Insights Serra Balls

The smartest guys in the room?

McKinsey & Company is an enormously successful 100-year-old brand which is a trusted adviser to the world’s largest companies, several of which are run by McKinsey alumni. But reputation, as someone once said, eats brand for lunch. For the last three or so years, McKinsey seems to have been putting out reputational fires from Saudi Arabia to South Africa. As their latest mishap suggests, there’s a new regulatory and legal scrutiny on advisors which could land them on the hook for the advice they offer.

This week, the high priest of management gurus Tom Peters went for McKinsey’s jugular.  In an FT op ed, he expressed disapproval and sadness about his alma mater’s $573 million settlement for its role advising Purdue and other pharma companies in trying to ‘turbocharge’ sales of OxyContin and other highly addictive opioids. Peters called it “a new low” for the firm, that contained many of his “great pals”.

Having delivered a rare apology for its conduct in December, McKinsey pleaded not guilty to the Purdue case and therefore will not admit liability. According to managing partner Kevin Sneader, the firm “acted according to the law”.  It could therefore only go as far as saying, “we deeply regret that we did not adequately acknowledge the tragic consequences of the epidemic unfolding in our communities”.

Was this enough to stem the tide of future liabilities?  As the FT’s due diligence points out, as well as acting for big Pharma, McKinsey has been advising governments on how to deal with the pandemic. The Purdue settlement signals a willingness on the part of regulators to pursue not only manufacturers, but also those who provide them professional services. It raises the question of whether legal concern over particular marketing strategies is a sign of enforcement efforts to come.

McKinsey extols “Purpose, not Platitudes”, and in a piece advising leaders to ‘use the scrutiny to challenge themselves and the company’s purpose with an aim of improving both’. In February 2020, following dents to its image over 2019, the company said it will be more selective of work and that clients would be rejected if they do not pass internal screening process. It also promised to increase transparency and public communication on the work that it undertakes. But this was before the apparently dramatic lack of internal governance brought to light by the opioid scandal. 

Tom Peters believes directors of the consultancy should be required to donate three-quarters of their net worth to “opioid curative causes”.  Klaus Schwab argued that Covid-19 is a litmus test for stakeholder capitalism. Brands which failed to live up to the hype when it mattered have been exposed. Similar to WWII, companies on the right side will likely express pride, and identify themselves with their involvement, while those on the wrong side will have to own up to a difficult past sensitively while persuading the world they’ve changed.

Preaching about corporate purpose has accelerated during the pandemic and it’s been easy for all advisors, from lawyers to auditors, management and communications consultants, to give advice when they’ve been behind enemy lines. They may now be fair game for legal and regulatory scrutiny and on the hook to demonstrate they can adapt to this environment, “living the values” in the way they’ve been exhorting clients to do for years.