May: The time and place for consultants

2023/03/02 Leave a comment

Good discussion and commentary on the issues which reflect some longstanding management failures at both political and bureaucratic levels as well as the overall complexity of government and accountabilities:

Canada’s budget watchdog says it’s time for a “deep dive” into the workings of the public service to unravel why departments are spending billions of dollars on consultants while also hiring a record number of employees.

Parliamentary Budget Officer (PBO) Yves Giroux said the recent spotlight on the government’s growing dependency on contracting for professional services — for everything from policy advice to running programs — raises fundamental questions about the role of the public service.

“Do we have the public service that we need right now?” he said in an interview. “Is it well equipped to deal with the challenges and the expectations that Canadians have of the public service — especially in light of its growth in recent years and the extensive use of outside advice and services?

“I think it’s time to do a real deep dive.”

Giroux is joining a growing chorus of experts who argue it’s time to fix the public service. Former clerks of the Privy Council Office, senior bureaucrats and academics are weighing in with views on what’s wrong and possible ways to fix it.

Giroux’s call comes with the release of his latest report on the government’s spending plans. They showed the cost of outsourcing will hit a record $21.4 billion this year. Spending on contracting has increased by more than a third since 2017-18.

He said the growth of consultants during the COVID-19 crisis was expected, but it hasn’t stopped. Rather than slow down to pre-pandemic levels, contracting which shot up 20 per cent in 2021-22, is still growing at a rate of more than 10 per cent this year.

The bigger question is why departments are adding thousands of employees to the federal payroll at the same time. The number of new hires has grown in lockstep with more consultants.

“If you increase the size of the public service, it’s because you feel there are needs that need to be met. That should reduce the use of consultants, but it’s not happening. They’re both growing in line,” said Giroux.

Personnel costs are the biggest single operating cost in government. The PBO estimates the seven-year hiring boom under the Trudeau government is expected to push the size of the workforce to about 409,000 jobs within five years. 

The PBO said spending on personnel grew an average of 6.7 per cent a year – from $39.6 billion to $60.7 billion since 2015. That’s about a four-per-cent increase in compensation for each full-time employee.

Giroux said it might make sense if services were improving, but the bureaucracy is taking a beating for backlogs and delays in passports, immigration, access to information and privacy (ATIP) requests, veteran services and employment insurance.

It also doesn’t add up because the government and unions claim public servants are as productive, if not more, since the pandemic and the recent shift to hybrid work.

“Services are not improving significantly. In fact, some would say they are improving not at all… So, I wonder what’s going on? It’s a real mystery,” said Giroux.

The House of Commons government operations committee is juggling three separate probes into federal contracting. The most politically charged is the $116 million the Trudeau government spent on scandal-plagued consultants McKinsey & Company. Canada’s auditor general Karen Hogan announced she will conduct a review into the McKinsey contracts.

The committee is also widening its study to contracts of other big consulting firms — Deloitte, PricewaterhouseCoopers (PwC), KPMG, Ernst and Young (EY) and Accenture.

Many worry the committee hearings are so focused on the political blowback of tarnished McKinsey and its possible ties to the Liberals, that getting at what’s behind the growth of consultants and employees is getting lost.

Consultants, who are hired for their expertise and new ideas, never seem to leave. Once in, they get a lock on work and prevent the public service from developing its own in-house expertise.

There are no hard-and-fast rules for departments to follow on what work is best done by public servants or contractors. Many expect such guidance will be one of the recommendations out of these studies.

Treasury Board argues both are growing simply because there is so much more work. An activist government, the Liberals have fingers in many pies and ministers have mandate letters with long to-do lists. Treasury Board President Mona Fortier has saidthe cost of professional services as a percentage of federal spending has largely remained the same since 2011.

Dominic Barton, McKinsey’s former global managing director, told MPs that McKinsey doesn’t provide policy advice. Rather, it “executes” what government wants to do, be it streamlining its pay or passport processes or digitization, moving paper-based operations to electronic.

But Barton also said the public service operates in the “stone age” and the government needs to up its game with more training and new technology.

“There’s a technology transformation that’s needed in this government and in all governments. I don’t want to be harsh about it, but we’re in the Stone Age. We have to spend the money. That will need a lot to be able to do it, but it will enable the organization to do more if we do it.”

The government is heavily reliant on IT consulting. Thirty per cent of its IT jobs are vacant and the experts they need are often not interested in becoming public servants. All this scrutiny will make public servants skittish about using them which could be a problem because “government can’t run without them,” said one senior bureaucrat.

The government contracts for all kinds of services. For cleaning, security, building maintenance, translation, temporary help and IT services. A Carleton University research team studying federal contracts took a run at breaking down the kind of services consultants offered departments.

Management consulting, which is typically for advice, is a small portion of government’s contracting bill for professional services. It has grown the most since in recent years and hit about $800 million in 2021-22.

But it’s the public service’s job is to provide frank and “fearless” advice to government – advice that puts the public interest first.

The growth in consulting raises questions whether public servants have lost its capacity to provide policy advice or their advice isn’t sought or trusted. Maybe they lack inhouse expertise or savvy to be good shoppers and buyers? Or are risk-averse public servants so cowed by years of bashing and criticism they opt for the safer course of running ideas by consultants or hiring those who provide the answer they think their political masters want to hear?

A common concern among those calling for reform of the public service is the centralization of power in the prime minister’s office and the frayed trust between politicians and bureaucrats. That relationship underpins Canada’s Westminster-style democracy.

Giroux, a long-time public servant before becoming an agent of Parliament, believes the public service has the capacity to provide advice if there’s an appetite for it.

“Is it because ministers don’t trust the advice they’re getting from the public service, which would be a big issue,” he said. “I think it leads to the need for a deep dive a thorough look at the state of the public service. Is it still the public service that politicians the executive, parliamentarians and Canadians expect.”

Giroux said the public service needs a top-to-bottom review of how the public service is structured, organized and equipped to deliver the kind of services Canadians expect today. In a 24/7 world, the public service has to rethink how it works, hires, pays, manage its workers, including where they work and hours of work.

Michael Wernick, a former clerk and Jarislowsky chair at the University of Ottawa agrees structural issues are key. He says the “core software” of government – its mountain of rules, job classifications, human resources regime and technology, are outdated.

“There’s very little attention to how it works. Its internal governance and processes and structures – basically the software on which it runs is like Windows 95,” he said

Donald Savoie, one of Canada’s leading experts on public administration, has argued for a royal commission. He said the “alarm bells about the public service have been ringing for a long time” and it’s time for a debate. Savoie says he was an “academic in the wilderness” when he warned about eroding trust and the concentration of power in the 1999 book, Governing form the Centre. Now, it’s a premise that’s widely accepted.

But Savoie said any efforts to reform the public service won’t get off the ground without the support of the prime minister.

Giroux said the state of the public service has been on his mind for a while. The pandemic dramatically changed the nature and how public servants work so the timing is ideal.

He recently mused at a Senate’s committee about a nonchalance pervading the public service, a ‘broken system” and the need to “crack the whip” in some departments. He lamented the lack of a “challenge function” for public servants. They set their own targets for the programs they run, often setting the bar “not too high so that it doesn’t look too easy but neither too low.”

“There are pockets of excellence, but there are also pockets of, I would say, nonchalance in the public service. They’re overwhelmed or something is not right. Not being inside the public service, unfortunately, I cannot pinpoint what is in need of fixing,” he said.

Source: The time and place for consultants

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How McKinsey Makes Its Own Rules

2019/12/16 Leave a comment

Seems like our Ambassador to China got out at the right time…

It’s not easy being McKinsey & Company these days.

For most of its 90-odd-year existence, the prestigious management consultancy prided itself on remaining above the fray. McKinsey consultants plied the executive suites of Fortune 500 companies, counseling chief executives with discretion and quietly building a business that, with $10 billion in annual revenues, is now bigger than many of the entities it serves. The substance of the company’s work, and even the identities of its clients, lie concealed under an institutional code of silence. That reticence, enforced by a nondisclosure agreement, bedeviled Pete Buttigieg’s presidential campaign until last Monday, when McKinsey granted him a rare dispensation to reveal the names of his former clients.

On the occasions when McKinsey’s work has been scrutinized of late, it hasn’t reflected well on the firm. Reporting by The New York Times, ProPublica and others over the past 18 months has raised serious questions about how it does business at home and abroad: corruption allegations against companies McKinsey partnered with in South Africa and Mongolia; a federal criminal investigation into the firm’s bankruptcy practice in the United States; attempts to deny that it helped put into effect controversial Trump administration immigration policies; and evidence that McKinsey cherry-picked nonviolent inmates for a pilot project and made it seem that an attempt to curb violence at New York City’s Rikers Island jail complex was working (it wasn’t). McKinsey has denied wrongdoing in each of these instances.

These and other examples of McKinsey’s recent conduct reveal a common dynamic. An examination of these episodes, including thousands of pages of documents and interviews with dozens of current and former McKinsey consultants and clients from multiple projects, suggests McKinsey behaves as if it believes the rules should bend to its way of doing things, not the other way around.

McKinsey’s self-regard has long been uncommonly high. In the firm’s 2010 internal history, a copy of which ProPublica obtained, partners compare the firm to the Marine Corps, the Roman Catholic Church, and the Jesuits: “analytically rigorous, deeply principled seekers of knowledge and truth,” the history’s authors write. One McKinsey partner went a step further, declaring without a hint of irony that the firm’s trait of shared values is more than “even the Catholic Church can promise.”

This attitude works for the firm in corporate consulting, an unregulated field where McKinsey’s reputation leaves it largely free to do things its own way and where its insistence on not being publicly credited has also shielded it from blame for its failures. But as McKinsey has expanded its consulting empire in recent years, it has taken on a growing book of work for government entities, as well as for corporate clients in areas subject to government oversight, such as advising bankrupt companies on restructuring.

In that field, consulting firms confront a web of contracting, disclosure and ethics rules that are designed to dictate and limit their behavior. These rules exist to prevent governments from wasting taxpayer money on underqualified or overpriced contractors and to protect government integrity and avoid conflicts of interests. In recent years, as McKinsey has burrowed deeper into this world, interviews and records show, it has developed a habit of disregarding inconvenient rules and norms to secure, retain and profit from government work.

Consider McKinsey’s imbroglios in South Africa and Mongolia. The firm did not follow the due diligence protocols commonly deployed to avoid running afoul of anti-corruption laws. The result: Its consultants found themselves working alongside dubious local companies that got them entangled in corruption investigations. Only after McKinsey became embroiled in the South Africa corruption scandal did the firm decide it needed to put more stringent safeguards in place.

In the United States, a damning but largely overlooked report issued in July by the Office of Inspector General for the General Services Administration, the hub for federal contracting, depicted McKinsey as ignoring rules and refusing to take no for an answer. The report examined McKinsey’s attempts to renew a major long-running contract in 2016. The firm was asked to provide additional pricing information to satisfy federal contracting rules. Rather than comply, McKinsey went over the contracting officer’s head, lodging complaints with top G.S.A. officials, who refused to exempt the firm from the rules.

Eventually, the firm found a friendly G.S.A. manager who was willing to not only award the contract, but also manipulated the G.S.A.’s pricing tools to increase the value of the contract by tens of millions of dollars. The report concluded the manager “violated requirements governing ethical conduct.”

The pattern repeated itself when McKinsey failed in multiple attempts to win a separate contract around the same time. Stymied, according to the report, McKinsey browbeat the contracting officer, threatening to resubmit the proposal until it got its way. The G.S.A. manager again intervened — for reasons left unexplained by the report — and McKinsey got its contract.

The report’s assessment of McKinsey’s behavior was withering, and it revealed that the firm subsequently used the same friendly manager to help secure contracts at three other federal agencies in 2017 and 2018. “Multiple contracting officers,” the inspector general wrote, told investigators that McKinsey’s requests were “inappropriate” and “a conflict of interest.”

The report recommended that the G.S.A. cancel the contracts, which as of earlier this year had earned McKinsey nearly $1 billion over a 13-year span. In a response to the report, the G.S.A. stated that it would ask McKinsey to renegotiate the contracts to lower the price. “If McKinsey declines” or “renegotiations do not yield a result in the government’s best interest,” the agency wrote, it would cancel them. Neither has happened to date, according to federal contracting records. A McKinsey spokesman said: “We have reviewed the report and the relevant facts, and have found no evidence of any improper conduct by our firm. We are in negotiations with G.S.A. and look forward to completing them soon.” A G.S.A. spokesperson said it is negotiating for “better pricing” and will not award McKinsey any further work under the contracts until those negotiations are concluded.

McKinsey has also taken steps to evade public accountability. As ProPublica reported, a senior partner leading McKinsey’s work at Rikers asked top corrections officials and members of the consulting team to restrict their communications to Wickr, an encrypted messaging app that deletes messages automatically after a few hours or days. That insulated some of McKinsey’s work from government oversight and public records requests. (“Our policies require colleagues to adhere to all relevant laws and regulations,” a McKinsey spokesman said. He neither confirmed nor denied the use of Wickr.)

Speaking more broadly, the McKinsey spokesman said: “We hear the calls for change. We are working hard to address the issues that have been raised.”

McKinsey has so far escaped serious repercussions for its reluctance to follow inconvenient rules. That could change next year.

Consultancies such as McKinsey, which advise companies restructuring under bankruptcy protection, are required to disclose potential conflicts of interest. For the past few years, McKinsey has been locked in a complicated set of court disputes with Jay Alix, the founder of a competing advisory firm, and with the Justice Department’s bankruptcy watchdog over whether McKinsey failed to follow bankruptcy disclosure rules, a subject The Times has covered in depth.

McKinsey has, since then, disclosed a number of new potential conflicts in old bankruptcy cases and paid $32.5 million to creditors and the United States trustee to settle claims over insufficient disclosures. The trustee has said that “McKinsey failed to satisfy its obligations under bankruptcy law and demonstrated a lack of candor.” The firm denies wrongdoing and says it settled “in order to move forward and focus on serving its clients.”

Subsequently, McKinsey has moved, in effect, to rewrite the rules. It drafted a protocol ostensibly meant to clarify what advisers like itself need to disclose. Critics pointed out that McKinsey’s protocol allows such firms to avoid disclosing relationships they deem indirect or “de minimis.”

There remains more to come. Apart from the criminal investigation, a judge in Houston has scheduled a trial in February to decide the merits of Mr. Alix’s allegations. The judge, David R. Jones, has described the trial in apocalyptic tones. It will be, Judge Jones has said, “the ultimate career ender for somebody.” For McKinsey, a trial would mean being called on to defend its work in public — with real accountability and real consequences for its actions. The firm might even benefit in the long run from the sunlight.

Source: How McKinsey Makes Its Own Rules

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