How can an institution built on trust survive a seemingly complete breach of that very thing?
By Duff McDonald
What is good news? What is bad news? It all depends on your perspective, doesn’t it? For journalists working on a story, any news about your subject can be good news, except if that particular piece of news forces you to throw out everything you’ve done. The same holds true if you’re writing a book—if something major happens in the midst of your writing, it’s got to be good news, regardless of the particulars, doesn’t it?
That’s the situation in which I found myself in early 2010, when former McKinsey managing director Rajat Gupta was first implicated in the Galleon insider trading scandal. I’d been working on my history of the legendary consulting organization, The Firm: The Story of McKinsey and Its Secret Influence on American Business, since the fall of 2009. I received numerous emails from friends congratulating me on having had the foresight to write about an organization that suddenly seemed capable of exploding in an Enron-like conflagration at the perfect time for me, Duff McDonald, author. And I will admit being somewhat “excited” about what was certainly a painful experience both for Gupta and McKinsey itself. Not in the sense that I enjoyed their pain, but in the fact that it had the potential to help sales of my book. I’m just being honest here.
The Galleon debacle made for a more dramatic ending to my own book than it otherwise might have had, but the really interesting thing about it was not what it did to McKinsey but what it didn’t do. While the firm could certainly have done without all the negative publicity engendered by Gupta’s ethical and legal transgressions, the experience is already receding in the rear-view mirror for McKinsey, which has emerged from the whole experience largely unscathed. The fact that it has is testament to the power of what may be the greatest brand in the history of professional services.[pullquote align=”right”] That’s the kind of consideration you earn from your clients not just by doing good work, but also by doing it for years—or decades. [/pullquote]
How is it, you might ask, that an institution built on a foundation of trust—clients trust that McKinsey consultants know what they’re talking about, that they will keep their secrets, that they have the clients’ best interests in mind and not their own—was able to survive what seems, by any reasonable interpretation, to be a complete breach of that very thing? For McKinsey, the Galleon imbroglio boiled down to this: At the same time that Gupta was breaching the confidentiality of his board seat at Goldman Sachs, another McKinsey partner was selling client secrets to Galleon in an utter violation of the consulting compact. How did they not bring McKinsey down with them along with Galleon itself? (While the news of Gupta’s travails did indeed prove to be very good for one author, it wasn’t me. Rather, it was Anita Raghavan, C’86, writer of The Billionaire’s Apprentice: The Rise of The Indian-American Elite and The Fall of the Galleon Hedge Fund.)
One reason that I was given by several of McKinsey’s clients, including the CEO of an accounting firm that had been working with the partner in question, is that most CEO s of giant companies subscribe to the bad apple theory—they’re prepared to give an institution the benefit of the doubt when it appears that a problem is the result of one bad actor and not an institutional failing. The directors of McKinsey immediately launched an internal investigation to see if others within its ranks were subverting client trust. It was not the case, and thus every single client CEO that I spoke to was willing to see the case for what it was: The crimes were of an individual nature— not an institutional one.
That’s the kind of consideration you earn from your clients not just by doing good work, but also by doing it for years—or decades. While there’s no shortage of critics of the management consulting industry or of McKinsey itself, there’s a reason that some 85 percent of McKinsey’s business comes from repeat customers; it has made a habit of delivering on its promises to clients. The nature of those promises has changed and expanded over time—from the firm’s original claim to speak truth to power (i.e., telling the CEO something everyone else is afraid to say) to providing what I call “de facto industrial espionage,” to giving a board of directors comfort that the alternatives of a decision have been thoroughly considered—but McKinsey nevertheless has a long and well-documented history of satisfied customers.
How did it get that way, and how has it stayed there? To explain that would take a book—you may feel free to purchase mine if you’d like the long answer—but the methods McKinsey used are quite obvious, if also remarkably difficult to actually put into practice. First, know who you are and what you do. Second, hire the best people, invest heavily in their training and development, but also cull your ranks of nonperformers with the same vigor. Third, face up to your mistakes,learn from them and evolve. And fourth, believe in yourself, even if there are those who don’t. There’s a reason that people who have left McKinsey even decades ago still use the word “we” when describing the firm in the present tense. In all my years in journalism, I have never come across a company that becomes a bigger part of the self-image of those who work there as McKinsey. The whole Gupta scandal did more damage to McKinsey’s own opinion of itself than it did to anybody else’s. But they will recover. They always do.
Duff McDonald, W’92, is a New York-based journalist. A contributing editor at The New York Observer, he has also written for The New Yorker, Vanity Fair, New York, Esquire, Bloomberg BusinessWeek, Conde Nast Portfolio, Fortune, GQ, WIRED, Time, Newsweek and others.