Fed Ethics Questions Spread to Barkin on McKinsey’s Opioid Role
(Bloomberg) -- Amid a trading scandal that’s forced two regional Federal Reserve bank presidents to resign and raised questions about governance at the U.S. central bank, a public advocacy group has aired concerns about a third regional chief and the job he held before joining the Fed.
In a report entitled “The Other Ethics Issues at the Fed Regional Banks,” the Center for Economic Policy and Research took aim at Richmond Fed President Thomas Barkin for his past roles at McKinsey & Co. Barkin held several senior posts at the global consulting firm, including six years as chief financial officer and three years as chief risk officer.
The report highlights McKinsey’s history of advising Purdue Pharma LP on how to maximize sales of its painkiller OxyContin, central to a U.S. opioid epidemic that’s cost hundreds of thousands of lives. That led to significant financial and reputational damage to McKinsey after it became the target of lawsuits from all 50 states. Earlier this year it agreed to pay more than $600 million to settle them.
“McKinsey was the brain behind the business strategy that has devastated the lives of millions of people,” said Jeff Hauser, executive director of the Revolving Door Project at the CEPR, which published the report. “As former chief risk officer at McKinsey, Barkin’s judgement is extremely questionable.”
There is no evidence that Barkin had any direct involvement in the advisory work with Purdue, but he has declined to answer detailed questions about what his senior roles did involve in terms of supervising McKinsey’s engagement with the drugmaker.
McKinsey spokesman DJ Carella declined to comment on Barkin’s history at the firm.
While McKinsey didn’t admit to any wrongdoing in its settlements, Kevin Sneader, its managing partner at the time, called the engagement with Purdue “a chapter in our firm’s story about which I am not proud.” He said there’s been an overhaul of the risk-management practices that Barkin once oversaw.
The CEPR report could add to pressure on the Fed to overhaul some of its practices, including the way that officials who set the nation’s monetary policies are hired, and the kind of scrutiny they’re subject to while in office. Chair Jerome Powell has already initiated a review of the rules governing the personal investments of senior Fed officials.
Boston Fed President Eric Rosengren and Dallas’s Robert Kaplan both announced their early retirement on Monday, after it was revealed they had conducted numerous financial market transactions in 2020 that raised conflict-of-interest questions.
In Barkin’s case, the concerns focus on activity before he became Richmond president in January 2018.
At that time, McKinsey’s deep ties to Purdue were not well known. They became public after Massachusetts Attorney General Maura Healey sued Purdue over its allegedly aggressive and misleading sales practices for OxyContin. Her complaint, initially filed in June 2018 and released in unredacted form in January the following year, mentioned McKinsey more than 70 times. Purdue has since filed for bankruptcy protection.
Rep. Carolyn Maloney, a New York Democrat who chairs the House Oversight Committee, said Barkin has a responsibility to address questions about his role at McKinsey.
“I am deeply troubled by how McKinsey aided Purdue’s efforts to flood American communities with prescription opioids,” she said. “It is important that Mr. Barkin be transparent about any involvement he may have had in these efforts.”
Regional Fed presidents are selected by their own boards of directors, subject to approval by the Board of Governors in Washington. Some of their appointments in recent years, including Barkin’s, have been criticized for missing opportunities to make the Fed’s top ranks more diverse.
Barkin was reappointed for another five-year term early this year. Lael Brainard, the Fed Board’s oversight governor for reserve bank operations, has referred to the reappointment process for regional chiefs as “rigorous.” Brainard declined to comment, a Fed spokesman said Thursday.
Eugene Woods, chairman of the Richmond Fed’s board, said in an emailed response to questions that Barkin had been “thoroughly vetted” before his hire, which occurred before Woods was a member of the board.
Woods did not directly answer a question about whether the Richmond Fed board had ever asked Barkin about his responsibilities at McKinsey and the firm’s work with Purdue.
“Roles people have previously held are not something we would typically discuss at a board meeting,” Woods said.
Barkin has spoken about the opioid epidemic and its economic impact. Hosting a conference on investment in rural America in October 2019, he noted that overdose rates were significantly higher than average in small towns across his own Fed district, which includes Virginia, the Carolinas, Maryland, Washington D.C. and most of West Virginia.
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