What a Spectacularly Ill-Advised Idea Says About McKinsey

What a Spectacularly Ill-Advised Idea Says About McKinsey

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McKinsey had proposed that rebates be paid to pharmacy companies for every opioid overdose.
Photo: John Moore/Getty Images

Stat News and the New York Times recently reported that in 2017, the consulting super-firm McKinsey & Company advised Purdue Pharma to give pharmacy companies like CVS rebates for every customer’s opioid overdose in a twisted effort to boost sales for the highly addictive and deadly drugs. These stories are just the latest unflattering revelations about the secretive firm, which has seen a run of bad press in recent years while maintaining its stature in the management-consultant sphere. I spoke with New York contributing writer Andrew Rice, who has chronicled McKinsey’s many-tentacled influence, about what the company’s ethical lapses say about its culture — and about the world in which it operates.

Ben: You wrote a story about McKinsey’s complicated role in managing Puerto Rico’s financial mess. Does the rebate-for-overdoses proposal surprise you?

Andrew: No, I’m not particularly surprised by this piece of news, for two reasons. First of all, the allegations surrounding McKinsey’s involvement with Purdue Pharma have been floating around for a while — they originally surfaced in somewhat less damning form in a lawsuit brought by the Massachusetts AG last year.

The second reason is, as anyone who read my story or has been following the steady procession of investigative stories of this sort about McKinsey in other publications (especially the Times), this is kind of what they do. They solve problems, for better or, in this case, very much worse.

Ben: The company has definitely been involved in plenty of shady business lately, from boosting authoritarian governments to working closely with ICE to violating contract law in extremely high-profile fashion in South Africa. But this episode hits closer to home for many Americans. Will the terrible PR the company gets from this affect its status, which is inevitably referred to as “prestigious”? And perhaps more to the point, does the company care either way?

Andrew: Well, I think McKinsey would argue that it has learned from its recent public-relations travails. The firm’s global managing partner, who was elected by the rest of the partners in 2018 in a secretive process that has been likened to the selection of a pope, immediately struck a note of repentance. He apologized to the people of South Africa for the firm’s involvement in what is alleged to have been some deeply corrupt business at the state power company. He promised to put an end to the firm’s work for ICE after a rare internal rebellion over the morality of its assistance to the Trump Administration. (It later came out that the firm was providing advice that was key to Trump’s border crackdown and identifying ways to cut costs on detention facilities by “saving pennies on food and medical care,” according to the Times and ProPublica.) I think McKinsey is very quick to acknowledge, as a firm, that it has made PR mistakes. The question is whether the mistakes were just a matter of PR.

There is a cynical view of this, which I don’t fully embrace but I think may be true to an extent, which is that even this bad PR is good for McKinsey’s business. If you’re a big corporation with some ethically problematic business issues to solve, who better to hire than the firm that’s not afraid to come up with creative solutions like paying pharmacies bonuses for overdoses? I mean, another way to put it is who wants a scrupulously moral consulting firm? You pay McKinsey, or the many other firms like it, an ungodly sum of money to provide you every possible alternative and to never, ever, ever tell anyone about it.

Ben: The company is known to attract bright young things like Pete Buttigieg, whose work for it became a flashpoint during the Democratic primary; under fire, he called the place “amoral.” Doesn’t this latest sort of episode make it less likely that a certain kind of person will want to work there lest they be tarred with the “McKinsey is evil” brush? Or does the good money just take care of that concern?

Andrew: Well, that’s why I said I don’t fully embrace the idea that all publicity is good publicity for McKinsey. What they market is their talent — in fact, they were the ones two decades ago who came up with this whole idea that “talent” is the most valuable commodity in the marketplace — and if talent comes to think they are evil, well, that does seem to pose a problem. McKinsey’s partnership is structured in such a way that it’s very difficult for senior executives to walk away from the firm and the riches it provides them. Among other things, the firm’s retirement fund, which operates like a hedge fund, has a curiously excellent track record that the firm swears is totally unrelated to its immense store of secret corporate knowledge and now has some $12 billion in assets. But the vast majority of the actual work done on its “engagements” — as the firm calls its jobs — is done by young M.B.A. types, and if the quality of their work goes down, clients might start to notice.

However, the truth of the matter is that clients don’t hire McKinsey just for its amazing brainpower. They hire McKinsey to say they hired McKinsey. As a former McKinsey partner put it to me when I was doing my story (and I’m paraphrasing here), “No client ever hires McKinsey to give them an answer they don’t already know.”

If you’re a pharmaceutical-company CEO who is making an opioid that is killing people, you already know it’s a problem, and you already have a pretty good idea of how you have to handle it. You hire a firm like McKinsey, in this hypothetical scenario, to make it look as if you’re not the one coming up with the unsavory options. It gives you some numbers and some options on paper (actually, at least traditionally, a hardbound blue book). It also gives you plausible deniability. “I didn’t come up with this idea, Your Honor. It was the consultants!”

Ben: Are you aware of other dubious work McKinsey is doing right now that may also attract attention?

Andrew: It’s a bit hard to know who they are currently working for. They are incredibly secretive about their clients and traditionally don’t even confirm or deny who they are working for, even in cases where it is a matter of public record. That’s changed a bit in recent years, especially when it comes to the firm’s growing work for the public sector, which by its nature is more open to scrutiny. And there is some work the firm is happy to talk about openly, at least by McKinsey standards. For instance, the company is working with the MTA to try to close its enormous operating-budget deficits as a result of the ridership implosion during the pandemic, which have left the agency in urgent need of federal aid. McKinsey has been working for both the Trump administration (most notably the Department of Health and Human Services) and the Cuomo administration on pandemic response, proving once again its willingness to play on both sides of the fence. In New Jersey, Governor Phil Murphy — a former executive at Goldman Sachs, which has a long-standing symbiotic relationship with McKinsey — is reportedly relying heavily on the firm’s advice for pandemic response and paying it at least $35 million for its services. (And he’s not cutting ties with them anytime soon.) Even the state of Massachusetts, whose attorney general filed the lawsuit that led to the embarrassing disclosures about Perdue Pharma, has been simultaneously relying on the firm to assist in gathering data and managing control centers as it responds to the pandemic. And it’s fair to presume that this public-sector work is just the tip of the iceberg when it comes to McKinsey’s activities during the pandemic.

Bad times for the world are good times for McKinsey. The firm’s business dramatically expanded after the 2008 financial crisis because corporations and governments were looking for expertise in navigating the disaster and were willing to pay for that advice even as they cut other things, like their workforces. It’s reasonable to think that at this time of extraordinary upheaval in the world, they’re doing brisk business. Who knows what kinds of problems, say, a pharmaceutical company testing a life-saving vaccine, or a government trying to figure out who should get it first, might be asking right now? It’s probably a pretty good bet that McKinsey is in the middle of a lot of those discussions, although we may never know who they are advising or what their advice may be. I should say that, for all the horrible things that have come out about the firm, it is still a repository of an enormous amount of intelligence (in every sense of the word). As much as you might criticize McKinsey’s ethical choices in certain cases, they still appear to be generally excellent at what they do, and maybe that’s who you want to be involved in devising the response to the greatest public health–economic-fiscal-social crisis in living memory. That’s the thing about amorality: It can go either way.

Ben: It doesn’t sound like you think this latest episode signifies any great change in the way McKinsey does business.

Andrew: I don’t know if it’s possible to say that definitively. They’re pretty opaque as an institution. They may see it as being in their interest to avoid particularly embarrassing engagements like this, simply for reputational purposes. And also, you know, because I’m sure plenty of people there are personally appalled. I’m just saying there’s no particular reason to think that the pressure to reform will come from outside. The clients aren’t going to push McKinsey to change, but McKinsey might push McKinsey to change, albeit within the parameters of the firm’s culture. They’re never going to be less secretive, so if they have changed, there would be no way to know it!



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