Front Burner - McKinsey contracts top $100M under Justin Trudeau

Episode Date: January 23, 2023

Since Prime Minister Justin Trudeau took power, the federal government has awarded consulting firm McKinsey over $100 million dollars in contracts. Early this month, Radio-Canada reported that Ottawa’s use of the firm has skyrocketed since 2015, and that sources inside Immigration, Refugees and Citizenship Canada were concerned about McKinsey’s growing influence on their policy without public knowledge. Since then, a parliamentary committee has voted for a probe into the contracts. Opposition MPs have raised concerns about the Liberals’ relationship with Dominic Barton – the former global head of McKinsey who advised Ottawa on the economy, and was later appointed ambassador to China. Today on Front Burner, a comprehensive look at the revelations from Radio-Canada’s reporting on McKinsey. Then, a conversation with journalist Paul Wells about the global trend toward governments relying on consulting, and what it means for our democracies.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. I am pleased that our government is today announcing the appointment of Dominic Barton as Canada's ambassador to China. So in 2019, Canada-China relations were reaching new lows. We were deep in the spat over Huawei CFO Meng Wanzhou's arrest and extradition case.

The Liberals had fired their previous diplomat after he talked about a deal for her release. Chinese media seized on the firing. China is criticizing McCallum's dismissal. An editorial in a state-linked tabloid quotes a Chinese folk saying, You cannot live the life of a whore and expect a monument to your chastity, accusing Canada of being hypocritical. So amidst all of this, Prime Minister Justin Trudeau turned to a Canadian business exec to fill the role, a guy known for leading a high powered and opaque international company, Dominic Barton. An expert in the region, Dominic is exceptionally well-suited

to represent Canada and advance the Canadian national interest at this critical time. The year before, Barton had ended nine years as the global managing director of the consulting firm McKinsey & Company. He had a three-decade career with the firm and started near the bottom. You know, my first study was actually to figure out how many pieces of Kentucky Fried Chicken should go in a lunchbox. So I thought, you know, you guys at McKinsey tell me you're working on the biggest problems on earth, and I'm trying to figure out whether it's four pieces or three, right? So that was, it was four. McKinsey has a complicated history around the world.

We actually talked to the New York Times' Walt Bogdanovich and Michael Forsythe about their book On the Firm last year. They told us about the outsized impact McKinsey's ideas have had on U.S. society, from advising on opioids to mass layoffs to outsourcing jobs and executive pay. Going way back to 1950, when they did the first study for a corporation, telling them, that corporate officials, that the workers were starting to catch up in their pay. And that led to coming up all these different schemes to make sure that the executives paid more and more and more and more. While in Canada, former Ambassador Barton isn't the only thing linking the federal liberals to McKinsey.

Since Justin Trudeau took power, his government has spent over $100 million on contracts with the firm, with little information available about their work or recommendations. the firm, with little information available about their work or recommendations. Our colleagues from Radio Canada, Roman Chouet and Thomas Gerbet, found this amounts to dozens of times more than what the previous Harper government spent on McKinsey. Sources inside one department the company has been consulting for, immigration, said they're concerned the firm's influence has been growing on their file, without the public's knowledge. Following that Radio Canada report, critics accused McKinsey of being like a shadow government in Canada,

influencing our affairs without transparency or democratic accountability. Conservative leader Pierre Polyev called for a study of the contracts. What did we get as Canadians? What are the results of this management company's ingenious work? Well, 2.1 million immigrants wait in the queue. Over a million are waiting beyond the acceptable legal timeframes. And just last week, a parliamentary committee voted for a probe that's calling on high-ranking officials to testify, including Barton. So on the show today,

we're going to go through the state of Canada and McKinsey. Later on, I'm going to talk to Paul Wells about what the growing influence of consulting firms in our government could say for our democracy. But first, I'm going to spend some time explaining everything my colleagues found in their reporting on McKinsey. So a brief recap here on what the firm actually is. McKinsey & Company is based in the U.S., but it's this huge international consulting firm that's almost 100 years old. It's got 35,000 consultants in 130 offices in 65 countries. The adoption of new technologies. Future of work, climate change. And then to help them build an engine that can turn aspiration into a plan, into reality. McKinsey's clients run the gamut, from governments to private businesses. And although the company says they've got conflict of interest rules that stop information from being shared, their clients' interests sometimes directly oppose each other.

Bogdanovich and Forsyth from the New York Times told me about how McKinsey advised both tobacco companies and the Food and Drug Administration trying to regulate them in the United States. I asked high officials in the FDA who were overseeing tobacco-related issues and asked them if they knew that McKinsey had been advising the biggest tobacco companies in the world while they were advising the FDA. And they said they did not know about it and they didn't think that was right. The experience that McKinsey garnered at the FDA was a selling point for them when they sought more, you know, money and more business with their corporate clients. McKinsey also advised Purdue Pharma to boost OxyContin sales and settled claims over its alleged role in the opioid crisis for almost 600 million U.S. dollars. It even had a controversy over its operations in China. Following a New York Times investigation that

highlighted a lavish corporate retreat held six kilometers from a Uyghur internment camp. With an operation this big, we of course can't say which files global leadership was or wasn't familiar with. Dominic Barton certainly said he was unaware of McKinsey's involvement with OxyContin sales. From 2009 to 2018, it's true that Barton, a Canadian, was the managing partner for this global empire. But you stayed for your entire career in McKinsey. Many people don't. Yeah.

Why? The variety of issues and work, it's like being a kid in a candy store. You work in an oil company, a bank, a retailer, just all in different parts of the world. So I felt I was learning. So where did Barton cross paths with the Liberal government? In 2016, then-Finance Minister Bill Morneau created this thing called the Advisory Council on Economic Growth. Like it says on the tin, the idea was to gather a bunch of smart people together and make a plan for long-term economic health.

Well, we're starting from a high level and saying to ourselves, the last decade we've faced real challenges in growth. The next decade we're going to have demographic issues as more and more people retire. The council included 14 members from business and academia. And who did Morneau appoint as chair but McKinsey Global Managing Director Dominic Barton. McKinsey itself would do research and analysis for the council pro bono, for free. Our hope is that we are really going to help

jolt up the growth rate in Canada and it's going to benefit all Canadians. It's a very much an inclusive program. When the council delivered its report in 2016, one of the big recommendations was to increase Canada's annual immigration targets. In fact, to gradually increase the target to 50% higher, or 450,000 total immigrants a year in 2021. At the time, the Liberals' immigration minister, John McCallum himself, expressed doubts about that goal. McCallum says he agrees in spirit with Barton, but he says it's not doable now, saying the government is laying the foundation to grow the numbers. That number is a conceivable number for some date in the future, but certainly not for 2017. So here's where I want to bring in my colleagues from Radio-Canada.

Hi, I'm Thomas Gerbet, and I'm an investigative journalist with Radio-Canada. Hi, I am Romain Chouet, and I am a reporter with Radio-Canada. Hi, I am Romain Chouet and I am a reporter with Radio-Canada. So earlier this month, Roman and Tomas released a report chronicling a lot of what we talked about today. But for that report, they also talked to two sources

inside Immigration, Refugees and Citizenship Canada, the federal ministry that handles immigration. How two sources held major roles in the immigration department at the height of McKinsey's influence. They spoke to us separately and both spoke on condition of anonymity as they were not authorized to speak publicly.

One of those sources said that when it comes to the 2016 advisory council report about increasing immigration targets, the immigration department was quickly told it was the foundational plan. It's worth noting that Immigration Minister Sean Frazier announced Canada's new immigration plan in November. You know, immigration in Canada is not just something that we do. It's who we are. It's who we've always been. And despite McCallum's earlier protests, the plan targets 500,000 new immigrants a year by 2025, with an emphasis on creating economic growth. That's a number and justification similar to the advisory council report.

Look, folks, it's simple to me. Canada needs more people. Canadians understand the need to continue to grow our population if we're going to meet the needs of the labor force, if we're going to rebalance a worrying demographic trend. Minister Fraser said earlier this month McKinsey had no impact on this new plan. And I want to be clear, many experts support bringing in more people, but also wonder whether our housing market and backlogged immigration system can handle it. Waterloo professor Michhail Skudarud thinks the benefit will ultimately depend on who we settle with what skills. The economic growth potential of these numbers is far from clear. And in fact, there are some significant economic challenges to integrating this number of immigrants. That doesn't mean we shouldn't be doing it.

It just means that there are trade-offs and challenges. Returning to McKinsey, there's another layer here. Dominic Barton ended his three-decade career at McKinsey in July 2018. The next month, the Federal Immigration Department started its first consulting contract with the firm. Since then, immigration appears to have paid more for McKinsey's services than any other department but Defence, totaling $24.5 million. Our colleagues' sources said McKinsey's influence over Canadian immigration policy has grown over these years, without the public knowing about it. We've asked Roman and Thomas from Radio Canada to read some of what those sources in immigration said. McKinsey was an ID from the government. The policy was decided for civil servants.

It causes a lot of operational instability. The source said, these people, these firms, forget the public interest. They are not interesting in it. They are not accountable. When Radio-Canada asked the firm, McKinsey didn't answer questions about its agreements with the government or provide copies of its reports.

But contracts say the Immigration Department used McKinsey to develop strategies for, quote, transformation. A department spokesperson said the work involved implementing digital tools and services, and that the McKinsey contract was revised at higher costs to help respond to pressures caused by the pandemic. Treasury Board President Mona Fortier also joined Power and Politics earlier this month and explained why the government might contract out public service work. Sometimes we do need to contract it out because there's not enough of the expertise. I know that just in IT, we've been looking for so many people to work in IT

and we've been contracting some support to create that. But the immigration sources Radio Canada spoke to seemed to question the quality of McKinsey's work. Roman and Thomas are again reading what those immigration sources said here. We had a few presentations on very generic, completely vapid stuff. and very generic, completely vapid stuff. They arrived with nice colors, nice presentations, and said they would revolutionize everything. In the end, we don't have any idea what they did.

So Radio Canada put out an access to information request, and the documents show McKinsey attended or facilitated 10 meetings of something called the Transformation Committee. According to managers and politicians, everything that comes from outside is always better, even if we add enough resources internally. McKinsey always says they have great expertise, but it doesn't make sense because we have expertise and we are completely pushed aside. In early January, our colleagues at Radio Canada reported that the Trudeau government spent $66 million on McKinsey services in total. That amounted to 30 times more than the Harper government spent and included contracts with ministries like Defence, Procurement and Economic Development.

Well, last week, Roman and Tomas reported even more contracts they found between McKinsey and the Defence Department. $101,400,000. That's the sum that the Trudeau government has paid McKinsey contracts with the Trudeau government. Public services and procurement says McKinsey won over half of that value in a competitive process. But the 20 other contracts totaling $45 million were sole source, so no bidding. And we've learned about contracts with McKinsey at the provincial level too,

in Ontario and in Quebec. McKinsey built Quebec $35,000 a day for advice on its pandemic response and economic recovery, totaling $6.6 million. Premier Francois Legault said it was ultimately him and his team who made decisions, but that he thinks the recommendations they received, including from McKinsey, helped them save lives. So let's take one more look at Dominic Barton here. In 2019, he was about to speak at a conference in Toronto when we found out he'd be getting closer to the Liberals.

It's my great pleasure, my privilege and my honour to announce that Dominic Barton will be officially announced this afternoon as the new Canadian ambassador to China. So Dominic, congratulations. Bay Street gave him this standing ovation. Barton actually lived in Shanghai during some of his time with McKinsey and continued to advocate for closer economic ties amidst China's detention of two Canadians, Michael Kovrig and Michael Spavor. Promoting trade and investment. I would love to talk more. I probably should shut up and move on. But I'm very excited by the opportunity that we have on many fronts. Before the pandemic, MPs questioned whether Barton was the right person for the job, pointing out the work McKinsey did for Chinese businesses. Would you be prepared to submit to this committee a list of all of the Chinese state-owned companies

that you did work for at McKinsey? What I would, Mr. Chair, what I would need to do is, McKinsey's pretty careful about client confidentialities and where they are. I'd be happy for if there was some mechanism so it isn't in the public domain, but some people can look at it. First of all, I'd say I'm very proud of my career and time in the private sector and with McKinsey and the work that we did. We're known for telling truth to power and calling it out as it is.

Barton resigned as ambassador to China after two years. Then he worked with mining giants Tech and now Rio Tinto. As for the Conservatives, after our colleagues first reported on the McKinsey contracts, leader Pierre Polyev called for the parliament to probe the firm's relationship with liberals. contracts, leader Pierre Polyev called for the parliament to probe the firm's relationship with liberals. What the reporting on the McKinsey controversy showed over the last several days is that the public servants believed that they could have done the job themselves. And then they had these, you know, these aliens from outer space coming in and presenting them with a bunch of PowerPoint presentations and fancy charts. And on Wednesday,

a government committee met to vote on studying McKinsey and the Liberals. Liberal MP Anthony Housefather framed the probe as important, but as part of a broad question about when government should outsource work. You know, I am not of the mind that there's anything inherently wrong in terms of how the government engaged McKinsey or what occurred in respect to any of these contracts, but I'm happy to engage in the discussion and look through them all. NDP MP Matthew Green disagreed. Because there's an ethical question about the relationships with Mr. Dominic Barton. That's just a fact. And so did Conservative MP Stephanie Cousy.

We are having in place a shadow government because of these consulting firms, which is not only creating a lack of agency within the public service, demoralizing the public service, but also creating incredible waste. Ultimately, the committee did agree to go ahead with the study, which means witnesses, including Barton, Finance Minister Freeland, and a high-ranking rep from McKinsey will be called to testify. It also means the Liberals and McKinsey

have five weeks to hand over any written communications and contracts. And finally, there's the Prime Minister. Earlier this month, Trudeau said he'd asked two MPs to review his government's contracts with the firm and was open to changing the rules. And on Wednesday, Trudeau said he welcomed the work by the operations committee. I think people can understand that professional public service needs to make sure that it's doing things the best way

to well-serve Canadians and regularly draws on outside expertise to do that. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. empowering Canada's entrepreneurs through angel investment and industry connections. know their own household income. That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples.

So here's the thing. We've been talking mostly about McKinsey today, but there's also a lot more to how the Trudeau government has been using consultants. Data compiled by Carleton University professor Amanda Clark says this government spent over $400 million across six big consulting firms. And that's just for the year 2021. So to talk about why governments like ours are turning to consultants instead of their own workers, I'm joined once again by journalist Paul Wells. He's the host of the Paul Wells Show podcast, and he's been analyzing the news about McKinsey on his sub stack. Hey, Paul, thanks so much for coming back on.

Thanks for having me. It's always great to have you. So in your recent writing, Hooked to the News about McKinsey, you've used the term government by contract. And explain to me, what's the phenomenon happening globally that you think this term describes? Well, I think it's a reaction to a rising impatience with the constraints of government. Around the world, certainly in Canada, scandal has led to demands for greater accountability, which has led to more paperwork, more boxes to check, more conditions on government action. And that just slows everything down. Elected governments operated at a different tempo. They come in, especially in the first year, 18 months, they believe themselves to be

disruptive change agents. and they turn to the heads of the permanent government departments and say, let's do this, let's do this, and all they get is explanations for why they can't do stuff. And so it's awfully tempting to turn to private consulting firms, which are very fluid in the language of disruptive change and revolutionary disconnect from the tired old ways to a bright new future. And they come up with plausible sounding plans to do it. And sure, it costs a lot of money, but it's not like the minister's paying. It just comes from the vapor that everything comes for when you're in government. So that's why it's important to point out that it's not only in Canada that we're seeing this in a lot of jurisdictions around the world.

And it makes sense when you think about it. Yeah. And just take me through like the kind of stuff that governments are contracting out. Like, is it basically everything or is it, you know, certain projects? certain projects? Well, when you get to the really large eye-popping numbers, like the one that that prof from Carleton has pointed out, almost always when you look at it, large amounts of that contracting out is for information technology, running computers and databases and things like that. And that's not sexy. And to some extent, it's not surprising. But there's also implementation contracts. Say I want to start a new plan. How do I roll it out? Say I want to come up with a new plan.

And then we've seen very large contracts by we, I mean, former colleagues of mine when I worked at McLean's where the innovation department, the former industry department put out a call for big ideas. They were looking for someone to come up with interesting new things they could do. Okay. That's kind of sad. And we were unable to get our hand on the presentation that, but you know, it was large numbers of tens of millions of dollars, essentially that open-ended. Give us some ideas.

Right. Okay. And like you said, this isn't just happening in Canada. I want to ask you about what recently happened in France, the political controversy there that they actually call the McKinsey affair or McKinseygate. It included investigations by the Senate and prosecutors. And what have we learned about all the ways the French government used consultants? Well, it led with investigating prosecutors conducting simultaneous raids on McKinsey's headquarters in Paris and on President Macron's offices because they had grown that tight. Now, neither of those raids, which were only last year, has led to criminal charges or convictions.

So for all we know, it was just harmless fun. The dual operations are part of parallel investigations into the role of these companies in French politics. One of the inquiries relates to the government's use of consultancy agencies in general, while the other focuses on their involvement in the 2017 and 2022 presidential election campaigns. Right, right. Reports in France that I read have said McKinsey employees worked as unpaid volunteers for Macron's first election in 2017. And that's firms for much of the quick, rapid, exciting change that he needed to implement to persuade voters that they'd done the right thing in voting for him. And so a relationship that was tight from the outset continued in power.

The Senate inquiry found that in the period between 2018 and 2021, that the government had doubled the use of outside consultancy firms and had paid around a billion euros on outside consultancy firms. Well, I mean, obviously there's built-in incentives and constraints. You're only going to go repeatedly to a firm if you're comfortable or satisfied with the work. But by and large, you're comfortable or satisfied with the work. But by and large, you're trusting them to give you advice. And there are cases where, again, in Europe,

a firm suggests that a government proposed to build a lot of ports. And then the firm turns around and says, we can help you build the ports. And so it's kind of circular. And it's a bit of a vicious circle. The more you use these firms, the more you can't imagine going any other way except back to these firms, which is why what we've seen in the reporting in Canada is that a little bit of recourse to consulting contracts in one year leads to more next year, and it's almost a geometrical progression.

almost a geometrical progression. What about the argument that these consulting firms are filled with the best and the brightest, right? Like I did a sit at the University of Chicago a couple years ago, which, you know, has a pretty good reputation, their business school. A lot of the students were like on a track to end up at McKinsey or Bain or, you know, one of these firms. And so, so what about the argument that the quality of the work is a top notch, right? You've got the smartest people possible in your file. I don't doubt that that's often the case. I've known a lot of people who work for these firms. It's important to say that almost as far as I know, everything I've been describing is legal. The occasional recourse to some outside organization in special circumstances should hardly be surprising. But what incentives are built into the system?

First of all, there's just absolutely no accountability. If I send an access to information request, which is supposed to be my mechanism for opening the secret doors of power. What I'm going to get back is we can't give you information because it's a contractual arrangement with an outside supplier. Right. And that's why you couldn't get the presentation for give us your big ideas, right? Which would have been great. Absolutely. Yeah. So it's already harder and harder for a million reasons to understand how government works. This makes it impossible to understand how these big missions are being carried out because in the nature of things, a commercial firm doesn't want its secrets shared.

And then there's another layer of lack of accountability, which is that when it all goes to hell, as every once in a while anything will, the people who came up with the plan are long gone. There are 16 contracts down the line. They're not in-house. And the people who came up with the plan are long gone. There are 16 contracts down the line. They're not in-house. And the people who are in-house aren't entirely clear on how this mess happened because it wasn't their work. So taken to the extreme, it makes a mockery of accountable government. And then, you know, it was interesting to me reading about the French example, internal evaluations did find that a quarter of the consultant's work was unacceptable or barely acceptable in quality. And for one firm, the work was of near zero

added value, indeed, sometimes counterproductive. Yes. Yeah. We hired the best consultants in the world to make it work. Yeah. Consulting is an honorable profession. I'm married to a consultant whose firm mostly helps organizations outside government deal with government rather than advising government on how to govern. It's honest work, but everybody in Ottawa, whether they're a public servant or a stakeholder, or everybody's got a story of being called in to fix a mess left by, it's a bit of an urban myth. Such and such a firm screwed things up so badly that we had to come in and fix it.

My assumption is that that's occasionally true and not often. But however true it is and however often it's true, the best reporting on the case so far is that government is accelerating ever-growing recourse to these firms. It's not being cautious. It's in whole hog. Government is accelerating ever-growing recourse to these firms. It's not being cautious. It's in whole hog. And so you painted a picture today of concerns you have of essentially this trend undermining democracy or the functioning of government. So I'm wondering about the next step here. How should we be trying to adjust the way our government can use contracts and consultant? Well, so let's look at a comparable case, which is the Lobbying Registration Act. There have forever been individuals around town working for lobbying firms who arrange meetings

between outside stakeholders and government office holders. All of those lobbying arrangements are now on an easily searchable website that anyone can look at. If you want to know why the government is suddenly interested in camping, you can find out who was lobbying for the camping industry, for instance, or whatever. It would be easy to say the details of spending and mandate and delivery, if not the details of content of any outside contract should, you know, easily be public and searchable. That would be a good start. I think it's worth considering opening up some elements of these contract arrangements to access the information or to have a consulted commissioner

of parliament, just as we have a privacy commissioner and an information commissioner and a auditor general whose job would be to report on the state of the field and to recommend change and handle complaints when they arise. You know, you could still have private sector doing business with government, which is not a horrible thing, should be encouraged, but you just need eyes in so that it doesn't become so tempting that it becomes a nasty habit. And the other thing I was thinking about, I wanted to ask you about, what do you think the long-term effects could be on our public service, right?

Like, I'm just thinking if I'm a young, smart university student really thinking that I want to get into public policy, maybe I don't want to go work for the department, the Ministry of Immigration, because all the consultants get to do all the cool stuff. I mean, that's absolutely the case. First of all, broadly similar people go into those two different streams. You know, university educated in the humanities with attention to detail and the ability to

handle a heavy workload, you will consider going into the public service or going into one of these consulting firms. For the longest time, you'd consider going into a think tank and publishing studies about what should happen. Think tanks are atrophying in Canada and the public service has, uh, you know, widely covered difficulties, partly because if you're at a think tank, probably no one's going to read your report. If you're in the public service, you're going to get pecked to death by mosquitoes, access to information, accountability, all sorts of stuff. Whereas if you're at a consulting firm, you've got a better office, a better clothing budget,

and no pesky outsider has any right to look at your work. Why would you not do that? You make a good case. Paul, thank you very much for this, as always. Always a pleasure. So we reached out to Dominic Barton through both McKinsey and Rio Tinto, where he is currently chair of the board, for a response to accusations about his influence in the liberal government, as well as to questions about whether his work with McKinsey conflicted with his role as ambassador. At the time of this recording, we have not received a response or confirmation that Barton has personally seen our request.

McKinsey also released a statement last week about the Government Operations Committee's review of its contracts. It said the firm welcomed the review of its work for the government and that it won the contracts in competitive processes. And that about three quarters of the contracts media have reported on since 2015 were publicly tendered. McKinsey also said its work is nonpartisan and noted it still provides only a small share of the total consulting services for the federal government. Separately, the firm has consistently denied any wrongdoing in France and says it's cooperating with French authorities. All right, that's all for today. I'm Jamie Poisson. Thanks so much for listening, and we'll talk to you tomorrow.

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