From boardrooms to the White House and beyond
McKinsey's influence in business is virtually
unparalleled.
It is quite possibly the most influential
private institution on the planet.
An organization has a
problem that they cannot
solve with their internal resources.
That's the most classic way that McKinsey is
brought in.
I have had a lot of exposure to
firms with a high opinion of themselves.
McKinsey takes the cake.
Its alumni control some of the largest and most
powerful companies in the world.
And have also been involved in some of corporate
America's Most Sensational scandals.
Now is the company having a moment of reckoning?
One of the world's most storied and respected
management consulting firms is finding itself in
the subject of critical media scrutiny.
Or will it somehow continue to fly
below the radar?
McKinsey was founded in 1926 by James
O McKinsey.
He was a professor at the University of Chicago
and an expert in management accounting.
The firm began advising companies locally
and slowly opening up offices in major urban
hubs around the country.
By the 1950s the firm was assisting the White
House with staffing organization which according
to the company would lead to the creation of the
chief of staff role.
In 1970 McKinsey helped create the
barcode. Yes.
That barcode with the uniform grocery
product Code Council.
It's all about solving the most pressing and
complicated business problems.
First of all you know people who go to work for
McKinsey tend to be elite
individuals in terms of their
intellectual ability business acumen
drive ability to think creatively.
Plenty of people have said you know going to
McKinsey is like
getting the PHD on top of your MBA
but in a much more polite way than an academic
way.
The company touts more than 30 Rhodes Scholars on
its staff and at least six Olympians.
The way I sketch it out in the book there
are three main ingredients.
Fact based hypothesis driven and
structured it's not so much what the
specific structure is but the fact that there is
a structure and it's logical and coherent.
And it drives
the problem solving process in
terms of what is the problem? How
do we scope it out break it into its constituent
elements go about getting the data?
All the way down to how do we then present it to
the client in a way that will
enable them to implement the changes
that McKinsey might be recommending.
The experience the tools
and the way to think to try to bring
this information.
These questions these data that we were
gathering to a level
shots that you can draw a conclusion.
And I think at McKinsey what you learn is to be
able to move really up and down.
Up and down the hierarchy up and down the problems
up and down the levels of thinking.
And I think this is extremely different
when you compete with the people who didn't have
the chance to go through this experience.
Mckinsey is not the only firm offering
consulting services like these.
It has serious competition like Bain and Company
and The Boston Consulting Group.
But out of the Big Three as they're called
McKinsey is the leader when it comes to
management consulting revenues according to ALM
intelligence.
They're still quite prominent from a revenue
standpoint they're also on that
temptation standpoint but when you really
look at consulting today
they're not as prominent as the big four
accounting firms.
Deloitte TWC and
Eli and KPMG they're actually the
largest consulting firms but of course it's
also about who you know.
Certainly when I was there
McKinsey was famous for having decades
long relationships with any number
of Fortune 500 companies.
They were on tap for the
senior executives.
You always think with McKinsey about strategy
but you work with people which
later I used to that Solar
Impulse Solar Impulse was a
project which was considered impossible
by the.
But the aviation industry we
wanted to be an airplane which was bigger than a
747 in terms of wingspan but the weight
of a car and I got
out of my time at McKinsey essentially
working with teams the way to were to
organize these people and to make them understand
where they would go all they could go there
and deep look through right empowerment.
There's no point not to hire McKinsey
if you can afford it because it's a SWAT
team of analysts that is at your beck
and call.
They traffic and influence industry
intelligence helping executives
make a decision I've already made by backfilling
a report.
It's basically a firm that will come into the
office and say What do you want us to do.
The nature of the role does not necessarily make
the consultants at McKinsey the most popular
people.
Their job is to help organizations
become as efficient and effective as possible and
to complete their own missions.
It is simply a fact of life it's not necessarily
pleasant and that's why sometimes when
consultants whether it's McKinsey or anybody else
comes in they can be viewed
not particularly favorably by the
people in the organization themselves.
Certainly it was part of my experience.
In many ways it's management bringing them in to
do it so they don't have to.
The people who work there they do very well.
They don't get.
They don't make hedge fund money but they're
making more than most of the people you know.
Nobody brings McKinsey in
because they've got the world
in their hands.
And the firm gets paid handsomely for its
services.
Generally the fee rates are closely
guarded and they are all over the
map and at the same time they can be
quite well known.
The government naturally publishes the fee
rates for McKinsey and others.
You know the inside joke in the
industry is you hire McKinsey and it's two
hundred fifty thousand dollars a week for a
team.
However consulting pay structures have evolved.
Alternative fee structures.
Results based fees for taking a stake in the
client an equity stake.
Something like that.
It's very attractive for clients when
they hear that they pay a smaller upfront fee.
It's also a way to get more bang out of the
project than just the straight time and
materials.
The forces that McKinsey stands for which are
efficiency and rationality.
It's hard to have a problem with those on their
face you know who votes for inefficiency
but I think that we have to
decide what our values are what do we want
as a people and is
efficiency our top priority?
Perhaps even more infamous than the company's work
itself is its alumni network.
Many years after I left
McKinsey I was still talking about we
and not about they people that have worked at
McKinsey run the gamut of corporate leadership.
Big names include the likes of Sundar Pichai the
CEO of Google James Gorman CEO of
Morgan Stanley Jørgen Vig Knudstorp
chairman and former CEO of The Lego Group
and Sheryl Sandberg the chief operating officer
of Facebook.
Yeah McKinsey is everywhere and
they have built a machine that
sort of
the alumni interaction with the with the current
firm sort of feeds itself in a constant
virtuous circle of fees and
engagements.
It's kind of stunning to behold.
And the influence extends into politics.
Republican Senators Tom Cotton and Ben Sasse
have both either worked for or advised McKinsey
briefly.
Chelsea Clinton also did a stint with the firm.
As did Susan Rice Obama's national security
adviser.
And Democratic mayor of South Bend Indiana Pete
Buttigieg who's running for president.
McKinsey is a private company so it doesn't
regularly disclose sales or profits.
It's even impossible to find a complete list of
their clients.
Although McKinsey told CNBC that it serves more
than 90 of the top 100 companies
worldwide.
Duff McDonald lists AT&T General
Motors and IBM just to name a few.
He also reports praise from Jamie Dimon CEO of
JP Morgan Chase – all in his book the
firm.
This is a firm that has a
historical policy
of not disclosing anything about what they do to
anybody.
One of the most difficult things to find is
satisfied McKinsey clients because what McKinsey
does that it sells credit for its ideas.
If you're the CEO of a company and hire them you
don't want them running around saying we told
them to make that acquisition that was us.
That was us.
They take no credit and they take no blame.
That is also a brilliant part of their business
model. For years they claim they were only in the
advice business and what their clients did with
their advice was up to them.
I think that's a little less defensible than
they'd like you to think.
And the company's alumni have had ties to some
major recent corporate scandals.
Good evening.
The stunning collapse of Enron.
The main question Did Enron illegally conceal
hundreds of millions of dollars in debt that it
racked up from outside investments making it
appear more profitable than it actually was.
Jeff Skilling was briefly the CEO of Enron
during the company's fall from grace spent 12
years in prison.
He worked at McKinsey for more than a decade.
Reports at the time confirmed Enron was McKinsey's
client for years.
The Wall Street Journal called the firm
instrumental in the energy companies
transformation.
A major insider trading case getting under way
today and Bertha Coombs is live in New York City
as Rajat Gupta goes on trial in a
separate scandal.
Rajat Gupta who was convicted of insider trading
in 2012 was a managing director at
McKinsey from 1994 to
2003.
More recently pharmaceutical company Valent
was one of the hottest stocks from 2012 to 2015
before it lost more than 90 percent of its value
in an accounting and price gouging scandal.
What you're seeing in this stock is mass
abandonment of this story.
Now it already was done in this was a $240 dollar
stock six months ago.
Its CEO Michael Pearson was a McKinsey
consultant for more than 20 years.
Mr. Pearson began begin with their testimony.
Valeant was too aggressive and I as
its leader was also too aggressive.
As a company McKinsey was not legally
implicated in any of these scandals.
Mckinsey's global footprint is expanding.
It tells CNBC it's in 133 cities
across 66 countries around the world with about
17000 consultants.
While 75 percent of the firm's business was in
what they call core management consulting 15
years ago,
today it's only about a quarter of their
business as McKinsey is expanding into
technology data analytics and
visualization artificial intelligence
and industrial design.
You bring into McKinsey because they are change
agents.
Think about it this way.
Consultants are the least been one step ahead of
their clients.
That's how they sold themselves more and more
companies are saying well you don't really need
consultants to help us in the big
picture. We need them in just very tactical
little areas and those kinds of projects are
not the kind that can sustain
organizations the size of McKinsey.
You got to feed the beast.
And that's that's why they got to change their
business.
They are everywhere in D.C.
and abroad also you know McKinsey is very
influential in Western Europe.
They have been for half a century.
Whether that's Englander in Germany or elsewhere.
But also some recent New York Times reporting
has shown that they are very
involved with China.
A lot of state owned enterprises Saudi Arabia.
South Africa is a great example.
There the company was ensnared in a government
corruption scandal.
McKinsey repaid about 74 million dollars in
fees and while not admitting legal wrongdoing
has apologized for its involvement in global
managing partner Kevin Sneader told CNBC
Africa.
I think we've learned many lessons from this saga
not the least of which is when you make a mistake
it's best to say sorry quickly and clearly and
then take steps to ensure you don't repeat the
errors.
And so the second thing we're doing is really
looking hard at what went wrong.
And then on the back of that we've already
started to make a number of changes to how we
serve clients.
The oversight the risk policies the kind of
clients we serve and more importantly the
partners that we choose to do client service
with.
We really know much more digging into the
backgrounds of those who are not just going to
accept at face value what people tell us.
You know McKinsey is an institution that is built
on trust.
Everybody is supposed to trust it.
Its clients are supposed to trust securities
regulators are supposed to trust.
The public is supposed to trust it.
And increasingly we've seen
different instances where that trust may appear
to have been misplaced.
This is a firm that could be a seedbed of all
manner of potential conflicts of interest.
We're supposed to trust that they manage them
properly. It may be that they're so
big now that that is almost an impossible
task.
The New York Times reported in early 2019 that
McKinsey runs a multi-billion dollar hedge
fund that may have a stake in the outcome of
some of the corporate restructurings the company
consults on including their work trying to
turnaround the public finances of Puerto Rico.
This has opened up questions about what needs to
be disclosed by the company in bankruptcy court.
McKinsey called the New York Times report quote
fundamentally misleading and said the
assertion of a conflict of interest between our
consulting activity and MIO the company's
investment wing is wrong.
Specifically on Puerto Rico the company insists
there was no information sharing between its
consultants and its fund.
And it pointed to an independent report
commissioned by Puerto Rico's oversight board to
backup its position.
Overall I think they have maintained their
quality and for the most
part and you can always point to the
failings of an organization you know but they
mostly maintain their integrity and they've
maintained their relationships long term with
major industrial companies and financial
companies while trying as much as possible to
move into space spaces filled by new industries.
Will McKinsey's secretive behind the scenes
business model persist in this more transparent
world of the digital economy.
Only time will tell.
One of the first articles that covered us when I
joined the firm was the McKinsey mystique.
I think there is a period of time when mystique
was a good thing.
Mystique is not a good thing anymore.
People don't like secrecy and we have to
change with that.