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The most complacent people in the room

February 26, 2021

One of the best explanations for the triumph of a “solution shop” like McKinsey was co-authored in 2013 by the late Clayton Christensen of Harvard Business School. When hiring a management consultancy, clients do not know what they are beforehand because they are looking for knowledge that they themselves lack. You also cannot measure the results because external factors such as the quality of execution affect the outcome of the consultant’s recommendations.

They therefore rely on the reputation and other squishy factors – the “pedagogical pedigree, eloquence, and behavior” of counselors – as substitutes for tangible results. On that basis, no one would hire Schumpeter to fix McKinsey’s problems. His diagnosis is as eloquent as he is. In his untrained view, those of the company’s 650 senior partners who voted on Feb. 24 to oust their global managing partner Kevin Sneader are in an unsuspecting mess. Worse, they just don’t understand that they don’t understand.

The Byzantine voting system that abolished Mr. Sneader has not yet determined which of his two potential successors will replace him. It’s also not clear what exactly the 54-year-old Scot is paying the price for. Some see his departure as the company’s strangled mea culpa; The overthrow of a boss is typical of a company embroiled in the kind of scandals Mr Sneader has struggled with, from shady deals in South Africa to settling conflicts of interest to paying nearly $ 575 million for them Settling claims his advice helped exacerbate America’s opioid crisis. However, the roots of all of these crises lie before his three-year term in office. At most he’s the fall guy.

It would be more likely if he had stuck his nose in his partners’ businesses to avoid future disasters, rubbed enough of it wrong when they voted against him. That would suggest that a majority cannot understand how serious McKinsey’s problems are.

In essence, they come from a simple deception. Your partners see themselves as missionaries. But they are also mercenaries – “weapons for hire,” as Duff McDonald, a biographer of the company, calls them. They have a mantra that puts their clients’ interests above their own and a belief stemming from the company’s pristine legacy that no one knows better how to distinguish between right and wrong. However, in some cases, such as when working with Purdue Pharma, the maker of the addictive pain reliever Oxycontin, their moral compasses get mixed up. This is most likely due to the lure of Lucre.

This gives rise to numerous notes of dissonance. For nearly 95 years, McKinsey has tried to portray itself as a posh professional services company, not a dirty company. Unlike, for example, a profit-hungry Goldman Sachs banker who walks into a room where he knows it may be hissing, a McKinsey advisor expects his halo to be noticed. As much as the senior partners insist that they are not motivated by oversized profits, they can make as much as this Goldman banker every year. Revenue has roughly doubled to over $ 10 billion in a decade. Partner number 2,600. The company’s employees revel in the old McKinsey aura – of autonomy, discretion, and intellectual prestige – while embracing the growth, profits, and power that have emerged in recent years. They rarely doubt whether they can have it all.

More people and more affluence inevitably make supervision more important. Nevertheless, McKinsey continues to see itself as a partnership that is based on trust and does not require centralized management and control. Its electoral system resembles an elite of the Athenian democracy. The more trouble it has, the more it takes a Spartan leader, supported by a strong risk control apparatus, to keep it straight and tight. McKinsey’s 30-strong Shareholder Council, its board of directors, may be too deeply ingrained in the company’s cultic culture to see the urgent need for change. Mr Sneader has started reforms. His defense seems threatening to those who hope they will go much further under his successor.

As the scrutiny builds, McKinsey must learn to maintain its discretion on behalf of clients with greater transparency. The more work it does for governments, the more public attention it will get. The costly legal encounters bring to light details of increased customer exposure, including Johnson & Johnson, which settled an opioid lawsuit with a group of attorneys general last year. McKinsey’s comparisons of opioids – in which it did not admit wrongdoing – require the publication of numerous correspondence that increases the risk of reputational damage.

First, identify the problem

In McKinsey’s cryptic world, what signs indicate that the company is realizing the crisis it is facing? The winner of the runoff to succeed Mr Sneader, who will reportedly fall between Sven Smit of the Amsterdam practice and Bob Sternfels of San Francisco, should say what aspects of his predecessor’s reforms he would like to keep. More risk control is a must. Customer payments should be more standardized. Most are flat-rate fees (albeit bold), but around 15% is performance-tied. The latter create incentives for unusually turbo-charged results. Plagued by a scandal, a truly progressive company would launch its own version of a Truth and Reconciliation Commission to see if anything lurked in the closet. It could retire a generation of partners. That would make it less unwieldy and make room for those more used to the public shine.

Especially when it does open up, the company should take on some radical new topics of conversation. Instead of wrapping themselves in justice and asserting their right to complete discretion and complete opacity regarding their behavior, they should admit that it exists to make cold, hard money and the ethical boundaries it will not cross, and make clear the process it has to monitor. Well-run companies confront and manage conflicts of interest. McKinsey tried to sneak through her with narcissistic recklessness. The partners like to see themselves as the smartest people in the room. They should have realized the dangers of their self-deception long ago