“Enron has built a reputation as one of the world’s most innovative companies by attacking and atomising traditional industry structures.”
-McKinsey report, published a few months before Enron’s collapse.
>
Rajat Gupta was more than a mere board member of Goldman Sachs, Procter & Gamble, and others. He ran McKinsey & Co. from 1994 to 2003, and was a senior McKinsey partner until 2007.
When the Securities and Exchange Commission brought insider trading charges against Gupta, it did more than merely accuse him of being a crook. It shined a long overdue light on a company that has successfully dodged responsibility for some of the worst financial ideas in history.
McKinsey, the global consulting firm, has created dubious strategies for all manners of companies ranging from Enron to General Electric. Indeed, where ever there has been a financial disaster in the world, if you look around, somewhere in the background, McKinsey & Co. is nearby.
That’s a pretty significant accusation. But it is bore out by the track record of the firm. Some of the more questionable strategies of McKinsey:
"¢ Advocating side pockets and off balance sheet accounting to Enron, it became known as “the firm that built Enron” (Guardian, BusinessWeek)
"¢ Argued that NY was losing Derivative business to London, and should more aggressively pursue derivative underwriting (Investment Dealers’ Digest)
"¢ General Electric lost over $1 billion after following McKinsey’s advice in 2007 — just before the financial crisis hit. (The Ledger)
"¢ Advising AT&T (Bell Labs invented cellphones) that there wasn’t much future to mobile phones (WaPo)
"¢ Allstate reduced legitimate Auto claims payouts in a McK&Co strategem (Bloomberg, CNN NLB)
"¢ Swissair went into bankruptcy after implementing a McKinsey strategy (BusinessWeek)
"¢ British railway company Railtrack was advised to “reduce spending on infrastructure” — leading to a number of fatal accidents, and a subsequent collapse of Railtrack. (Property Week, the Independent)
No consulting firm that has been around as long as McKinsey has a blemish free record. But the total number of clusterfucks and McKinsey foibles they are associated with goes on and on.
The question of today goes beyond the illegal insider trading of their former managing director — what is it about McKinsey that allows them to give some very awful, legally questionable advice, and yet escape blame?
Its ironic that their former chair was on the Board of Directors of GS — perhaps McKinsey can now join the ranks with Goldman Sachs, as the latest to be revealed as “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
This looks like a job for Matt Taibbi . . . >
See also: Ex-McKinsey "?High Priest' Gupta Linked to Rajaratnam by SEC (Bloomberg)
Books: "¢ The Witch Doctors: Making Sense of the Management Gurus by John Micklethwait and Adrian Wooldridge
"¢ Dangerous Company: Management Consultants and the Businesses They Save and Ruin by James O’Shea
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Regardless of the advice they gave corporate persons, they and their counterparts have probably made billions off of their chicanery, fraud, and criminality. That's why they continue to wreak havoc. The question is not why an honest manager would hire this firm, it's why the people running it and the people looking to scam the public by adopting the advice and strategies they offer aren't in prison.
Right or wrong, I think they trump competitors when it comes to innovative ideas, major horizontal and vertical relationships, and a self-reinforcing cache. Right or wrong, the innovative ideas serve both their partners and their customers’ needs, not necessarily their customers’ owners or its own customers.
Being able to see a wave coming, or even better, creating the wave then selling a surfboard to survive it until it crashes onshore is still a viable business model. For a time.
you can add Q to that noble list of companies. mckinsey was brought in by the now imprisoned joe nacchio in the early oughts ['02 or '03 iirc]. they wreaked their patent brand of havoc upon the workforce and the company. mass layoffs, do more with less, and some really interesting flavors of accounting fraud. but hey, joe made out like a bandit until, well, until he didn’t.
There is no doubt these consulting firms are to blame for many of the management decisions. Their track record is just as bad, if not worse as wall street analyst. The issue at the end of the day is the lack of accountability, managements typically tell the board that well, we pursued “that” strategy because the consulting firm that we hired told us that would be the best for us.
Excellent reporting, using disparate sources. I knew nothing about McKinsey’s true record. My primary contact with McKinsey over the years has been McKinsey alumni proudly presenting their former employment, much as one might be proud to present a degree from an Ivy League school.
teraflop:
Right is right and wrong is wrong. The root of our current predicament is that we never stop the wrongdoing, much less set right the damage it produces.
Strange that so many of these folks' innovative ideas seem to rely on fraud (or fraud disguised as poor business advice "” plausible deniability being the first line defense to corporate criminality), and result in financial catastrophe and/or broken and irreparable balance sheets.
Setting the timer on a bomb, or advising someone else to do so, does not excuse one from responsibility for the ensuing explosion (even if the person in question is miles, or continents, or years, away when the damage caused by their actions occurs).
Apparently, there are always victims left in the wake of this firm's operations (the general public among them). I'll bet there are many insiders in cahoots with them who have profited handsomely from playing along. Acts of god/nature or random, unforeseeable events and acts of criminality disguised as such are difficult to distinguish from one another. One way of telling them apart is to determine if someone made a windfall profit from the disaster.
You list a pretty respectable assortment of f-ups by this outfit, McKinsey. I’ve heard of them, but didn’t really know that they were associated with some of the big dogs that they are. I only wish I could remember all of this stuff I read!
Anyway, making a statement about an outfit like you have here of McKinsey, usually draws some sort of public defense by an organization. Even if the accusation is based in truth, which this one clearly is. I’m sure they’ve had some successes, because even a broken clock is right twice a day. Lots of idiots out there giving advice as experts.
@teraflop – that is probably why mckinsey ranked as the most coveted firm for MBA grads for many years
Isn’t a competitive marketplace should have “punished” them a long time ago? So, are they a monopoly of sorts? Is there anyone else who provides same “valuable” services as McKinsey?
BTW, at least over the last decade McKinsey were rated as “No. 1″ or one of the best companies to work for. Isn’t McKinsey is the largest employer of Harvard MBA grads? Which always made me wonder: What can a 25-year with zero experience in a particular industry (even if he/she has a Harvard MBA diploma) advice to the people who worked in that industry for decades? How many “little things” about the industry those ‘consultants” do not know and fail to consider? I guess when their advice leads to fatal railroad crashes, business should reconsider who they take advise from.
BR wondered:
Is McKinsey & Co. the Root of All Evil ?
reply: ————- Probably not, although they work in an ‘industry’ (consulting) that sometimes adds value, but sometimes inflicts the corporate equivalent of untreated shingles on client victims.
One favorite story is Figgie International, a marginally competently run conglomerate that turned to consultants and flopped miserably. They became ‘world class’ without any clue of how to even explain what ‘world class’ meant.
http://articles.chicagotribune.com/1997-08-03/business/9708060012_1_official-supplier-fortune-corporations
Or how about the time I overheard a pre bankruptcy Arthur Andersen consultant telling an interviewee that he frequently went to a client in the morning on an engagement without any idea what he was going to do that day, but he managed to stay busy and billable.
Although my absolute favorite set of consultants were the sociopath project managers who flourished during Y2K in IT departments. If you could spell ‘IT’, project a good image, were willing to tell others what to do, and happy to persecute anyone who could see you were full of shit, you could make big bucks as a consulting computer professional.
Hint to those who hire IT consultants … Back in the day it was common to double team, meaning put two people on a one person project. One was an ‘analyst’ who couldn’t code if their life depended on it and sneered at those who did. The other was a befuddled and brittle coder who hated being asked questions and depended on the analyst. I remember one project manager who had no clue as to what a file layout was. Of course, I’m sure this doesn’t happen today.
These colorful characters could not exist, however, without strong assistance from incompetent company management. You likely have no idea the mountainous stupidity that exists in many corporations.
The fun part is going to be when the McKinsey PR people start adding their defense to this thread. Love reading the thinly veiled rapid response comments…
b_thunder, I don’t think that it is so much that they are great to work for as they are the MBA equivalent of the white shoe law firms: there’s prestige there. Purportedly the training that you receive, working on large projects for very large clients, is good. But my experience with friends who worked there is that it is, exactly like a white-shoe law firm, a really cultish work environment. What I mean by that is that there is always a threat of punishment in the background, a brutal fear that others will turn you in if you step out of line from the orthodoxy, absolute loyalty is demanded, and they engage in a certain amount of sleep deprivation and separating you from your outside life (through monumental work hours and severe time pressure) that one associates with a cult. All this happens at the lower echelons and isn’t necessary by the time you move up – you’ve learned how you need to behave.
I’ve kind of always thought of them as that girl in high school who always knows all the rumors, knows what all the popular kids are doing on Saturday night. It’s not like there is anything particularly innovative associated with what they provide, but they are a repository of the current modes and methods and the scut under the table. Purely an outsider’s jaded view – I know people who swear that the projects that they worked on were creative and difficult.
Thanks for the amazing insight that I haven’t heard anywhere else.
Read Full Article »