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Politics

How McKinsey & Co. Consulting Quietly Makes Its Own Rules

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by Ian MacDougall for ProPublica, co-published with The New York Times

It’s not easy being McKinsey & Company these days.

For most of its 90-odd-year existence, the prestigious management consultancy prided itself on remaining above the fray. McKinsey consultants plied the executive suites of Fortune 500 companies, counseling chief executives with discretion and quietly building a business that, with $10 billion in annual revenues, is now bigger than many of the entities it serves. The substance of the company’s work, and even the identities of its clients, lie concealed under an institutional code of silence.

That reticence, enforced by a nondisclosure agreement, bedeviled Pete Buttigieg’s presidential campaign until last Monday, when McKinsey granted him a rare dispensation to reveal the names of his former clients.

On the occasions when McKinsey’s work has been scrutinized of late, it hasn’t reflected well on the firm. Reporting by The New York Times, ProPublica and others over the past 18 months has raised serious questions about how it does business at home and abroad: corruption allegations against companies McKinsey partnered with in South Africa and Mongolia; a federal criminal investigation into the firm’s bankruptcy practice in the United States; attempts to deny that it helped put into effect controversial Trump administration immigration policies; and evidence that McKinsey cherry-picked nonviolent inmates for a pilot project and made it seem that an attempt to curb violence at New York City’s Rikers Island jail complex was working (it wasn’t). McKinsey has denied wrongdoing in each of these instances.

These and other examples of McKinsey’s recent conduct reveal a common dynamic. An examination of these episodes, including thousands of pages of documents and interviews with dozens of current and former McKinsey consultants and clients from multiple projects, suggests McKinsey behaves as if it believes the rules should bend to its way of doing things, not the other way around.

McKinsey’s self-regard has long been uncommonly high. In the firm’s 2010 internal history, a copy of which ProPublica obtained, partners compare the firm to the Marine Corps, the Roman Catholic Church, and the Jesuits: “analytically rigorous, deeply principled seekers of knowledge and truth,” the history’s authors write. One McKinsey partner went a step further, declaring without a hint of irony that the firm’s trait of shared values is more than “even the Catholic Church can promise.”

This attitude works for the firm in corporate consulting, an unregulated field where McKinsey’s reputation leaves it largely free to do things its own way and where its insistence on not being publicly credited has also shielded it from blame for its failures. But as McKinsey has expanded its consulting empire in recent years, it has taken on a growing book of work for government entities, as well as for corporate clients in areas subject to government oversight, such as advising bankrupt companies on restructuring.

In that field, consulting firms confront a web of contracting, disclosure and ethics rules that are designed to dictate and limit their behavior. These rules exist to prevent governments from wasting taxpayer money on underqualified or overpriced contractors and to protect government integrity and avoid conflicts of interests.

In recent years, as McKinsey has burrowed deeper into this world, interviews and records show, it has developed a habit of disregarding inconvenient rules and norms to secure, retain and profit from government work.

Consider McKinsey’s imbroglios in South Africa and Mongolia. The firm did not follow the due diligence protocols commonly deployed to avoid running afoul of anti-corruption laws. The result: Its consultants found themselves working alongside dubious local companies that got them entangled in corruption investigations. Only after McKinsey became embroiled in the South Africa corruption scandal did the firm decide it needed to put more stringent safeguards in place.

In the United States, a damning but largely overlooked report issued in July by the Office of Inspector General for the General Services Administration, the hub for federal contracting, depicted McKinsey as ignoring rules and refusing to take no for an answer. The report examined McKinsey’s attempts to renew a major long-running contract in 2016. The firm was asked to provide additional pricing information to satisfy federal contracting rules. Rather than comply, McKinsey went over the contracting officer’s head, lodging complaints with top GSA officials, who refused to exempt the firm from the rules.

Eventually, the firm found a friendly GSA manager who was willing to not only award the contract, but also manipulated the GSA’s pricing tools to increase the value of the contract by tens of millions of dollars. The report concluded the manager “violated requirements governing ethical conduct.”

The pattern repeated itself when McKinsey failed in multiple attempts to win a separate contract around the same time. Stymied, according to the report, McKinsey browbeat the contracting officer, threatening to resubmit the proposal until it got its way. The GSA manager again intervened — for reasons left unexplained by the report — and McKinsey got its contract.

The report’s assessment of McKinsey’s behavior was withering, and it revealed that the firm subsequently used the same friendly manager to help secure contracts at three other federal agencies in 2017 and 2018. “Multiple contracting officers,” the inspector general wrote, told investigators that McKinsey’s requests were “inappropriate” and “a conflict of interest.”

The report recommended that the GSA cancel the contracts, which as of earlier this year had earned McKinsey nearly $1 billion over a 13-year span. In a response to the report, the GSA stated that it would ask McKinsey to renegotiate the contracts to lower the price. “If McKinsey declines” or “renegotiations do not yield a result in the government’s best interest,” the agency wrote, it would cancel them. Neither has happened to date, according to federal contracting records.

A McKinsey spokesman said: “We have reviewed the report and the relevant facts, and have found no evidence of any improper conduct by our firm. We are in negotiations with GSA and look forward to completing them soon.” A GSA spokesperson said it is negotiating for “better pricing” and will not award McKinsey any further work under the contracts until those negotiations are concluded.

McKinsey has also taken steps to evade public accountability. As ProPublica reported, a senior partner leading McKinsey’s work at Rikers asked top corrections officials and members of the consulting team to restrict their communications to Wickr, an encrypted messaging app that deletes messages automatically after a few hours or days. That insulated some of McKinsey’s work from government oversight and public records requests. (“Our policies require colleagues to adhere to all relevant laws and regulations,” a McKinsey spokesman said. He neither confirmed nor denied the use of Wickr.)

Speaking more broadly, the McKinsey spokesman said: “We hear the calls for change. We are working hard to address the issues that have been raised.”

McKinsey has so far escaped serious repercussions for its reluctance to follow inconvenient rules. That could change next year.

Consultancies such as McKinsey, which advise companies restructuring under bankruptcy protection, are required to disclose potential conflicts of interest. For the past few years, McKinsey has been locked in a complicated set of court disputes with Jay Alix, the founder of a competing advisory firm, and with the Justice Department’s bankruptcy watchdog over whether McKinsey failed to follow bankruptcy disclosure rules, a subject The Times has covered in depth.

McKinsey has, since then, disclosed a number of new potential conflicts in old bankruptcy cases and paid $32.5 million to creditors and the United States trustee to settle claims over insufficient disclosures. The trustee has said that “McKinsey failed to satisfy its obligations under bankruptcy law and demonstrated a lack of candor.” The firm denies wrongdoing and says it settled “in order to move forward and focus on serving its clients.”

Subsequently, McKinsey has moved, in effect, to rewrite the rules. It drafted a protocol ostensibly meant to clarify what advisers like itself need to disclose. Critics pointed out that McKinsey’s protocol allows such firms to avoid disclosing relationships they deem indirect or “de minimis.”

There remains more to come. Apart from the criminal investigation, a judge in Houston has scheduled a trial in February to decide the merits of Alix’s allegations. The judge, David R. Jones, has described the trial in apocalyptic tones. It will be, Jones has said, “the ultimate career ender for somebody.” For McKinsey, a trial would mean being called on to defend its work in public — with real accountability and real consequences for its actions. The firm might even benefit in the long run from the sunlight.


Ian MacDougall is a lawyer as well as a journalist, he has written about crime, criminal justice and legal affairs for Harper’s, The Atlantic, Slate, The Guardian and n+1.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism with moral force. We dig deep into important issues, shining a light on abuses of power and betrayals of public trust. Follow on Twitter at @ProPublica 

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Politics

White House Gift Shop Selling Coronavirus Commemorative Coins

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White House Gift Shop Selling Coronavirus Commemorative Coins

WASHINGTON, DC (TMZ) — The White House Gift Shop is hawking some odd memorabilia … a coronavirus commemorative coin no one asked for.

The COVID-19 coin features the names of President Donald Trump and Vice President Mike Pence … and it depicts an empty presidential podium on one side, and a graphic of the novel coronavirus above the world on the other side.

The coin also shouts out the rest of the COVID-19 task force … with smaller printed names for Treasury Secretary Steve Mnuchin, Surgeon General Dr. Jerome AdamsDr. Deborah Birx and Dr. Anthony Fauci.

The collector’s item is emblazoned with tons of slogans … including “Together We FOUGHT The UNSEEN Enemy,” “Everday HEROES Suited Up,” and “Everyday CITIZENS Did Their Part.”

The White House Gift Shop is already taking pre-orders for the coin … and the price is slashed from $125 down to $100. The store, which is privately run and only loosely related to the actual White House, claims proceeds will be donated to hospitals.

The COVID-19 coin is the 11th in the gift shop’s “Historic Moments” collection, which also commemorates Trump’s meetings with North Korean dictator Kim Jong Un and Russian President Vladimir Putin.

So, at least the coronavirus coin is in … good company.

Trump's Coin Collection

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Politics

Trump Thinks Armed Michigan Protesters Are ‘Very Good People’

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Trump Thinks Armed Michigan Protesters Are 'Very Good People'

MICHIGAN (TMZ) — President Trump has found another group of “very good people” … the gun-toting right-wing extremists who stormed the Michigan statehouse to protest coronavirus restrictions.

Trump is strongly supporting the heavily-armed protesters … he says they are very good, very angry people who deserve a seat at the table with Michigan Governor Gretchen Whitmer.

Mind you, Michigan does not meet the very same federal guidelines for reopening that the President and his coronavirus task force announced last month.

Trump tweeted out his support of the rifle-clad protesters and tried to shift the onus on Whitmer, saying … “The Governor of Michigan should give a little, and put out the fire. These are very good people, but they are angry.”

POTUS added … “They want their lives back again, safely! See them, talk to them, make a deal.”

The protesters are up in arms over the fact Gov. Whitmer extended the state’s emergency stay-at-home order until the end of May.

Of course, Trump started the battle cry for the “liberation” of several states — including Michigan — just hours after he laid out the federal guidelines. He, at least, said reopening should be done slowly and smartly … based on data.

That’s apparently out the window.

It has to be said … Trump’s comments about the Michigan protesters are reminiscent of the Charlottesville rioters, who he called very fine people.

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Health

Trump’s Own Officials Depended on WHO. Then He Turned Against It.

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Trump’s Own Officials Depended on WHO to Fight Coronavirus. Then He Turned Against It.

As President Donald Trump publicly bashed the World Health Organization over its response to the coronavirus pandemic last week, American aid officials tried to delicately sidestep the political tensions, internal documents shared with ProPublica show.

And Trump’s campaign upended weeks of partnership between his own administration and the WHO, which provides advice and support for health officials in developing countries. The U.S. Agency for International Development had chosen to funnel much of its pandemic response through the WHO.

Even as they dealt with the fallout of Trump’s decision to cut off WHO funding, his administration leaned on it for expert advice.

“Given the political dynamics, I do not recommend reference to WHO here or below,” wrote one U.S. Agency for International Development career official in a comment on a draft report about how emergency funding would be spent. “Recommend deleting.”

The April 10 comment on the document prompted a rebuttal a few days later from another career official, one of many who argued that the WHO’s role in the health crisis should not be caught up in a political spat.

“It’s actually important to reference WHO standards during this type of emergency pandemic response – even with current political dynamics,” wrote the official, who argued for leaving in the mention of the WHO. It’s unclear which wording made it into the final version of the document.

A redacted image of comments left on a USAID draft document suggesting omitting a reference to the WHO.

The exchange was just one example of the angst that spread throughout USAID as it became clear that Trump would follow through with his April 10 threat to cut off WHO funding, and it was indicative of efforts by officials to downplay the role of an important public health partner. Just a few days later, on Tuesday, Trump paused all U.S. funding for the WHO, upending crucial plans for containing the virus in developing countries and bolstering China’s narrative that it is stepping into the traditional U.S. role of global leader.

Interviews with current and former U.S. officials and the internal documents and communications show that despite Trump’s recent disparagement of the WHO, his administration was for weeks relying heavily on its expertise and global reach to fight the pandemic. And in a public relations battle between China and the U.S. over global leadership, American diplomats and aid officials have cited robust U.S. funding of the WHO as a key supporting argument.

The WHO’s expertise is a critical resource for developing countries that lack their own strong public health sectors, said Jeremy Konyndyk, a former USAID official during the Obama administration. Cutting the WHO out of funding means the U.S. is eliminating its own ability to control the pandemic in those countries, he said.

“If you want to try and fight a public health crisis in a developing country without the WHO, you are lost from the outset,” Konyndyk said.

Particularly in conflict zones where the U.S. has limited or no reach, such as Syria, Yemen and Libya, working with the WHO is crucial, one U.S. official said on the condition of anonymity.

Just one day after Trump’s announcement, on Wednesday, WHO staff held a presentation for USAID’s Global Health Bureau on health care in conflict settings, according to a description of the meeting seen by ProPublica.

USAID, the State Department and the White House did not respond to requests for comment. The WHO referred ProPublica to comments on Wednesday by its director general, Dr. Tedros Adhanom Ghebreyesus, saying that his organization hopes the U.S. will continue to be a “generous friend” and that his agency “works to improve the health of many of the world’s poorest and most vulnerable people.”

The State Department and USAID turned to the WHO soon after the agencies received nearly $1.3 billion in new funding from Congress to address the pandemic in March. That funding had few strings attached, meaning officials could disburse it largely as they saw fit and did not have to channel it through the WHO or any other specific entity.

In a March memo outlining the administration’s global pandemic response, obtained by ProPublica, officials wrote that the U.S. would work “in close coordination with” the WHO. Several strategy elements mentioned the WHO.

In a March 31 public statement, the State Department highlighted U.S. assistance to the WHO, boasting that the agency’s “broad-based effort would not be possible without U.S. support.” The statement made repeated swipes at China, comparing U.S. funding of multilateral organizations to China’s much lower contributions.

That view was also reflected in an internal document dated April 13 and titled “Countering People’s Republic of China (PRC) Propaganda on Health and Humanitarian Aid.” It cited “critical support” from the U.S. to “the World Health Organization, UNICEF, the World Food Program and dozens of other organizations.”

Internal State Department guidance sent in early April, with diplomatic talking points about U.S. assistance, encouraged “Ministries of Health to reach out to the local WHO representative and other local partners to inquire about laboratory test kits, reagents, and supplies, laboratory supplies, and test kit availability in your region.”

The guidance also served as an endorsement of the WHO’s unique capabilities. “WHO uses existing agreements and its vast network of procurement mechanisms to purchase tests on behalf of countries that cannot afford them,” it said.

The U.S. quickly funneled nearly $700,000 each to Morocco and Iraq via the WHO last month. In response to a White House query this week, USAID officials compiled information on several grants they had made to the WHO that were supporting coronavirus relief and detection efforts in South Africa, India, Angola and elsewhere, according to a spreadsheet seen by ProPublica.

U.S. officials working on the response said they now worry about how they can help countries if they can’t channel the assistance via the WHO.

“For several countries, the WHO is the only way we can help them,” one official said. “We know nothing about anyone else who’s operating there.”

The significant U.S. reliance on the WHO in the Middle East prompted officials in the State Department’s Bureau of Near Eastern Affairs to write a memo to Secretary of State Mike Pompeo warning of the consequences of a funding halt. The memo, a draft version of which was seen by ProPublica, warned of undermining the global response to the pandemic, threatening American lives, and ceding ground to China.

Indeed, Trump officials have been preoccupied with the idea that China is winning the global PR battle. On Thursday morning, White House, State Department, USAID and Pentagon officials held a conference call to discuss the issue, focusing on the Middle East. Several diplomats in the region said that talking points against China gain little traction in their countries, according to someone with knowledge of the call.

Privately, USAID officials acknowledge that China is well ahead of the U.S. in pushing the narrative that it is the leading humanitarian actor responding to the pandemic, according to meeting notes and emails seen by ProPublica.

One U.S. embassy in North Africa reported to officials in Washington this week that the Chinese had until recently avoided bashing the U.S. in favor of boosting their own donations of medical equipment. There was one exception, they noted: The Chinese took the opportunity to highlight the U.S. decision to halt funding to the WHO.

Do you have access to information about the U.S. government response to the coronavirus that should be public? Email yeganeh.torbati@propublica.org. Here’s how to send tips and documents to ProPublica securely.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism with moral force. We dig deep into important issues, shining a light on abuses of power and betrayals of public trust. Follow on Twitter at @ProPublica 

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