McKinsey's Next Head Is...
The election of a new managing partner at the world's most prestigious consulting firm, McKinsey & Co., has been compared to the election of a new Pope in the Vatican. It's a lengthy, complicated, and secretive process that discourages overt campaigning but includes a fair amount of behind-the-scenes wrangling. The latest election at McKinsey for the successor to Rajat Gupta, who has served as managing partner since 1994, is no different.
After considerable lobbying among an initial slate of seven candidates, McKinsey's 280 directors, or senior partners, have narrowed the field down to two men: Ian Davis, 51, the charismatic chief of McKinsey's London office, and Michael Patsalos-Fox, 50, the cerebral head of the firm's New York office. Oddly enough, both final candidates were in a face-off before: In 1996 they were both candidates for the London job, which Davis ultimately got. The winner for the top job, to be announced on Mar. 6, will assume the role on July 1. McKinsey doesn't comment on the process.
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Whoever succeeds in this contest will take over McKinsey at a difficult time. The firm has come under criticism for its work with such high-profile meltdown clients as Enron, Kmart, Swissair, and Global Crossing (see BW Cover Story, 7/8/02, "Inside McKinsey"). Some insiders have been highly critical of Gupta, who led an aggressive and vast expansion. He extended the McKinsey network to 84 worldwide locations from 58, boosted the consulting staff to 7,700 from 2,900, and lifted revenues to $3.4 billion from $1.2 billion in 1993.
Some critics say Gupta also permitted the firm to accept too many engagements from less-prestigious clients and to stray from some of its long-held values -- an assessment Gupta is said to strongly disagree with. During the peak years of the dot-com boom, McKinsey handled more than 1,000 e-commerce assignments, even as partners debated the worth of the work being delivered to those clients. And in a break from long-standing tradition, the firm also began to accept alternative compensation deals, including payment in stock from some 150 startups.
These issues emerged during the complicated election process, which insiders say was rife with heavy politicking. Five of the seven candidates -- including Patsalos-Fox -- largely campaigned on a platform of greater efficiency and performance, with bigger partner bonuses and greater firm profitability. The remaining two candidates -- including Davis -- ran on a return-to-values campaign, emphasizing more investments in training and knowledge development, with the focus on taking the firm back to its greatness and the values set by longtime spiritual leader Marvin Bower, who recently passed away (see BW Online, 1/24/03, "A Final Bow to McKinsey's High Priest").
"Both positions were implicit criticisms of Rajat," asserts one McKinsey consultant. "The return-to-higher-profitability candidates essentially argued that we have grown too fast in too many places and invested in practice areas where we shouldn't be. They believe we need to cut back and refocus. The return-to-values candidates believe that the firm's pursuit of growth caused it to move away from the things that it was famous for -- serving only the top companies and performing only work with impact for them."
For the first time, McKinsey directors were allowed to vote by e-mail, in addition to using regular mail, fax, or phone. The Byzantine election process began on Jan. 17 when McKinsey's senior partners were given two weeks to come up with a list of five unranked candidates to succeed Gupta. The results were then tabulated to come up with "the slate of seven" partners.
Besides Davis and Patsalos-Fox, the seven included Madrid-based Juan Hoyos, Dusseldorf office chief Jürgen Kluge, Amsterdam office chief Robert Reibestein, Chicago-based Clay Deutsch (the other return-to-values candidate), and Canadian Dominic Barton, who at 40 is the youngest of the group and runs the firm's Seoul office.
McKinsey directors were then given another two weeks to rank all seven candidates in terms of preference. That process led to the two finalists, who were announced on Feb. 25. The emergence of both Davis and Patsalos-Fox means that for the second time in a row McKinsey will be led by a managing partner who was not born and raised in the U.S. India-born Gupta, who has served three consecutive three-year terms as managing partner, became the first McKinseyite to break the American hold on the firm's leadership. Davis was born in Britain, while Patsalos-Fox was born in Cyprus but raised in Australia. Both are British citizens.
Both are highly admired throughout the firm, and insiders say only "subtle" differences separate them. "They are both good proven managers and very good leaders in their own ways," says a former colleague. Davis is a well-connected Brit who's highly regarded for his top-level work with such important multinationals as British Petroleum (BP ) and Unilever (UL ). "His track record with them is fantastic," says a former McKinsey consultant. "Ian is also pretty much a crowd-puller. He has a habit of going up to young associates and engaging them in a meaningful way."
Prior to becoming managing director in Britain in 1996, Davis led the firm's consumer-industries practice in Europe. He sits on McKinsey's shareholder committee, the firm's senior governance body and, in recent years, he co-chaired a review of McKinsey's overall governance structure and approach. He has been with McKinsey for 23 years. Prior to that, Davis worked for seven years with paper-products maker Bowater in sales, marketing, and planning. He has a degree from Balliol College, Oxford.
Colleagues describe Patsalos-Fox as "a true global citizen," having worked for the firm in Australia, Britain, and the U.S. He has advised both British Telecom and British Airways (BAB ) while working in London for many years. Patsalos-Fox also advised Hewlett-Packard (HPQ ) CEO Carly Fiorina on her acquisition of Compaq Computer. That work alone brought in $9 million in fees. "Michael is a fantastic consultant," says a former colleague. "And he exudes tremendous loyalty among the people who work with him."
After losing the London job to Davis, he moved to the U.S. to head the firm's New Jersey office in September, 1996, and helped lure far more consulting work from the state's pharmaceutical companies. Patsalos-Fox has been managing director of the New York office since January of last year while still retaining his role as leader of the firm's global telecom practice.
Like Davis, he sits on the shareholder committee and has been with the firm for more than 20 years. Patsalos-Fox was previously employed by Fujitsu, Australia, in several technical marketing, sales, support, and customer-service positions. He holds a degree in computer sciences and pure mathematics from Sydney University in Australia and an MBA from IMEDE in Switzerland.
By John A. Byrne in New York
Edited by Douglas Harbrecht