About five years ago, McKinsey, the once admired consulting giant, undertook a rapid expansion. It sought out new ways to grow, and with a decentralized management structure, there were few protections in place to prevent ambitious partners from taking on lucrative but potentially problematic clients. McKinsey’s partners have historically enjoyed wide latitude over their work and clients.
This big push for increases in revenue and profit, coupled with the independent partners doing whatever they want to achieve the growth goals, yielded some major problems for the Company:
- Purdue Pharma and OxyContin – McKinsey’s work in advising Purdue and other drug manufacturers on aggressively marketing opioid painkillers led to a national health crisis, terrible PR and a $573 million settlement with the states.
- Juul – McKinsey’s work with Juul led to the embarrassing situation where Juul said in a court filing that it was removing flavored e-cigarettes from the market, while McKinsey was advising it to keep selling the mint-flavored nicotine pods.
- Saudi Ariba – McKinsey played a central role in the rise of Saudi Crown Prince Mohammed bin Salman and raked in big fees in doing so. Since that appointment, the new Crown Price presided over the brutal bombing campaign in Yemen that led to a humanitarian crisis, lockups of many of his critics, and a team of men who murdered dissident writer Jamal Khashoggi.
- Riker’s Island – To “help Riker’s Island prison reduce violence”, the prison paid McKinsey tens of millions to create a measurement system that guaranteed it would show that it looked like violence was reduced when in fact it went up by 50%.
- Bankruptcies – McKinsey faces a criminal inquiry because the company allegedly channeled valuable assets to itself while helping two firms unwind in Chapter 11 bankruptcies.
To clean up this mess and get the company back on track, in 2018, when it was time for the once-every-three-year election of a Managing Director (MD), the 655 McKinsey senior partners voted in a new MD who would hopefully deal with all of these crises. After familiarizing himself with the situation, his approach was to put in place some common-sense guidelines and processes that would avoid the kind of disasters noted above. As you would guess, this fueled dissent within its senior ranks, who feared not being able to do whatever they wanted to do.
McKinsey still operates with the archaic procedure of having the 655 senior partners vote to name the MD every 3 years. Very recently, for the first time in decades, a one-term MD was not re-elected. He was being pushed out by the senior partners for requiring them to follow some reasonable guidelines!
Every organization needs a leader who makes tough choices, is given the authority to implement them and then is judged by the results. Clearly McKinsey needs to overhaul what seems to be a flawed system for selecting and supporting its leader. Basically the 655 senior partners who select the Managing Partner have no motivation to make their job harder in order to avoid damaging the reputation of the company! Clearly McKinsey’s reward system is totally screwed up. What is amazing is that this supposedly world-class consulting company can’t figure that out! Clearly, the inmates are in charge of the asylum!