When McKinsey Comes to Town

Introduction

For nearly a century, McKinsey & Company has been the world's most influential consulting firm. Its consultants have shaped decisions at the highest levels of business and government, claiming to improve efficiency and make the world a better place. But what really happens when McKinsey comes to town?

In this eye-opening book, Walt Bogdanich pulls back the curtain on McKinsey's secretive operations, revealing the dark side of the prestigious firm's global impact. From public health scandals to environmental crises to the empowerment of authoritarian regimes, McKinsey's fingerprints can be found on some of the most troubling issues of our time.

As we'll see, McKinsey's relentless pursuit of profit often comes at a steep cost to workers, communities, and even entire nations. This book offers a rare glimpse into the hidden world of elite consulting and its far-reaching consequences.

The McKinsey Machine

A Global Powerhouse

McKinsey & Company is a behemoth in the world of consulting. Operating in 65 countries, the firm works with top business leaders, politicians, and military officials around the globe. Its client list reads like a who's who of corporate and governmental power:

• Fortune 500 companies like General Electric, Microsoft, and Ford
• Pharmaceutical giants
• Government regulators
• Airlines
• Universities
• Weapons manufacturers
• Media outlets
• US presidential administrations

This vast network of influence has helped McKinsey amass an estimated worth of $31.5 billion. But what exactly does the firm do to command such hefty fees and wield such enormous power?

The McKinsey Playbook

McKinsey claims to help clients develop innovative strategies to stay competitive and boost economies. In reality, its formula for success tends to be far less groundbreaking and far more ruthless:

1. Slash costs
2. Lay off workers
3. Cut "unnecessary" safety measures

While this approach may temporarily boost profits and stock prices, it often leads to disastrous consequences, especially for workers and communities.

Case Study: US Steel Corporation

The story of US Steel Corporation provides a stark example of McKinsey's typical playbook in action:

• In 2014, the once-mighty steel company was struggling to keep up with industry innovations
• The new CEO hired McKinsey to turn things around
• McKinsey's solution: lay off dozens of workers
• Initial result: Stock prices rose
• Long-term impact: By 2015, losses hit $75 million

Even worse, McKinsey's cost-cutting measures led to dangerous reductions in staff and maintenance. Despite workers' protests, these cuts continued. The tragic result? Two workers were electrocuted in accidents directly tied to the reductions.

In the aftermath, angry workers chanted "McKinsey sucks!" at protests. But while US Steel paid a meager $14,500 in reparations, McKinsey consultants faced no consequences for their role in the tragedy.

A Pattern of Destruction

The US Steel case is far from an isolated incident. A similar pattern played out at Disneyland:

• McKinsey pushed for major maintenance cuts to boost profits
• Employees warned about potential safety issues with rides
• McKinsey and management ignored these concerns
• Result: Multiple accidents occurred, including two tragic deaths

Once again, McKinsey denied all responsibility for the consequences of its recommendations.

This disturbing cycle reveals the stark reality behind McKinsey's prestigious image. The firm consistently prioritizes corporate profits over worker safety and well-being, leaving a trail of destruction in its wake.

The People Behind the Firm

Recruiting the Best and Brightest

Who are the people responsible for implementing McKinsey's often-destructive strategies? The firm recruits heavily from elite business schools like Harvard and Stanford, selecting only the top prospects:

• Over 200,000 applicants vie for positions each year
• Only 1-2% are accepted

McKinsey's pitch to these ambitious graduates is enticing:

• Wealth
• Prestige
• The chance to solve complex problems
• The opportunity to positively impact the world

This last point is particularly appealing to idealistic young professionals seeking purpose along with their paycheck. However, recent exposés have revealed a massive gap between McKinsey's stated values and the reality of its operations.

The Harsh Reality

Many young consultants only learn about McKinsey's more questionable dealings after joining the firm. For example, it was recently revealed that McKinsey paid $600 million to settle probes into its role in exacerbating the opioid crisis (more on this later).

While McKinsey theoretically allows consultants to refuse unethical projects, the reality is quite different. Saying no to big clients can be career suicide for ambitious young professionals.

A Legacy of Inequality

McKinsey's ethos of prioritizing profits over people has been baked into the firm since its early days. A telling example comes from the 1950s:

• GM hired McKinsey to study executive pay
• The study found wages were rising faster for workers than CEOs
• The elite were outraged
• McKinsey's solution: Provide "cost-cutting" advice to reverse this trend

This set the stage for decades of McKinsey actively working against workers' interests:

• 1980s: McKinsey openly advocated for layoffs as a way to increase "efficiency"
• Offshoring was promoted despite its harmful impact on workers
• Unions declined as jobs moved south, then overseas
• Even as wealth inequality skyrocketed, McKinsey continued to recommend higher CEO compensation

The results of these policies are stark:

• 1950: CEOs made 20 times the amount of average workers
• 2020: CEOs made 351 times as much as average workers

McKinsey's role as capitalism's cutthroat cheerleader has made some uneasy, given its lofty principles. But for the firm, huge corporate profits eclipse any concerns about hypocrisy.

Draining the Government

McKinsey's influence extends far beyond the corporate world. The firm also works extensively with the US government, securing lucrative contracts in areas like healthcare and immigration policy. However, McKinsey's profit-first approach remains unchanged when working in the public sector.

Medicaid Mismanagement

McKinsey played a significant role in the implementation of Medicaid, often securing contracts through insider connections:

• In Illinois, McKinsey initially consulted pro bono
• This led to $75 million in state contracts
• Investigations later struggled to understand what McKinsey's costly work actually entailed
• Meanwhile, Illinois state hospitals remained severely underfunded, struggling to provide basic services

Similar patterns occurred in Arkansas and Missouri, with early free advice opening the floodgates to precious state contracts. On a national level, McKinsey has received over $1 billion in federal contracts, typically without competitive bidding.

Conflicts of Interest in Drug Regulation

McKinsey's government work often involves clear conflicts of interest:

• The firm regularly consults for the FDA (Food and Drug Administration)
• At the same time, it works for the drug companies the FDA regulates
• McKinsey has even hired former FDA officials to help its Big Pharma clients speed up drug approvals and avoid regulatory problems

Controversial Immigration Policies

McKinsey faced significant backlash for its extensive work helping US Immigration and Customs Enforcement (ICE) implement harsh Trump-era immigration policies:

• The firm played a role in expediting deportations
• It advocated for cost-cutting measures that risked creating humanitarian crises
• Example: McKinsey argued that ICE's food standards at detention centers were "too high" and should be drastically lowered

When confronted by some of their own consultants about this work, McKinsey management defended it as professional problem-solving, detached from politics.

These examples highlight the enormous gap between McKinsey's squeaky-clean public image and its controversial government work. In each case, the firm's opaque culture has enabled it to deny responsibility and downplay clear conflicts of interest.

A Public Health Menace

McKinsey's negative impact on public health goes far beyond mismanaging government contracts. The firm has actively contributed to major public health crises by working with irresponsible industries.

Tobacco's Deadly Partner

McKinsey's long history with the tobacco industry is particularly troubling:

• 1950s: McKinsey begins working with Philip Morris, providing manufacturing and research advice
• 1964: Surgeon General report confirms smoking's links to cancer
• Despite this knowledge, McKinsey continues working with tobacco companies
• The firm recommends ways for Philip Morris to keep profits up through targeted marketing
• As public sentiment turns against Big Tobacco, McKinsey takes on even more industry clients like RJ Reynolds and Lorillard

McKinsey's work for Big Tobacco included:

• Devising sales pitches aimed specifically at teens and minorities
• Assisting with "Project Cerberus," a secret plan by three tobacco giants to defeat global anti-smoking efforts

When e-cigarettes appeared, McKinsey jumped on the new trend:

• The firm began consulting for vaping startup Juul
• It used its connections to help get the product past FDA regulations

Fueling the Opioid Crisis

McKinsey's role in the opioid epidemic is equally disturbing:

• Early 2000s: McKinsey begins advising Purdue Pharma, maker of OxyContin (a powerful and highly addictive opioid painkiller)
• The firm helps Purdue counter critics and reformulate OxyContin to sustain sales amid rising addiction levels
• 2013: With declining sales, McKinsey pushes radical ideas to "turbocharge" Purdue's engine
  • Suggestion 1: Focus on areas like Fort Wayne, where opioid overdoses were already surging
  • Suggestion 2: Create alternative opioid distribution channels to counter pharmacies trying to curb access

In both the tobacco and opioid cases, McKinsey worked both sides of the issue:

• Advising the companies selling dangerous products
• Simultaneously consulting for the FDA office on how to regulate these same drugs

These conflicts of interest were hidden for years.

In 2021, McKinsey paid $600 million to settle claims it fueled the opioid crisis, while still denying legal wrongdoing. But whether unlawful or not, McKinsey has repeatedly and knowingly aided companies peddling dangerous products, contributing to what is now the deadliest drug epidemic in US history.

Engineering Financial Disaster

McKinsey's meddling in the financial sector has had far-reaching consequences, playing a significant but often overlooked role in the 2008 financial crisis.

Deep Ties to Wall Street

McKinsey has longstanding connections to the world of high finance:

• The firm has advised top Wall Street leaders since the 1930s
• Many former McKinsey consultants have ended up working for questionable finance firms like Goldman Sachs, and vice versa

Promoting Risky Practices

Decades before the 2008 crisis, McKinsey counseled banks on restructuring their finance policies to increase risk and returns:

• 1980s: McKinsey begins aggressively promoting a strategy called "securitization"
  • This involves bundling multiple loans into tradable securities
• McKinsey consultants touted securitization as a superior, more efficient, and safer technology than traditional lending

In reality, securitization is extremely risky:

• It fuels excessive speculation
• It muddies transparency
• It ensures a widespread domino effect when problems occur

Despite these dangers, McKinsey published how-to guides and articles on securitization, encouraging banks worldwide to adopt the practice.

Setting the Stage for Crisis

By 2007, McKinsey veterans occupied top posts at major financial institutions like Lehman Brothers, Morgan Stanley, and UBS. The securitization process they championed had enabled:

• Subprime mortgages to be bundled
• These bundles to be rated deceptively high
• The resulting securities to be sold globally

When this system imploded, it sparked the 2008 financial crisis – the worst economic disaster since the Great Depression.

Consequences and Lack of Accountability

For Wall Street bankers, the crisis was largely a game with minimal personal consequences. But for millions of ordinary Americans, the impact was devastating:

• Widespread job losses
• Massive foreclosures
• Many people never fully recovered financially

Once again, McKinsey escaped accountability for its role in the disaster. The firm claimed the crisis involved instruments different from the early securitizations it had promoted. But the truth is, McKinsey had normalized reckless practices that directly fueled the catastrophe.

Abetting Authoritarian Regimes

McKinsey's questionable practices extend far beyond the borders of the United States. The firm has a troubling history of working with corrupt institutions and authoritarian governments around the world.

Corruption in South Africa

In 2018, McKinsey faced fresh controversy when its dealings with corrupt firms and unstable government institutions in South Africa came to light:

• 2005: McKinsey enters South Africa, advising state rail and port agency Transnet
• 2015: The firm secures a $700 million contract to restructure state power utility Eskom

However, amid corrupt officials and dubious contracts, McKinsey soon proved to be in over its head:

• To work in South Africa, McKinsey needed local Black-owned partner companies
• The firm repeatedly failed to properly vet these partners
• First partner (Regiments Capital) was linked to the Gupta family, accused of using connections to "capture" South African agencies and loot public funds
• Second partner (Trillian) wasn't even Black-owned and had clear conflicts of interest
  • Example: Advising power company Eskom on purchasing a new boiler while also advising the Chinese seller of said boiler

Facing scrutiny, McKinsey returned $74 million in fees from the improper deals. But the damage was done:

• Eskom was left with severe financial and operational troubles
• Result: Massive blackouts that continue to plague South Africa today

Empowering Saudi Arabia's Repressive Regime

McKinsey has had longstanding ties to Saudi Arabia's authoritarian government:

• Relationship dates back to the 1970s oil boom
• By 2016, McKinsey had 137 active Saudi projects, advising government agencies and state oil firm Aramco

During the 2011 Arab Spring revolutions, McKinsey worked with the Saudi royal family to quell unrest:

• Suggested implementing symbolic reforms like allowing women to drive
• Simultaneously advised increasing repression of dissent

These strategies were later introduced by Crown Prince Mohammed bin Salman, who has been implicated in numerous human rights abuses, including:

• Overseeing the Saudi war in Yemen
• The 2018 killing of journalist Jamal Khashoggi

Expanding Work in China

Despite similar human rights concerns, McKinsey has also expanded its work with Chinese government and state firms:

• In 2018, the firm even held a lavish company retreat in China
• The retreat took place mere meters away from detention camps for the oppressed Uyghur Muslim minority

Time and again, McKinsey has demonstrated its willingness to work with authoritarian regimes and support their antidemocratic agendas. While the firm claims to improve the countries it works with, its actions frequently empower corruption, graft, and oppression.

Greenwashing Climate Destruction

One of McKinsey's most frequently touted values is sustainability. At global forums like Davos, its consultants issue urgent warnings about climate change and emphasize their commitment to "protecting the planet." However, a closer look at the firm's client list reveals a very different reality.

Big Oil's Favorite Consultant

Despite its eco-friendly rhetoric, McKinsey works extensively for major oil, gas, and coal companies worldwide, including top carbon emitters like:

• ExxonMobil
• Chevron
• Teck Resources

The firm's reach in the fossil fuel industry is truly global:

• In China: McKinsey advised major steelmakers hungry for coking coal from Teck
• In Indonesia (the world's second-largest coal exporter): McKinsey counts two big coal miners as clients

As usual, McKinsey helps these companies cut costs, boost efficiency, and increase production – all of which contributes to increased carbon emissions and climate change.

The Disconnect Between Image and Reality

The personal story of former consultant Erik Edstrom illustrates the hypocrisy at play:

• Edstrom joined McKinsey hoping to work on sustainability projects
• Once on the job, he found hardly any of these projects available
• Instead, there were abundant opportunities advising coal companies

Edstrom even received a peppy motivational video titled "Turning a Coal Mine into a Diamond in 6 Months," celebrating how McKinsey had helped a client increase coal production by 26 percent. Despite coal's major contribution to carbon emissions, McKinsey partners hailed the project as a big success.

When Edstrom refused to work for fossil fuel clients, he found his career stalled. Today, he believes McKinsey's opt-out policy for ethically questionable projects is merely a way to avoid taking a clear stance on critical issues.

Internal Protests and Corporate Doublespeak

Recently, junior consultants protested McKinsey's hypocrisy in a letter signed by over 1,100 employees. But leaders defended working with polluters, explaining that "Companies can't go from brown to green without getting a little dirty."

This kind of corporate doublespeak allows McKinsey to have it both ways:

• Sound progressive on sustainability issues
• Continue guiding big polluters on how to maximize profits from fossil fuels

This approach keeps climate-concerned young recruits in the pipeline without altering McKinsey's actual work. As of 2020, the firm still has no major green energy clients. Instead, it keeps reaping hundreds of millions in fees advising Big Oil and Gas.

The Veil of Secrecy

One of the most troubling aspects of McKinsey's operations is the lack of transparency surrounding its work. The firm's strict confidentiality agreements and secretive culture make it difficult to fully assess the extent of its impact on various industries and communities.

Limited Accountability

McKinsey's veil of secrecy allows it to:

• Deny responsibility for negative outcomes
• Avoid public scrutiny of its methods and recommendations
• Maintain plausible deniability in ethically questionable situations

This lack of accountability means that McKinsey can continue its pattern of calamitous advice without facing significant consequences.

Conflicts of Interest

The firm's opaque nature also enables it to work both sides of many issues without public knowledge:

• Advising pharmaceutical companies while also consulting for drug regulators
• Working with fossil fuel giants while claiming to champion sustainability
• Helping corporations cut costs while also advising governments on economic policy

These conflicts of interest often only come to light years later, long after the damage has been done.

Difficulty in Reform

The secretive culture at McKinsey makes it challenging to push for meaningful change within the organization:

• Whistleblowers risk their careers by speaking out
• External investigators struggle to piece together the full picture of McKinsey's involvement in various scandals
• Even well-intentioned employees may not fully understand the broader implications of their work

Without increased transparency and accountability, it seems unlikely that McKinsey will alter its fundamental approach to business.

Conclusion: The True Cost of McKinsey's Influence

As we've seen throughout this book, the prestigious image cultivated by McKinsey & Company often stands in stark contrast to the real-world impact of its work. Behind the polished veneer of elite consulting lies a trail of inequality, corruption, and crises spanning the globe.

A Pattern of Destruction

From public health disasters to environmental degradation, from economic crashes to the empowerment of authoritarian regimes, McKinsey's fingerprints can be found on some of the most pressing issues of our time. The firm's relentless pursuit of profit for its clients – and itself – has come at an enormous cost to workers, communities, and even entire nations.

Hypocrisy and Doublespeak

Time and again, McKinsey has proven its own stated values to be hollow:

• Claiming to improve healthcare while fueling the opioid epidemic
• Touting sustainability while advising major polluters
• Promising to make the world a better place while enabling corrupt and oppressive governments

This gap between rhetoric and reality allows McKinsey to attract idealistic young talent while continuing its often-destructive practices.

The Need for Accountability

Without true transparency and accountability, it's hard to imagine that McKinsey will fundamentally change the way it operates. The firm's vast network of influence and deep pockets have thus far insulated it from facing real consequences for its actions.

A Call for Scrutiny

As citizens, consumers, and potential employees, we must demand greater oversight of McKinsey and similar consulting firms. Their outsized influence on business and government decisions affects us all, often in ways we don't even realize.

By shining a light on the hidden workings of this powerful firm, "When McKinsey Comes to Town" serves as a crucial wake-up call. It challenges us to question the true motives behind corporate "efficiency" and to consider the human cost of relentless profit-seeking.

Ultimately, the story of McKinsey is a stark reminder that prestige and good intentions are no substitute for ethical behavior and genuine accountability. As long as firms like McKinsey operate in the shadows, the gap between the world they promise and the one they help create will continue to widen.