McKinsey Is Becoming an MBA Case Study in Crisis

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McKinsey & Co.’s management consultants know full well that changing leadership is sometimes the best way to handle a crisis. And it looks like they’re now applying this advice to their own firm.

Kevin Sneader will not serve a second term as global managing partner, the Financial Times reported on Wednesday, after he failed to win sufficient support during the firm’s ongoing referendum on the leadership. Such a defenestration would bring two benefits. It would mark a proper show of accountability for the firm’s role in the opioid crisis, and offer a new chance to attempt a reset of its culture.

Taking place every three years, the election has come just weeks after Sneader moved to put an end to damaging questions about McKinsey’s past work for the pharmaceutical industry, and Purdue Pharma in particular, where it advised on how to “turbocharge” sales of highly addictive painkillers. The firm agreed to a near $600 million settlement to end litigation brought by U.S. states.

Sneader’s handling of the scandal could have gone further. McKinsey expressed deep regret “that we did not adequately acknowledge the tragic consequences of the epidemic unfolding in our communities,” while stressing it did not believe its actions had been illegal. Two partners were fired, but their departures were presented in the context of their having discussed document deletion, in violation of the firm’s standards.

There was no high level exit that showed someone was taking responsibility for the fact that McKinsey undertook work it shouldn’t have. Sneader’s failure to win a second term — seen as the incumbent's to lose — would at least achieve that. It would be very unusual for any firm to pay such a high fine or settlement and for senior management to remain unchanged.

McKinsey has confirmed only that the leadership election is underway, without giving details on progress. The two candidates now in the running according to the FT, are Bob Sternfels and Sven Smit, from the San Francisco and Amsterdam offices respectively. There is important symbolic benefit in changing leader, even if the replacement is internal. But whoever wins the contest will now have to address more earnestly the doubts about culture that are circling the firm. 

At issue is why McKinsey has been the site of so much controversy in recent years, undertaking work that has had both a reputational and financial impact. Sneader’s reforms include introducing a code of conduct and a new process for vetting potential clients. It is remarkable that its processes were not more robust before.

The central question is whether McKinsey should now go much further in examining the historic incentives for winning new clients and increasing the fee pool from existing clients with such a laser-like focus. There has to be accountability for more than just increasing the billings.

This is not a regulated industry: Anyone can set up as a management consultant. That's why it's crucial to have the necessary checks and balances in place, but they're no panacea. Partners must also be closely guided by a culture of norms that make it clear what work to chase, and what to skip, in the first place.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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