that the forensic report in turn reported that multinational advisory firm McKinsey paid for Singh to go on lavish international trips to Dubai Russia Germany and the UK after which their contract with Transnet was massively extended 191 McKinsey issued a statement that the allegations were incorrect McKinsey stated that based on an extensive review encompassing interviews email records and expense documents our understanding is that McKinsey did not pay for Mr Singh s airfare and hotel lodgings in connection with the CFO Forum and the meetings that took place around the CFO Forum in London and elsewhere in 2012 and 2013 192 On 11 October 2019 the United States Treasury department announced that it had imposed wide ranging financial sanctions on three Gupta brothers Ajay Atul and Rajesh aka Tony and their business associate Salim Essa under the United States Magnitsky Act 193 The Economist reported in November 2019 that McKinsey s scandals such as the 2016 South Africa scandal and the allegations of conflict of interest tied to its 12 7bn investment affiliate McKinsey Investment Office MIO are relatively recent in terms of its long history 194 The article said that McKinsey s legal challenges facing McKinsey s new global managing partner Kevin Sneader may be related to the company s fast paced growth with an increase of 2 200 partners compared to 2009 During that same time period the number of employees increased to 30 000 worldwide from 17 000 194 In 2020 McKinsey representatives giving testimony to the Zondo Commission of Inquiry into State Capture placed blame for the firm s involvement in the corruption scandal on former McKinsey partner Vikas Sagar 195 During 2021 McKinsey amp Co agreed to repay R 870 million US 63 million in fees to South African state logistics company Transnet SOC Ltd seeking to distance itself from contracts linked to corruption allegations 196 In April 2022 the Zondo Commission recommended that key Eskom executives be criminally investigated for improperly awarding consulting contracts to McKinsey amp Company 197 South Africa s National Prosecuting Authority announced on Friday 30 September 2022 that it had criminally charged both McKinsey South Africa and former McKinsey partner Vikas Sagar with fraud corruption and theft related to a contract to advise Transnet on buying new locomotives 198 OxyContin promotion and involvement in opioid epidemic Edit In February 2021 McKinsey paid 600 million to settle investigations into its role in promoting sales of OxyContin and fueling the greater opioid epidemic 157 See also Edit United States portal Companies portalBig Three management consultancies MBBExplanatory notes Edit Some sources say he was hired in 1930 instead of 1929 21 Some sources 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Retrieved December 18 2021 Holman Jordyn October 23 2018 Elizabeth Warren Asks McKinsey to Provide Information on Work for Saudis Bloomberg Archived from the original on 2018 12 18 Retrieved 17 December 2018 Kolhatkar Sheelah November 1 2018 McKinsey s Work for Saudi Arabia Highlights its History of Unsavory Entanglements The New Yorker Archived from the original on 18 December 2018 Retrieved 17 December 2018 Bogdanich Walt Forsythe Michael June 26 2018 How McKinsey Lost Its Way in South Africa The New York Times Archived from the original on April 27 2019 Retrieved June 30 2019 Why McKinsey is under attack in South Africa The Economist 12 October 2017 Archived from the original on 15 February 2018 Retrieved 13 October 2017 South Africans urge US law enforcers to bring Gupta and friends down with McKinsey BizNews com BizNews com 2017 07 11 Archived from the original on 2019 04 27 Retrieved 2017 07 12 Corruption Watch hits out at McKinsey Independent Online Archived from the original on 2019 04 27 Retrieved 2017 10 20 McKinsey amp Company not off the hook Archived from the original on 2018 07 11 Retrieved 2018 07 11 Cotterill Joseph 17 January 2018 McKinsey and KPMG accused of criminal breaches in South Africa Financial Times Archived from the original on 27 April 2019 Retrieved 31 January 2018 Pityana commends McKinsey for paying back the money BUSA Archived from the original on 2018 07 11 Retrieved 2018 07 11 McKinsey pays back interest arising from Eskom contract Archived from the original on 2018 09 06 Retrieved 2018 09 06 Jika Thanduxolo Skiti Sabelo July 29 2018 From Dubai to Russia how former Eskom and Transnet CFO Anoj Singh was bought Mail amp Guardian Archived from the original on April 1 2019 Retrieved June 30 2019 Treasury drops looting bomb Archived from the original on 2018 07 29 Retrieved 2018 07 29 van Zyl Gareth August 3 2018 Right of Reply McKinsey denies it paid for Anoj Singh s lavish London junket BizNews com Archived from the original on April 28 2019 Retrieved June 30 2019 Guptas join a cast of international villains ensnared by US sanction law October 11 2019 Archived from the original on October 15 2019 Retrieved October 15 2019 a b Rethinking McKinsey The Economist November 21 2019 ISSN 0013 0613 Archived from the original on November 27 2019 Retrieved November 27 2019 Bezuidenhout Jessica 2020 12 19 Daily Maverick 168 The Days of Zondo now starring a cast you couldn t make up Daily Maverick Archived from the original on 2020 12 19 Retrieved 2020 12 20 Sguazzin Antony May 21 2021 McKinsey to Repay 63 Million to South Africa s Transnet Bloomberg Archived from the original on January 22 2022 Retrieved January 22 2022 Bezuidenhout Jessica 2022 04 29 DAYS OF ZONDO PART FOUR No dodging the State Capture hangover for McKinsey and Trillian Daily Maverick Retrieved 2022 04 29 Cronje Jan 2022 09 30 NPA charges McKinsey SA with fraud over Transnet locomotive debacle News24 Retrieved 2022 10 04 Further reading EditBogdanich Walt Forsythe Michael 2022 When McKinsey Comes to Town The Hidden Influence of the World s Most Powerful Consulting Firm New York Doubleday ISBN 9780385546232 OCLC 1345467322 External links Edit Wikimedia Commons has media related to McKinsey amp Co Official website McKinsey Quarterly Retrieved from https en wikipedia org w index php title McKinsey 26 Company amp oldid 1131370162, wikipedia, wiki, book, books, library,

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