McKinsey: How does it always get away with it?

The consultant sees itself as a great institution but it could be a case of the emperor's new clothes

In John Grisham's 1991 novel The Firm, the legal company at the heart of the story turns out to be an outpost of an organised crime empire. The crooked organisation is ultimately bust open by the FBI.

In Duff McDonald's comprehensive new history of the consultancy firm McKinsey, also tantalisingly called The Firm, there is no such messy reckoning for the company at the heart of the story, nor any criminality. McKinsey plainly isn't the mafia, but a central question is nevertheless posed by Mr McDonald's book: how do these guys keep getting away with it?

McKinsey's fingerprints can be found at the scene of some of the most spectacular corporate and financial debacles of recent decades. The energy-trading firm Enron was the creation of Jeff Skilling, a proud McKinsey consultant of 21 years. But this wasn't guilt by association. Enron, under Mr Skilling, was paying McKinsey $10m (£6m) a year for advice. McKinsey fully endorsed the dubious accounting methods that caused the company to implode in 2001.

The consultancy also advised virtually all of the Wall Street banks in the unprecedented credit boom of the past decade. Its consultants, as Mr McDonald chronicles, actively promoted the securitisation of mortgage assets, the practice that poisoned the global financial system and precipitated the 2008 credit meltdown.

The firm also encouraged the banks to fund their balance sheets with debt, driving down their equity safety buffers in order to juice profits.

Personal corruption has touched the highest echelons of McKinsey. The firm was headed for 10 years by Rajat Gupta, who was convicted in the US for insider trading in 2012. Mr Gupta passed on confidential information on corporations to a billionaire hedge fund friend. Mr Gupta had left the firm when he committed his crimes, but another senior serving McKinsey partner was also involved in the ring of insider dealing.

Yet McKinsey somehow keeps bouncing back. The firm's revenues have carried on growing, despite the succession of scandals, reaching an estimated $7bn in recent years. Its corporate customers have proved remarkably forgiving. The commissions keep rolling in. One of the first acts of the new Bank of England Governor, Mark Carney, was to call in McKinsey to review the central bank's operations, at an undisclosed cost. In the 2012 US presidential election (the same year Mr Gupta was convicted) the Republican candidate Mitt Romney talked of his intention to hire McKinsey to "fix" the American government.

Mr McDonald tells the McKinsey story in an accessible way. He does a good job of exposing the staggering self regard. "There are only three great institutions left in the world: the marines, the Catholic Church and McKinsey," boasts one partner. Others can be heard referring to themselves as "the greatest collection of talent the world has ever seen".

The author also reveals the delusion that saturates the firm. "It's almost never that we fail because we come up with the wrong answer. We fail because we don't properly bring along management," explains one partner. "We literally saved Glasgow," boasts the consultancy's British boss after doing some work for the city. And Enron? "It was a great business that just got out of hand."

Mr McDonald shines an edifying light on Arch Patton, a McKinsey consultant in the 1950s, who was a tireless promoter of higher pay for America's corporate bosses. At one stage Mr Patton alone accounted for a tenth of the firm's billings. The executive gravy train, whose engine Mr Patton helped to construct, is still clattering on today.

McKinsey partners, too, have become very rich. They famously bill vast sums for their services, more even than other consultancy firms. Are they worth it? On this point Mr McDonald equivocates. Though he outlines the negative case, he also suggests that since McKinsey has been around since the 1920s and keeps getting hired it must be doing something right. Yet this might be a case of the emperor's new clothes. Which chief executive is likely to admit he has wasted money on overpriced consultants, or failed to benefit from the advice of the world's brainiest people?

McKinsey has, Mr McDonald argues, "certainly made the world a more efficient, rational and objective place than it might otherwise have been". Maybe. But he fails to identify a single major technological or commercial development that McKinsey can claim even some passing credit for bringing into the world.

In the end, the impression left is that consulting is a kind of confidence trick played on that small and isolated stratum of humanity who head multinational companies. Since consultants work for a range of firms in a sector they can seem (whether this is true or not) like a useful source of information on what direct rivals are up to. Can you afford not to hire them, wonder the bosses? If everyone else is getting them in, shouldn't you too?

But this, ultimately, underlines their peripheral importance. The truth is that McKinsey is not the global economy's powerbroker. Mr McDonald calls the network of McKinsey alumni "the most powerful the world has ever seen". A glance at the list of ex-Goldman Sachs employees in positions of power and influence – from Mario Draghi at the European Central Bank to Mark Carney at the Bank of England – is enough to rebut that proposition.

Criticism of the firm too, can be overstated. McKinsey didn't cause the credit meltdown, or the Enron blow-up; it just partly facilitated them. McKinsey blessed the actions of incompetent and greedy managements with their slick charts and beguiling jargon. Similarly, when they recommend job cuts they are, often, simply telling bosses what they want to hear.

McKinsey and other consultancies are boardroom luxuries, courtiers at the throne of late capitalism, a high-end service for insecure executives. They belong in the same category as corporate jets: another way of squandering shareholders' money. And that probably explains their ability to bounce back after every failure and embarrassment. The firm understands what chief executives, their paying customers, truly value, and they carry on giving it to them good and hard.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
Sport
football
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us