Advice for McKinsey: physician, heal thyself

Following a series of blows to McKinsey’s reputation, a cloud of Schadenfreude has gathered around the summit of management consulting. Rivals’ and critics’ glee is, in a sense, a compliment to the firm. It is not possible to become the best-known advisory group in the world without doing something right.

Where McKinsey’s research goes beyond mere “thought leadership”, it is well-respected. Its close-knit culture continues to attract the brightest recruits, many of whom join a network of high-placed alumni when they leave. (McKinsey has backed a number of Financial Times events.)

Yet there is trouble on Mount Olympus. Kevin Sneader just failed to win re-election as global managing partner, after a tenure marked by apologies for work mainly done before his appointment. He is the first incumbent in more than 40 years not to win a second term.

Simply reiterating to itself and to the world that McKinsey does good work is no longer enough, particularly after a bruising $574m settlement this month of US states’ claims that its advice to drugs companies fed the opioid crisis.

The consultancy did not admit wrongdoing or liability in those cases. The wider charge, though, is that McKinsey has shown a lack of self-awareness bordering on narcissism. While implying it knows better than most what is going on in the world, it has failed to spot growing reputational risks, from South Africa and Saudi Arabia to its own backyard in the US.

How would McKinsey advise McKinsey at this important crossroads?

Two partners — Bob Sternfels and Sven Smit — are vying to replace Sneader. Neither should wind back his reforms. The changes include a more rigorous process for vetting work that might cross into a grey area. Some partners have balked at the new constraints on their cherished liberty to commit the firm to new clients. Consulting need not be regulated in the same way as finance, but a tighter structure of internal controls would limit conflicts of interest, flag reputational pitfalls, and, where necessary, prompt the firm to shed problematic engagements.

Managing growth is a second, perennial, challenge. Whenever the firm stumbles, partners worry it has grown too fast. McKinsey could elect fewer partners, but with tighter internal oversight and a renewed attention to its values, it could continue to expand.

Third, the firm needs to present a better case for all its work. A creeping sense that McKinsey does not provide value for money could be as dangerous for the firm’s brand as another headline-grabbing scandal.

A final important step is for McKinsey to submit its cult-like culture to more challenge. Consultants point out that one reason to hire them is to benefit from an informed outside opinion. Prodded by regulators, the Big Four professional services firms are strengthening their non-executive boards. McKinsey partners, entrenched in close-up client work, need to widen their lateral vision, too. A high-level board of independent, external directors would help.

McKinsey’s network and close ties to clients protect it against collapse. Chief executives have alternatives, though. Seven countries, headed by the US and UK, account for three-quarters of the worldwide consulting market, 2018 research from Bristol and Cardiff universities found. In places such as Italy and Japan, companies benefit more from the support and counsel of industry associations, family business networks, and government agencies. McKinsey’s troubles may make more clients realise that paying a fallible consultant for ideas is not their only option.