How McKinsey Makes Its Own Rules

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

How McKinsey Helped the Trump Administration Carry Out Its Immigration Policies

Yet another illustration of McKinsey’s ethnical and moral blindspots (not as egregious as holding their conference in Xinjiang nor Huawei’s role in surveillance tech Huawei founder defends ‘seamless surveillance’ technology, dismisses criticism it enables human-rights abuses):

Just days after he took office in 2017, President Trump set out to make good on his campaign pledge to halt illegal immigration. In a pair of executive orders, he ordered “all legally available resources” to be shifted to border detention facilities, and called for hiring 10,000 new immigration officers.

The logistical challenges were daunting, but as luck would have it, Immigration and Customs Enforcement already had a partner on its payroll: McKinsey & Company, an international consulting firm brought on under the Obama administration to help engineer an “organizational transformation” in the ICE division charged with deporting migrants who are in the United States unlawfully.

ICE quickly redirected McKinsey toward helping the agency figure out how to execute the White House’s clampdown on illegal immigration.

But the money-saving recommendations the consultants came up with made some career ICE workers uncomfortable. They proposed cuts in spending on food for migrants, as well as on medical care and supervision of detainees, according to interviews with people who worked on the project for both ICE and McKinsey and 1,500 pages of documents obtained from the agency after ProPublica filed a lawsuit under the Freedom of Information Act.

Automation Could Displace 800 Million Workers Worldwide By 2030, Study Says : All Tech Considered : NPR

Impact on labour force needs and immigration levels needs to be considered (most advocates for immigration increases are silent on the issue):

A coming wave of job automation could force between 400 million and 800 million people worldwide out of a job in the next 13 years, according to a new study.

A report released this week from the research arm of the consulting firm McKinsey & Company forecasts scenarios in which 3 percent to 14 percent of workers around the world — in 75 million to 375 million jobs — will have to acquire new skills and switch occupations by 2030.

“There are few precedents” to the challenge of retraining hundreds of millions of workers in the middle of their careers, the report’s authors say.

The impact will vary between countries, depending on their wealth and types of jobs that currently exist in each. In 60 percent of jobs worldwide, “at least one-third of the constituent activities could be automated,” McKinsey says, which would mean a big change in what people do day-to-day.

McKinsey looked at 46 countries and more than 800 different jobs in its research.

In the year 2030 in countries with “advanced economies,” a greater proportion of workers will need to learn new skills than in developing economies, researchers say. As many as a third of workers in the U.S. and Germany could need to learn new skills. For Japan, the number is almost 50 percent of the workforce, while in China it’s 12 percent.

Jobs that pay “relatively lower wages” and aren’t as predictable are less likely to face full automation, because businesses don’t have as much incentive to spend on the technology. This applies to jobs like gardening, plumbing and child care, according to the authors.

Occupations that pay more but involve managing people and social interactions face less risk of automation due to the inherent difficulty in programming machines to do those types of tasks.

In the short term, automation and new technology could mean “significant” displacement of workers, the report says. But the authors argue that in the long term as technology has changed, “it creates a multitude of new jobs, more than offsetting” the number of those lost.

They note, however, those new jobs don’t always pay as much as the old ones.

A rising middle class in countries like China and India, and with it more consumption, will have a big impact on the direction of economies. “As incomes rise, consumers spend more on all categories,” the report says. “But their spending patterns also shift, creating more jobs in areas such as consumer durables, leisure activities, financial and telecommunication services, housing, health care, and education.”

Many countries are getting older as well — Japan is a notable example. And McKinsey researchers expect aging populations to need more medical care — more doctors, nurses, home health workers and aides — while demand goes down for children’s teachers and doctors.

Tech jobs will be needed as technology advances, like “computer scientists, engineers and IT administrators,” who could see job growth as companies spend more in this area, the report says.

Jobs gained “could more than offset the jobs lost to automation,” the researchers say. But, they say, “it will require businesses and governments to seize opportunities to boost job creation and for labor markets to function well.”

The McKinsey researchers recommend “an initiative on the scale of the Marshall Plan involving sustained investment, new training models, programs to ease worker transitions, income support and collaboration between the public and private sectors” to help economies and employment grow in the future.

via Automation Could Displace 800 Million Workers Worldwide By 2030, Study Says : All Tech Considered : NPR