Front Burner - What happens when McKinsey comes to town?

Episode Date: October 5, 2022

What do the Houston Astros, the Saudi state-owned oil company Aramco, the makers of OxyContin and the Quebec government all have in common? They’ve all hired McKinsey & Company, a prestigious management consulting firm that has been around for nearly a hundred years. It’s a firm with a client list as long and rich as its history and has a lot of power. McKinsey promotes itself as a values-driven organization, but it’s also highly secretive. Today on Front Burner, host Jayme Poisson speaks with Walt Bogdanich and Michael Forsythe, the authors of a new book, called “When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm.”

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. What do the Houston Astros, the Saudi state-owned oil company Aramco, the makers of OxyContin and the Pentagon all have in common? They've all shelled out good money to McKinsey and Company, a highly prestigious consulting firm that's been around for nearly 100 years. A firm with a client list

as long and rich as a company's history. It has a lot of power, advising governments on how to be more efficient and companies on how to make more money. McKinsey promotes itself as a values-driven organization, but it's also shrouded in secrecy, making it hard to know what exactly McKinsey is up to with all that sway. Now, a new book is pulling back the curtain, and its authors take a sharply critical view of what they found.

It's called When McKinsey Comes to Town, the Hidden Influence of the World's Most Powerful Consulting Firm. And the investigative journalists behind the book, Walt Bogdanovich and Michael Forsyth, are my guests today. Hi, Walt. Hi, Mike. Thank you so much for making the time to come on to FrontBurner. Thanks for having us.

Thank you. So, Walt, I think even if people may have heard the name and passing McKinsey, they may not have much of a sense of what they are, what they do. And so, in simple terms, what is McKinsey and Company? What are they selling? They're selling ideas. They're selling their smarts. What interested us in the beginning was that like most Americans or Canadians, we knew very little, if anything, about McKinsey. And as we discovered pretty quickly, it's extraordinarily powerful. It answers to nobody.

It's not regulated. And it affects our lives in hundreds of ways. And so we thought that there was some accountability that was needed. And so began our journey of discovery. Can you just give me a sense of the scale and prestige of their client list? They have advised most of the Fortune 500 companies, the biggest, the best, the most respected corporations. And everybody wants to have them. When you see one of your competitors hiring McKinsey, you want McKinsey.

Mike, do you know how many corporations that they've advised over the years? I mean, I know right now or in recent years, they've had at any given time over 2,000 clients. Yeah. And Mike, along with this prestigious reputation in the corporate world, it comes a different reputation amongst workers, right? There's this quote that really stuck out to me in your book from a man who wrote a history of McKinsey. And it goes like this quote, there is a distinct possibility that McKinsey may be the single greatest legitimizer of mass layoffs than anyone anywhere at any time in modern history. And how so? Tell me a bit about

this part of their reputation. Right. Well, this is one of McKinsey's specialties and, you know, also specialties for other consulting companies as well. But oftentimes, when a company wants to make cuts, when it wants to fire people, they go to McKinsey and McKinsey can give them a rationale for doing that. You know, if they don't want it in their own words, McKinsey can do the study and then they'll say, well, you know, this this comes from McKinsey. They did this study. They did the research. And we need to lay off X number of peoples. And this has happened for many decades in many countries. But that is one of their specialties. It's efficiency. They work for their client.

The most important value, the most important goal at McKinsey is to serve the client and to look after the client's interests first. And if the client wants to cut jobs, well, then McKinsey is going to look into it and see how to do that. And often when a company is asked, when they want to increase profit, they do turn to cuts, job cuts. If I could add something, it's so much easier just to lop off jobs. Growing revenue is bringing in more business. That's hard. And so they opt for the easy way out that will keep stock prices high, keep shareholders happy.

They have these values, which they burn into the brains of every new buyer that they have. And that's how they sell this company. They sell themselves as holding values, the kinds of values that other companies don't have. other companies don't have. So people are offered the opportunity to make the world a better place, to ease suffering, to do good things that they could be proud of. But when they get inside and they find themselves working, say, for an opioid maker or a cigarette maker, well, that comes as a bit of a surprise. And there are many reasons why good people, and let me stress, there are a lot of very good people who are working at McKinsey. And certainly greed is one of the reasons. But I think a more profound explanation for their actions comes down to

the number one value, which is to serve client interests. And that has allowed them to not answer the kinds of difficult questions, such as, why am I doing this? Is this right? Is this good for society? They don't ask those questions. And if I can add to that, what McKinsey does do is they do allow their consultants to opt out of working for some clients. Like if you are a young consultant and you don't want to work for the opioid maker or a tobacco maker or say a petroleum company, an oil company, you can opt out. But the problem with that is, is that will cut off some career advancement opportunities for you. Maybe the chance to work with an up and coming partner. And also what some people told us who worked at McKinsey said is this really puts the ethical

burden, the moral burden on young people, and it absolves, you know, the upper echelons of the company from the moral choice. I want to get into some of these specific examples with you both now. I know, Walt, you mentioned tobacco, and McKinsey employees questions the company's commitment to those values that Walt was talking about before, right? So like, for example, when they found out about the work McKinsey was doing for ICE, the American Immigration and Customs Enforcement Agency, what were some of the more shocking revelations about McKinsey's recommendations to ICE? Yeah, so this is something that surprised a lot of McKinsey employees when it first came out in 2018, that McKinsey was working for ICE at all.

And in fact, McKinsey had been working for ICE during the Obama administration. But the nature of that work changed quite a bit when Trump became president in January 2017. And the administration's focus, as we all know, on the border and illegal immigrants or undocumented immigrants going from Mexico, from the southern areas into the United States changed dramatically. So this surprised a lot of McKinsey employees. And initially, Walt and I reported on this just briefly in late June 2018. And at the time, McKinsey's response, public comment on this was that the work was, you know, really more clerical, almost administrative, didn't involve actually restricting people at the border or any of that kind of advice. But what came out later was the work McKinsey specifically did, giving advice to some of the centers that had been set up, many in Texas, about cutting food or restricting food budgets, changing places where people could stay to lower budget areas just to save, again, to save money. The whole purpose was to save money,

but the effect was to look at food, to look at the quality of shelter, all in a bid to save money. And this came as a real surprise to a lot of McKinsey consultants that the work was going in this direction. And it was very clear from the outset of the Trump administration that McKinsey was now there to support and to help implement some of the Trump administration's policies with regard to ICE. Some of the cages standing room only. The heat sweltering. The smell overpowering. The men have no ready access to water. No cots to sleep on. Just the concrete floor. Some of them said they'd been here 40 days. We are not a terrorist. How did some of the employees react? What happened? some of the employees react? What happened? So in late 2019, ProPublica put out an article with some of more information about what McKinsey had been doing at ICE. And employees in Washington, where a lot of that work happened, obviously, they gathered for a town hall meeting in early December. And a lot of them were very angry.

They gave very personal stories about their own family's experience. One person said he had a brother who was undocumented and he lived in fear of deportation. Another person's best friend had actually been deported by ICE. So it really struck these employees just in a really personal way that their employer had been helping the Trump administration's implement the Trump administration's policy towards ICE. One employee sent around an email and said, you know what, if we're making money from ICE, I don't want any of my paycheck to reflect that. So he sent around a petition that just went around like wildfire across McKinsey, getting people to sign on to this idea to take it out of my pay. I don't want any of my paycheck to come from ICE money. And how did that go with the higher-ups, right? Like with his management? During the meeting, they were very empathetic, but this employee is no longer there.

And there was also people who worked at ICE, especially senior people who strongly defended that work. So as in many cases, when these things happen, there's a lot of anger at McKinsey among junior employees. And some of them do wind up leaving the company. But the company does move on. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not 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 Cups. Walt, there's of course been extensive reporting on how McKinsey advised Purdue Pharma to quote turbocharge its Aussie cotton sales even amidst the opioid crisis. But I want to swing back to what you mentioned earlier and talk about another addictive substance. Tell me what you've learned

about McKinsey's long relationship with big tobacco, particularly in more recent years. Well, it began in 1956, so I won't trudge through all the subsequent decades. Thank you. But jumping forward, what struck me is that in the 2000s, that long after the worst of what they were doing became public, where they were branded as racketeers, a term used to usually describe organized crime figures. The Justice Department racketeering lawsuit against Big Tobacco stemming back to 1999, claiming the companies lied. Come to where the flavor is. The truth came out about the lies that the tobacco industry was saying

and the fact that deception had been used by the companies for decades. I think each of you believe nicotine is not addictive. We just would like to have this for the record. I don't believe that nicotine or our products are addictive. I believe nicotine is not addictive. I believe that nicotine is not addictive. I believe that nicotine is not addictive. And I too believe that nicotine is not addictive. And McKinsey still continued to work for the tobacco companies, which I find astounding. At a time when workers were being forced out of offices to smoke in the alleyways,

at a time when new laws were being passed around the world, at a time when tobacco had so fallen out of favor nationwide and worldwide, McKinsey was still loyal. McKinsey was still making money Kinsey was still making money. And apparently they had no problem with it until very recently, when after the opioid crisis and they got criticism and started, well, maybe we better not, you know, serve cigarettes anymore. It was only last year where they said they stopped working for tobacco companies.

And am I right to say they also worked for e-cigarette phenomenon Juul? Yes. Yes, they did. And Juul has been accused by the FDA of addicting young people by using some of the same tactics that the cigarette companies use to addict their people. And McKinsey was advising them. They were advising them on a whole range of issues from branding, retail, flavor selection. Flavor selection is kind of critical here because it was flavor that Juul used to attract young people. Because sucking up tobacco vapor, you know, is not necessarily a pleasant thing. Yeah, I just wrote this down from that chapter. McKinsey consulted for Juul on highly sensitive topics such as surveying which flavor names appeal to 13 to 17-year-olds,

though the firm said that work was in support of the company's efforts to prevent youth vaping. Well, that's what they said. Mike, this work that McKinsey was doing for big cigarette companies and Juul, it's all the more remarkable because at the same time, they're also doing work for those responsible for regulating them, right? And explain this to me. That's right. That's right. It's very similar to what we saw with the opioid industry and McKinsey's work with big companies like Purdue Pharma, that at the same time McKinsey's working with the manufacturers of opioids or with e-cigarettes or cigarettes themselves, they're also advising the government regulators in the United States that oversee those industries. And in all cases, the specific offices within the regulator and the regulator in this case is the Food and Drug Administration, the FDA. So for example, McKinsey was advising the FDA Center for Tobacco Products, which oversees, you know, the cigarette industry. And so, you know, in all three cases, McKinsey was advising the industry. And also, same time or over a similar period, the Food and Drug Administration.

Would the regulator have known this at the time? FDA who were overseeing tobacco-related issues and asked them if they knew that McKinsey had been advising for decades, all the way up to the current period, 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. And I don't think it's right. And I think most of the healthcare experts that we've interviewed didn't think it was right. Now, McKinsey will say that, well, we're not guilty of a conflict of interest because we were not advising the FDA on a specific product like, you know, Marlboro, Newport cigarettes. So therefore, we're not guilty of a conflict of interest. Well, I mean, you may choose to believe that. A lot of people I've talked to don't believe that

because maybe they weren't advising specifically on how to corral this company in particular, but they were outlining the general policies that were used to oversee and regulate that industry. And that disturbed health care experts that we've interviewed. And another thing to add to that is that the experience that McKinsey garnered at the FDA was a selling point for them when they sought more money and more business with their corporate clients, whether it be the opioid makers or the cigarette makers, that McKinsey can sell itself as being an expert in the FDA and an expert in government regulation. So it is a two-way street. Right. I'll just note here that McKinsey says that their own internal conflict of interest rules prohibit the sharing of confidential information between consultants for clients with competing interests.

Michael, while like the reach of this company after reading your book, it's so extraordinary. I found myself thinking there's sort of like this Forrest Gump of modern capitalism like popping up in so many moments of corporate history. You're like, oh, there they are. Enron, there they are. And I wonder what you think their wider impact has been. And I throw this question to either and both of you. that's tearing this country apart in equality. McKinsey had a huge role in that. Going way back to 1950, when they did the first study for a corporation,

telling them, the 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 made more and more and more and more, widening the gap. So to this day, there's a feeling among many people that somehow the system is rigged against them. And they may have a point. McKinsey does not advise labor unions. It does not advise workers groups. It advised the corporations that hire them. And that's who they serve. And it should surprise no one that when decisions are made,

they come down on the side of the corporations. And I think it's important to kind of take a step back and think of what kind of people are working at McKinsey. One of the most successful aspects of McKinsey is their ability to recruit very smart people. These are some of the cream of the crop from all over the world. For example, in the United States, they recruit heavily at Ivy League schools, places like that. of some of the smartest people in the world that are put to work, working for clients whose aims sometimes are not for the common good. For example, an opioid maker or a tobacco company, or maybe a company that is looking to cut jobs left and right. And so some of the smartest brains in the world are put to use for that, or, for example, to help an authoritarian country and government become more powerful and more sustaining.

So that's a way that they impact the whole world. Just to make sure that we're presenting a full picture of McKinsey, we're not saying McKinsey consultants wear horns and carry spears around. They're not the devil. They're not saying McKinsey consultants wear horns and carry spears around. They're not the devil. They're not bad people. Many of them I would consider the kind that I would want for friends. They care about their government. They care about their society. They're good people, but they find themselves in situations that they later come to regret.

And when they see a widening gap between what they witnessed and what they were told when they were recruited, they become disillusioned. And many of them have called us. And for that, we're eternally grateful. There's one guy you interview in your book who called it the banality of evil, the MBA edition. That kind of just stuck out in my head. For good reason. Right. It was a wonderful quote, and it kind of did sum it up, that these were good people.

And how did they end up making decisions that I think, in retrospect, they would regard as ill-advised and embarrassing. How did that happen? But I mean, it's the system, right? Like it strikes me that they're just doing what our economic system allows for, even encourages. Isn't this just shareholder capitalism 101? Like it's not just happening at McKinsey. But McKinsey is a prophet in many ways. You know, when an idea comes around, McKinsey is often spreading that idea around the world. Former McKinsey people, those people who were good enough to come and talk to us, described McKinsey as an accelerant of ideas. And one of the things we looked at in the book was in finance, in securitization of assets. You may remember from the global financial crisis in 2008, how it was these crazy assets, these securitized bonds, collateralized debt obligations, this crazy word salad of these synthetic products that, you know, hastened the global economy's crash that year. Now, McKinsey didn't invent that concept, but in the 1980s, they spread it far and wide.

They wanted to become known at that time as a storehouse of ideas, an ideas company, because they wanted to distinguish themselves from their competitors. They were under a little bit of pressure from the upstart consultants, the Bain and Company, Boston Consulting Group. So they thought that, well, if we take these ideas, think about them, use our Harvard and Stanford educated consultants to further these ideas, we can make a lot of money that way by selling them. And that's what they did. So, you know, yes, McKinsey didn't invent shareholder capitalism, but McKinsey was certainly a proponent of shareholder capitalism for many decades. And the consultant that companies turn to in order to further shareholder capitalism, there's a chapter in the book about all state insurance.

And McKinsey worked with all-state insurance. These are the good hands people. I don't know if they have all-state up in Canada, but in the United States, it's a very well-known insurance company, auto and home. And they worked with them to effectively reduce the payouts that went to some of the claimants and in that way boosted profit and also at the same time allowed the share price of Allstate to go up and the salaries of the top executives at the same time went up exponentially. If I may, one of the ideas that McKinsey acted as an accelerant on was outsourcing. They specialized in this. They promoted it.

They wrote books about it. They wrote postings on the internet about it. And what is that? I mean, they were exporting jobs overseas, outsourcing the work to India, to China, to other low-cost countries. And why were they doing that? To boost the bottom line. Well, who suffers? The workers who lost the jobs. And for a long time, that was very fashionable to promote that, to promote globalization. That's the cure to all our problems. I mean, if we can get cheaper goods in India, well, that'll be good for all of society. Well, and get cheaper goods in India, well, that'll be good for all of society. Well, it turns out maybe not. And it certainly wasn't true for the workers who lost their jobs and the families who suffered and who no longer had the money to pay for the kids' education. You know, Walt, earlier in this

conversation, you talked about how this was a company with incredible power and reach, but with no oversight. Is there a push for there to be more oversight and what might that even look like? Well, I don't know. I mean, I guess we're not in the business of being journalism consultants. I mean, I don't know. You'd probably make more money. There's no question about that. But I think what we can do is bring accountability to this company. And that's what we set out to do. This secretive company, this company that probably has more secrets than any company in the world, and they keep those secrets and i think a lot of what those secrets involve are

policies that affect society in a very negative way now they will tell you and and we got to give them credit for it they do some good things they invest in in some non-profits and and they put out a good effort in trying to make themselves appear as good corporate citizens. So let's not deny them that. It's just that after that's done, after the attention moves elsewhere, you know, they end up consulting for outfits like Purdue Pharma and Philip Morris. Walt, Mike, thank you so much for coming by. Thanks for having us. It was our pleasure.

Before we go today, two quick notes. First, after recording this interview, we reached out to the head of public affairs at CBC, Chuck Thompson, to ask if the CBC had ever paid for McKinsey's advice. We were told that CBC Radio Canada in fact had back in 1992 and that, quote, the scope of the work covered both services and included television and radio. Most of their recommendations pertained to programming. and radio. Most of their recommendations pertained to programming. And second, I just want to shout out some recent reporting that our colleagues at Radio Canada have done on McKinsey right here at home. On Friday, they published an investigation revealing that McKinsey billed the Quebec

government under Francois Legault $6.6 million or $35,000 a day for strategies managing the COVID-19 pandemic. The sole source contracts contained a provision that McKinsey was not required to reveal its other clients to the Quebec government, a provision that Legault's opponents say raises concerns about conflicts of interest. You can read more about Enquête's investigation at radiocanada.ca. That's all for today. I'm Jamie Poisson. Thanks so much for listening to FrontBurner. Talk to you tomorrow.