The Decibel - The McKinsey controversy explained

Episode Date: February 3, 2023

On Wednesday, Dominic Barton appeared before a parliamentary committee looking into the rise in outsourcing contracts awarded to McKinsey & Company, where Barton was formerly global managing partner. Barton was also a senior policy adviser to the Trudeau government and the Canadian ambassador to China.Since 2015, the Liberal government has paid more than $116 million dollars to the private management consulting firm. That’s more than thirty times what the Conservative government before them paid over their ten years in office.Bill Curry is the Globe’s Deputy Ottawa Bureau Chief and has been following this story for years.Questions? Comments? Ideas? Email us at [e-mail]

Since 2015, the Liberal government has paid more than $116 million to the private company McKinsey. That's more than 30 times what the Conservative government paid them over the previous 10 years. We have more people eating at food banks and living at homeless shelters after eight years of this prime minister but not everybody's doing badly his friends at mckinsey are rolling in cash first they said it was 50 million now the government says it's over 100 million we want to know the real number will the prime minister finally answer the question how much did he give mckinsey conservative leader pierre polliev is talking about the situation. And politicking aside, people are asking questions about what it means to outsource so much government work to private companies.

Bill Curry is the Globe's deputy Ottawa bureau chief, and he's been following this story for years. I'm Anita Karaman-Wilms, and this is The Decibel from The Globe and Mail. Bill, thanks so much for being here. It's great to see you again. Thanks for having me. So just to get started with the basics here, can you tell me what exactly is McKinsey? Well, McKinsey is a consulting company. They're close to 100 years old. They have a reputation of being quite influential. And there's a bit of a mystery around them because they kind of pick the biggest and brightest from the business schools.

And one of the interesting things about them is they come in and they don't really want a whole lot of the credit for anything that goes well. But at the same time, they don't want to be blamed for anything that goes wrong. So you tend not to know exactly what they do when they come in to help a company. They want to stay under the radar. And they're also known as being one of the higher price consultants in that field. Okay. Okay. So what exactly does a management consulting firm do? Like what kind of work does that actually involve? Well, in the case of advising the federal government, they tend to focus on delivery of services. So we've done some stories in terms of their contracts with the federal government. They've been brought in to work on the Phoenix Pay system, which has been in the news for,

you know, it's been outsourced to other consultants, IBM in this case, more recently they've brought McKinsey in. And you kind of alluded a little bit to some of their, the reputation that they've developed because this company has been kind of implicated in some scandals here. What comes to mind, Bill, when we think of that? Yeah, just in the last 10 years or so, there's been quite a few controversies, and these include the role that the company played advising pharmaceutical companies during the increasing use of opioids.

So they're linked to the opioid crisis. They actually led to a very expensive settlement, $600 million U.S., for their role in that. They've been linked to controversies in a South African corruption scandal. There are French authorities investigating them for allegations of tax evasion. And the opioid crisis one, I think that's something that a lot of people, this is one of the things that comes to mind too, because they were advising Purdue Pharma

and the FDA at the same time, weren't they? So they were almost like on opposite sides at the same time. Yes, and there's been a couple of books, one recently by some New York Times reporters who have focused on that, that that is one of the big red flags about McKinsey is they are often on both sides of an issue. reporters who have focused on that, that that is one of the big red flags about McKinsey is they are often on both sides of an issue. They are consulting a government regulator and also

consulting the companies that are being regulated. And McKinsey claims that they are able to separate those two and they have strong conflict of interest rules. But it certainly raises questions about, you know, how can you be advising governments and then also advising the companies that interact with governments. And we should be very clear here that as far as we know, nothing illegal is happening here. I wonder what has McKinsey said about all of this, Bill? McKinsey's view is that they follow all the rules and that these contracts are awarded by public servants. So thanks to your reporting, Bill, we now know that the federal liberal government has spent more than $116 million on McKinsey services since coming to power in 2015. What was all that money spent on?

Well, we discussed the Phoenix pay system was one of the big projects. They've had a lot of projects with the Defense Department. Digital modernization seems to be a big issue. But I think another interesting point that this reporting has exposed and some of the research by the committee and other academics has exposed is that Canada is really weak when it comes to transparency around government contracts. They disclose totals, but you don't get a whole lot of detail in terms of what the contractors are doing for this work. Sometimes they are very late in reporting issues. You don't get to see the actual contracts unless a reporter or a member of parliament has made a request for information. You know, it's a great question, what are they doing?

And that's what there's a committee working on this to try to find out because at the moment, we really only have a high level sense of what a lot of these contracts are for. Yeah. And Bill, you've been reporting on these numbers for a while, as early as last January. So a year ago, we knew this because of your work that the government was spending millions of dollars on McKinsey. I guess I just wonder, though, why has this suddenly become such a big deal? Like, why are we talking about this now? Yeah, well, it's been this story that's been building throughout the year. I think, as journalists, we cover all the announcements that the government makes and what they promised to do. But it's also our job to look back at past

announcements and what's happened with that. And the 2015 platform that the Liberals presented when they won and came to power promised that they would save money on consultants, that this would be an area that they would cut back on. And our original reporting looked at that and found that was not the case at all. The total budget for consulting and outsourcing had gone up quite significantly. That's, you know, led the House of Commons Government Operations Committee to start studying outsourcing in general and some of the stories that we've been reporting on. Other media have been also jumping on this and it's become a bigger issue of late. And the Government Operations Committee decided to specifically add a new study just on McKinsey in the last few days. And that's what started this week. We heard from Carleton University professors on Monday and Dominic Barton, the former head of McKinsey, on Wednesday.

And that was big news when Dominic Barton was testifying on Wednesday. So let's just kind of dive into this here, starting with who is Dominic Barton? Why is he so important in this? Well, he's an interesting character for a couple of reasons. I mean, he was the head of McKinsey up until 2018, shortly after he became Canada's ambassador to China. He's since moved on from that post and works in the private sector. But I think what makes McKinsey particularly interesting is that connection with Dominic Barton. Because in the first few years of this federal government,

of the Liberal government under Justin Trudeau, they created this panel called the Advisory Committee on Economic Growth. And Dominic Barton, they asked him to be the chair of that for $1 each year. And they made some pretty major policy recommendations that the government later adopted, such as major increases to Canada's immigration targets, creating a Canada infrastructure bank, those kinds of things.

So this was a very influential group. And when you say, sorry, when you say he was, this was essentially pro bono work then for free? Exactly, yeah. So, and that was when he was at committee, he kept trying to distinguish that, that there's two different things. You know, his individual work as a volunteer policy advisor to the federal government in its early days, and then the work that McKinsey does, which he says does not include policy advice. So it's a bit confusing. He's saying, like, on the one hand, as an individual, he provides policy advice, but his company, his former company, would never provide policy advice when they do contract work. They do administrative recommendations. So I guess

what has the opposition interested in, McKinsey in particular, is you had Dominic Barton in this very influential position. It involved meetings with Justin Trudeau, meetings with, I mean, it was set up directly with Bill Morneau, so regular meetings with Bill Morneau when he was the finance minister. I've seen him go into cabinet meetings when he was in that role, which is unusual. Yeah, that must be pretty rare. Yeah, I mean, normally cabinet meetings are supported by public servants, and it's fairly rare that you have outside experts come in. So it just kind of gives you an idea of the prominence and the importance that this cabinet

gave to Dominic Barton and his advice in the early years. And in those early years, towards the end of the Conservative government, McKinsey had pretty much stopped getting federal government contracts. And then shortly after this advisory council shut down, the work to McKinsey started going up and up and up each year and up to the point where now it's, as you mentioned, 116 million over those years, 2015 to now. So that's why I guess people are asking questions about it. Is that, again, a basic question here, but is that strange that a company would kind of go from having very few contracts, making very little money with the federal government to that kind of drastic increase there?

Well, it's certainly worth asking questions about, and that's what the Government Operations Committee is doing. Why did this happen? The opposition certainly suspects it has something to do with the role that Dominic Barton played. Dominic Barton's message was absolutely not. He said that there's no connection whatsoever between his advisory work and the growth in contracts. But there was an interesting twist in Wednesday's hearing when the Conservatives pointed out that they'd received some emails through access to information showing McKinsey in 2020 pitching some government officials on a meeting

about some of the things McKinsey could do. And in that, they were talking about some of the work that McKinsey had done on the Growth Council because it was kind of a lesser known part of that growth advisory council is that it wasn't the public service paying for managing that and doing the research. It was actually McKinsey behind the scenes providing additional free research and support for that advisory council, which was also kind of unusual. And so when you see later that McKinsey is referencing that to government officials as they seek more meetings, especially during the pandemic of things McKinsey could offer,

I think that's going to be a line of questioning that we'll see from the opposition as the study goes on. I think there'll be, you know, we can expect to hear from current McKinsey officials about those kinds of interactions and why were they referencing that advisory work in trying to pitch to have meetings with government officials. But you raise a good point here about the current officials, because Barton hasn't been the head of McKinsey since 2018, and he hasn't been part of the federal government since 2021. So why are we hearing from him? Like, wouldn't it make more sense to hear from somebody who's been at McKinsey these last few years? Well, I mean, part of it is politics. The opposition sees Dominic Barton

as a friendly figure to Justin Trudeau and Christopher Freeland. Freeland and Trudeau are on the record saying very nice things about Mr. Barton. They are big fans of his work. But Barton was at great length during the hearings stressed that he is not personal friends with Justin Trudeau. The line of questioning got a bit funny when the liberals were trying to just drill that home. Do you have his personal phone number? I do not. Do you and the prime minister exchange birthday cards every year? No.

Birthday presents? No. Do you and your wife go out to dinner with the prime minister and his wife? No. Do your and your wife go out to dinner with the prime minister and his wife? No. Do your kids socialize? No. Do you exercise with him? No. I think there was even a question of, is he on your list of top 50 best friends? They moved up, they did top 10, top 20, top 50 friends? Yes. Yeah. So the attempt by the opposition to describe them as close friends, yes. He said no. The attempt by the opposition to describe them as close friends, Barton really pushed back on that.

Would you consider yourself a friend of the prime minister, the current prime minister, Justin Trudeau? No. I consider myself having, no, I'm not a friend. I have a professional relationship. When did you first meet? Excuse me, can I finish, Mr. Chair? Sure, briefly.

I respect him. I think he respects me. I don't have his personal phone number and I haven't been in a room alone with him. Okay, never been in a room alone with him. All right. When did you first meet? Nonetheless, this is a consultant that Justin Trudeau and Christopher Friedland think very highly of, as did Bill Morneau, and then the work to that company increased shortly after. We'll be back in a moment. So with all of this questioning that you're talking about here, Bill, with conservative MPs questioning how well he knows Prime Minister Trudeau, Deputy PM Chrystia Freeland. I mean, this makes me wonder, like, how much of this really is about partisan politicking then? Well, I think there's two things going on at the same time. I think one is, I don't think any expert would disagree, and even Barton was supportive of this idea of the issue of outsourcing in general and what it means for the public service. I think there's unanimous agreement that there's a lot of changes

that have happened in the last few years, and it's worth Parliament having a closer look at this. Does this level of outsourcing make sense? Is it hurting the public service in terms of maintaining its expertise? We're not taking full advantage of our public service, and we're kind of duplicating the work by having what some union leaders call a shadow public service of consultants. So how much of this has to do with politics? I think Mr. Barton is right that the vast majority of

these contracts are decided by public servants and the minister's office and ministers don't really get involved into who gets a government contract or not in the public service. I mean, the opposition in question period is painting the picture of liberals directing government contracts to their friends. And there's no evidence of that, broadly speaking. There have been some specific evidence of that through the ethics commissioner. When you look at Mary Ng and a communications contract from her ministerial office budget went to a friend. We also had the We Charity case a couple of years ago where the ethics commissioner found that Bill Moore was technically a friend of the

Killbergers. So you can't say this never happens. There are cases that the ethics commissioner has confirmed that the liberals have benefited their friends through their operations. But broadly speaking, when we're talking about billions of government contracts, the vast majority of the time ministers are not involved in that. Let's dig a little bit deeper into this idea of outsourcing, though, in general, because this investigation into McKinsey was actually tacked onto a committee that was originally looking into the ArriveCan app. Bill, can you just remind me, first of all, what ArriveCan is and why the committee is looking into it? Yeah, we started working on the outsourcing stories, which led to the Government Operations

Committee studying outsourcing. And then through our work, we dug deeper on this ArriveCan app, which people would know about if they had traveled during the pandemic. It was a government app that you had to use to upload your health information to prove that you'd had your vaccination up to standard before crossing the border, all that kind of stuff. But what we found out is that the cost of this particular app had just ballooned over time and involved a heavy use of consultants to the point where it's now on pace to be a $54 million project

after originally it was supposed to be an $80,000 app. It was a company called GC Strategies, which a lot of people hadn't heard of. And when you look more closely, it was actually just two employees who were in Ottawa. They don't have any office. They work from their homes. They had received at least $9 million to work on Arrive Can. Throughout the pandemic, they've been receiving contracts through all kinds of departments, over 20 departments. So they've been making millions of dollars. You keep learning a little bit more. So then we learn they actually charge a commission of between 15% and 30% for all of their work. So that means they're making millions of dollars on these contracts.

And we also found out they didn't actually do any IT work themselves. They would outsource it to others. So this two-person company was getting the contracts, keeping a 15% to 30% commission, and just outsourcing it to others. Wait, so this two-person company was getting the contracts, keeping a 15% to 30% commission, and just outsourcing it to other companies anyway? Exactly. And after their testimony, we learned just a few weeks ago, we reported this, that when the documents finally appeared at this committee,

the subcontractors, sure, there were some individual IT workers, but there were also some major international companies like BDO, KPMG, other IT firms around Ottawa that they hired. So it raised the question, you know, we have an entire department that's supposed to be in charge of procurement. Can they not just go hire KPMG or BDO directly? Why do you need to hire these two individuals and pay the millions of dollars to then go hire other companies? I think that's kind of a case study as to why this is interesting, because there's so little information disclosed on the websites about government contracts. When you have a committee that's really doing some digging, journalists at The Globe and elsewhere doing some digging, you start to really uncover some really unusual things when you start looking into how this contracting works.

No kidding. Wow. Yeah. Well, this actually, this takes us into a discussion about the consulting firms in general and the outsourcing that goes into that. I want to talk a little bit about this analysis from Carleton University's School of Public Policy and Administration. According to this analysis, the government spent an estimated just over $17 million on contracts with McKinsey in the 2021-22 fiscal year.

But they also spent an estimated $172 million on Deloitte over that same period and $115.6 million on PricewaterhouseCoopers. So, Bill, why are we so focused on McKinsey? Yeah, so the lead researcher on that project, Dr. Amanda Clark from Carleton University, appeared Monday. And she's a great witness because she comes at it, having done the research, but with zero politics, right? So while all the MPs want to focus on McKinsey because of the political connections to Dominic Barton, she's saying, in her view, that focusing on McKinsey is a bit of a distraction, that she thinks that the much larger issue is outsourcing in general.

And she would argue one of the things that the government really needs to do is improve its own knowledge of IT among the senior managers who are approving or signing off on these contracts. She says, like, the departments need to be better shoppers. They need to have a better understanding of what it is they're buying. Or otherwise, they're just going to get fleeced by these consultants who can make a case for how important their work is. And if the public servant signing off the contract doesn't really understand what they're doing in the first place, there's no assurance that we're going to get value for money.

Bill, what has the government said about these contracts, with McKinsey in particular, because this is kind of the hot topic of the moment here. Like, have we gotten our money's worth for everything that taxpayers are paying to this company? It has been an interesting response from the government the last few weeks on this because there's been a few scenarios on McKinsey, for instance. Justin Trudeau asked two of his ministers to do a review of it. Similarly with the Arrivecan, as mentioned. Part of their defense, defense too is just, which is legitimate, the craziness of the pandemic.

You know, it was a chaotic environment. Things had to be moved quickly. Sometimes working through contractors can be a faster way of getting things done. You mentioned the Phoenix Pay system here. Was that fixed as an example? No, they've given up on it. They're essentially patching it and they're now working on a project to replace it. So it never really got to where it's supposed to go. It's not

as bad as it was. That was outsourcing to IBM and you can just see the contracts just keep getting amended and amended and amended. And even if the program doesn't work, they still go back to the same company and re-up because it's just too much of a hassle to switch gears. You can't ever get out of it. They've got a hold of the government department, and there's just no way to phase that out and bring it back in-house. Is there anything else that we can kind of expect to hear, Bill? Like especially this idea of broadening things out just from McKinsey to other consulting firms? Is that something that we can expect to hear in the next little while with this committee?

Yeah, well, it will be interesting because Amanda Clark, also from Carleton University, she also interviews a lot of public servants on background for their information. And she was saying in some ways it's the other consulting groups that she hears more complaints about, not so much McKinsey. So I think if they do broaden that, there's plenty of avenues for MPs to explore here. We haven't heard directly at committee from McKinsey yet. We're also going to see eventually a lot of documents from McKinsey. And that could be pretty interesting and could be the source of stories because, as mentioned, McKinsey is known as a fairly secretive company, and they don't like to list things like client lists. So if the MPs do get information like that, then that will raise questions. The MPs want to look to see if there's evidence of conflicts of interest like we've seen

in the United States. We reported this week that McKinsey, through court filings, we actually got to see a glimpse of some of their client lists. And there's a lot of US defense companies. And we also know in Canada that, especially in the last year, McKinsey has received a lot of consulting contracts with the Department of National Defense. So there, from the opposition's point of view, there's a potential conflict of interest. Can you be advising the Canadian Defense Department while also advising defense companies?

McKinsey argues you can keep these things separate, but I think that's also a line of questioning that we can watch for in this hearing. Bill, it was great to talk to you. Thank you so much for being here today. Thanks, Manika. Before you go, I want to let you know

that The Globe is organizing a trip to Panama in April 2023. Visit the Panama Canal and national parks alongside Globe journalists that you've heard on this podcast, like Rita Tricher, Nathan Vanderklip,

and Kahal Kelly. You can find more info about the trip and how to join at www.globepanamatour.com. That's it for today. I'm Mainika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Kasia Mihailovic is our senior producer, and Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you next week.