McKinsey's Opioid Settlement Is a Warning to All Consultants

(Bloomberg Opinion) -- Now it’s McKinsey’s turn. First, the banking industry paid out billions to settle misconduct allegations after the financial crisis. More recently, the audit profession has been receiving record fines. Amid it all, the consulting industry seemingly escaped scrutiny for the work it does in the background for so many of the world’s major corporations. No more.

McKinsey & Co. on Thursday agreed to pay nearly $600 million to settle claims that its advisory work for the pharmaceuticals industry contributed to the deadly U.S. opioid epidemic. The number seems small considering what some of the big banks have shelled out. But at more than 5% of McKinsey’s reported global revenue, it’s a wake-up call for consulting.

The allegations in question make for uncomfortable reading. For instance, McKinsey consultants in 2013 suggested ways that Purdue Pharma LP, owned by the billionaire Sackler family, could “turbocharge” sales of its OxyContin opioid, according to the 2019 complaint filed by the Massachusetts Attorney General. The settlement agreements contain no admission of wrongdoing and McKinsey says it believes its past work was lawful. It has, however, terminated the employment of two partners for discussing whether they should delete related documents.

The Massachusetts complaint provides an insight into the poverty of restrictions surrounding how consultants operate. McKinsey’s recommendations on how to boost Purdue’s opioid revenue — establish sales targets and set monthly progress reviews to hold management accountable — sound like advice given as a matter of course to corporate clients, completely ignoring the potential dangers of an unbridled sales push of such highly addictive painkillers. Repackaging off-the-shelf advice is doubtless what much management consultancy involves, but it’s hard to imagine a more damaging misapplication of the approach.

McKinsey’s governance and controls evidently weren’t strong enough. Recently the firm has been addressing this. A code of conduct was introduced in 2019 requiring staff to “to help our clients to be mindful of their social impact,” and standards around client selection have been revised.

Such reforms will do little to soften the immediate reputational damage. The hit is exacerbated by McKinsey’s status as the industry standard bearer and self-promotion as a thought leader. Moreover, the settlement coincides with revelations that the firm has suspended an investment banking product while it probes “personnel matters.”

Of course codes and reviews aren’t enough on their own. In 2010, Goldman Sachs Group Inc. created a committee to examine its business standards just prior to settling a regulatory probe into its now infamous Abacus structured credit deal. Then came the hugely damaging 1MDB scandal. Goldman’s remediation effort is still underway. The best defense of standards is a vigilant culture, and that is not easy to build or change.

McKinsey is everywhere, and its alumni are everywhere. This formal and informal network is a tremendous asset. But any firm’s license to operate depends on the support of society as a whole. The consultancy industry exerts considerable influence on the actions of big business. It should now expect to be held accountable too.

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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