McKinsey & Company - Criticism

Criticism

According to firm policies, firm members may not discuss specific client situations. The firm also maintains a deliberate and low-profile external image. Maintaining client confidentiality protects client interests and allows McKinsey continued license to operate. However, it also blocks public scrutiny and assessment of its client base, success rate, and profitability. This confidentiality also helps conceal McKinsey's fee structure.

The policy of client confidentiality is maintained even among former employees; as a result, journalists and writers have had difficulty developing fully informed accounts of mistakes which McKinsey employees may have made. It naturally also prohibits quantifying the benefits that good advice may have delivered. Despite this difficulty in attributing mistakes to McKinsey employees and alumni, some suggestions have been put forward:

• In June 2011 McKinsey & Company created some controversy by releasing a study on the effects on small businesses of the US Administration’s health care bill. The study’s findings contradicted most previous estimates made by renowned research institutes and the independent Congressional Budget Office. McKinsey’s initial decision not to disclose any information regarding its methodology, the questionnaire used and the target group that was polled, caused widespread criticism. This lack of transparency led to accusations of partisanship and cast serious doubts upon the company’s claim to independence and objectivity. McKinsey finally bowed to the pressure by the media and the White House and released the questionable survey, arguing that “he survey was not intended as a predictive economic analysis of the impact of the Affordable Care Act”. They furthermore admitted having used suggestive language by saying “e understand how the language in the article could lead the reader to think the research was a prediction, but it is not.”, The company's decision to stand by the findings was met with additional criticism. The New York Times quoted the chairman of the Senate Finance Committee as saying that “his report is filled with cherry-picked facts and slanted questions. It did not provide employers with enough information for them to make honest choices and fair evaluations. Rather than correct the major deficiencies in their report, McKinsey has chosen to again stand by their faulty analysis and misguided conclusions.”

• In 2010 Rainforest Foundation UK released a report revealing the poor quality of the recommendations McKinsey had given to developing countries on how to reduce deforestation. The NGO pointed out that the company’s work has serious methodological flaws and as a result systematically underestimates the destructive impacts of industrial agriculture while exaggerating those of subsistence farming. Adding to this, a Greenpeace investigation brought to light that McKinsey’s advice does not only fail to address some of the main drivers of deforestation such as logging and mining, but that the company’s proposals would actually reward those industries. Greenpeace pointed out that if McKinsey’s recommendations were followed, large-scale monoculture plantations would expand into ecologically important areas. Discussing McKinsey’s decision not to publish the data and assumptions underlying their recommendations, senior personnel at the World Bank has criticized the company’s lack of transparency, noting ‘that the blackbox is a problem for everybody’. Potential conflicts of interests could arise from the fact that if McKinsey’s policy recommendations were implemented, they would heavily benefit industries like logging, mining and paper with whom McKinsey maintains close business relations. McKinsey’s refusal to disclose its business clients has added to those concerns. The firm’s work was subsequently criticized by think tanks and in academic reviews. Researchers from the University College London called attention to the fact that by not considering highly relevant implementation barriers such as forest governance and the costs of enforcement and the installation of sufficient institutional frameworks, McKinsey promotes an overly simplistic view of environmental policy-making. A study by the Stockholm Environment Institute which was granted access to McKinsey’s data set found considerable discrepancies between the company’s estimates of the costs for reducing deforestation rates and those assumed by most renowned scientific models. While the quality of the company’s advice has become a widely discussed question at the World Bank and in United Nations meetings on climate change, McKinsey is reported to continue its work in rainforest nations such as Papua New Guinea (PNG), where the company has ‘refused to comply with PNG laws and register with the Investment Promotion Authority and Internal Revenue Commission’.,,

• Enron was headed by McKinsey alumni and was one of the firm's biggest clients before its collapse. In particular, McKinsey's "deep-seated belief that having better talent at all levels is how you outperform your competitors", a HR program implemented at Enron with McKinsey's knowledge, resulted, in the opinion of one author, a workplace culture of prima donnas that "took more credit for success than was legitimate, that did not acknowledge responsibility for its failures, that shrewdly sold the rest of us on its genius, and that substituted self-nomination for disciplined management." Jeff Skilling, sentenced to 24 years in federal prison as the CEO of Enron, was formerly a partner at McKinsey and "loyal alum."

• Another notably troubled company associated with McKinsey is Swissair, which entered bankruptcy twelve years after McKinsey recommended the Hunter Strategy.

• Misguided analysis, such as its recommendation in 1980 to AT&T Corporation that cellular phones — admittedly then a tiny market — would be a niche market.

• Several civil suits have been filed against home insurance and vehicle insurance companies after the insurers were advised by McKinsey, and allegedly paid the insured parties significantly less than the actual value of the damage. McKinsey was cited in a February 2007 CNN article with developing controversial car insurance practices used by State Farm and Allstate in the mid-1990s to avoid paying claims involving soft tissue injury.

• General Electric's CEO Jeff Immelt in defending GE Capital's poor performance, maintained that no one had foreseen the crisis. He maintained that he had sought external opinions from McKinsey in 2007 before the global financial crisis which suggested that that "money from nations with a trade surplus, like China, and sovereign wealth funds, among other investors, would provide enough liquidity in the financial system to fuel lending and leverage for the foreseeable future."

• Concerns from teachers and parents regarding their consultation for public school districts. Recently, McKinsey worked for the Minneapolis Public Schools, where the firm recommended that the district cut "high costs" such as teacher health care, and recommended converting the 25 percent of schools that scored the lowest on standardized tests to privatized charter-school status. Teachers in Seattle passed a resolution of non-compliance with McKinsey's study of the Seattle Public Schools in protest.

Among other books and articles, The Witch Doctors, written by The Economist editor-in-chief John Micklethwait and Adrian Wooldridge, presents a series of blunders and disasters alleged to have been McKinsey's consultants' fault. Similarly, Dangerous Company: The Consulting Powerhouses and the Businesses They Save and Ruin by James O'Shea and Charles Madigan, critically examines McKinsey's work within the context of the consulting industry and Vijay Prashad argues that McKinsey has worked to promote private interests against the public good.