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McKinsey Clients Shrugged at Scandals, Ignored Greed

Duff McDonald, author of
Duff McDonald, author of "The Firm: The Story of McKinsey and its Secret Influence on American Business." Photographer: Christopher Wahl/Simon & Schuster via Bloomberg

McKinsey & Co., the global fix-it firm for companies and governments, labored in Tanzania in the late 1960s and charged fees so high that they merited a line item in the country’s budget, according to “The Firm: The Story of McKinsey and Its Secret Influence on American Business.”

Hard-core capitalists might consider McKinsey’s big bills and say hooray for the free market. Demand a price the market will bear and all that.

Astonishingly, author Duff McDonald considers this and other dazzling examples of McKinsey’s greed and concludes that “in large part” the firm’s people aren’t motivated by money.

They aren’t?

McDonald, a contributing editor at Fortune and the New York Observer, has put together an instructive history of McKinsey, but on key points he leaves us scratching our heads.

He says it’s an “open question” whether McKinsey has transformed the way businesses are managed, but a page later allows that McKinsey “has certainly made the world a more efficient, rational and objective place.”

Nearly 200 pages into the book he wonders about McKinsey’s boast of having smart guys who can fix any client problem even as the firm suffers high-visibility failures, such as its ill-fated advice on the restructuring of General Motors Co. in the 1980s.

“Is it a con?” he asks. The maddening answer: “Maybe.”

Insider Trading

Sometimes, McDonald imparts details of customers’ apparent satisfaction. When McKinsey director Anil Kumar was arrested for insider trading in October 2009, it was the start of a publicity nightmare that culminated in the sentencing of former leader Rajat Gupta for insider trading in 2012. Curiously, that didn’t affect business, McDonald writes.

The takeaway, as they say in consulting-land, is that customers shrugged at the scandal because they got something valuable from McKinsey. But what? The author includes examples of the plusses but doesn’t commit himself on whether clients gain or lose on balance.

Despite these failings, we do learn about the culture and characters that make McKinsey what it is.

The firm was founded in Chicago in 1926 by a former accounting professor and is now a 102-office global behemoth.

Long Socks

Marvin Bower, who took over in 1950, professionalized McKinsey but imposed rules that amounted to “cooking the individuality of his consultants out of them as soon as possible,” McDonald says. The inviolable dress code even included a mandate that men wear long socks because Bower hated the sight of “raw flesh.”

McDonald has a good eye for examples of McKinsey’s massive institutional ego and seemingly limitless ability to weave a line of baloney to justify its failures.

A 1976 memo from one of the firm’s directors noted that while he was aware “that we are simply superior people,” he would “hate to see us say so” to outsiders. Another beauty: A partner once told Fortune magazine that “It’s almost never that we fail because we come up with the wrong answer.” Rather, a McKinsey plan goes awry because errant clients sometimes fail to obey instructions.

Notwithstanding the mulish confidence of McKinsey insiders, the firm has been on the scene advising companies that undergo spectacular meltdowns.

Kissing Enron

McKinsey had a 17-year relationship with Enron Corp., writes McDonald, and a McKinsey partner’s 2001 book “Creative Destruction” was “nothing short of a big wet kiss” to Enron.

Enron, of course, went bankrupt in 2001 after a massive accounting fraud. While McKinsey was not accused of malfeasance, it’s hard to fathom that a competent consulting team could spend that much time hanging around a client without noticing that something was amiss.

McDonald speculates that many tales of McKinsey advice gone wrong will never get told. While a client might be miffed when their advice is a bust, he says customers are reluctant to sue because it would mean losing access to McKinsey.

Which leads us back to the question, never really answered, as to whether McKinsey is on balance a treasured adviser or a waste of money. Fear of losing access surely infers there is something worth losing. McDonald tells many pieces of the firm’s story. But he can’t seem to decide what the bottom line is.

“The Firm” is published by Simon & Schuster (387 pages, $30). To buy this book in North America, click here.

(Susan Antilla is a columnist for Bloomberg News. The opinions expressed are her own.)

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