Illustration by David McAllister / Prospect

Bonfire of the consultancies

Management consultants have avoided both scrutiny and censure in this modern era of capitalism that they helped to forge. Until now
March 1, 2023
When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm
Walt Bogdanich and Michael Forsythe (RRP: £20)
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The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies
Marianna Mazzucato and Rosie Collington (RRP: £25)
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Unlike bankers, management consultants have largely escaped blame for the sins of modern capitalism. They have evaded public scrutiny, too—no mean achievement for a global industry that is estimated to gross up to $900bn a year. 

McKinsey, Bain, Boston Consulting Group, the so-called Big Three, are purely consultancy firms. Deloitte, EY, KPMG and PwC, known as the Big Four, also provide auditing services. Each casts itself as a discreet agent serving government and industry. Yet they are powerful actors in their own right. They have helped to shape policy on issues ranging from climate change and “outsourcing” to privatisation and tax, not to mention their work for despotic regimes in China, Saudi Arabia and elsewhere.

Two books—one an investigative tour de force on McKinsey, the other a frontal lobotomy on the consulting industry in general—strip away the aura of respectability that has surrounded the profession for more than a century. When McKinsey Comes to Town and The Big Con highlight conflicts of interest, hypocrisy and fee-driven avarice. Most damaging is the charge that consulting firms create the impression of value rather than delivering tangible benefits to their clients. 

Walt Bogdanich and Michael Forsythe, both award-winning reporters at the New York Times, have nothing positive to say about McKinsey, described as “the world’s most powerful consulting firm”. Their book is a litany of mistakes and misdeeds, with no mitigating circumstances. The tone is unrelentingly chippy, even if the facts speak for themselves.

Mariana Mazzucato, a professor at University College London, and Rosie Collington, a writer and PhD candidate, are equally scathing. “What we call the Big Con is not about criminal activity,” they write. “It describes the confidence trick the consulting industry performs in contracts with hollowed-out and timid governments and shareholder value-maximising firms.”

All this adds up to a comprehensive indictment of the profession. But does the case for the prosecution stack up? 

The roots of the consulting business go back to 1911, when Frederick Winslow Taylor, a mechanical engineer turned steel plant manager, wrote the monograph Principles of Scientific Management. Taylor was obsessed with efficient manufacturing and the output of individual workers—what we today call “productivity”. He concluded that manufacturing should be broken into individual tasks, timed rigorously, and carried out by workers selected “scientifically” and trained appropriately. 

In this new world, workers were treated more as resources than individuals. And while managers and workers were notionally equal (Taylor, an amateur tennis star, had spent his earlier career on the shop floor), the managers were in charge of planning and supervision. This emerging executive class was responsible for the results and, implicitly, entitled to a greater share of the rewards. 

Taylorism spawned a generation of consulting firms in the US and Europe. Large-scale manufacturers such as the auto, chemical and steel industries were desperate to improve efficiency. The consultant, armed with charts and numbers, appeared to provide the answer. 

Taylorism even found support in the Soviet Union, according to Mazzucato and Collington. Initially, the communists thought management consultancy was a pseudoscience aimed at squeezing the working class. But by the mid-1920s, Lenin and Trotsky embraced Taylorism, contracting the US-based consultant Walter Polakov for advice on developing the Soviet Union’s first five-year plan.

There are plenty of other nuggets in The Big Con, though the prose can be dense at times. The authors point out that the consulting business has historically benefitted from upheaval. For example, the Big Three and Four have raked in millions since Brexit. Another game-changer is landmark legislation. The 1933 Glass Steagall Act, which banned commercial banks from engaging in investment activity after the Great Crash of 1929, gave an important fillip to the nascent consulting industry. 

The most notable beneficiary was McKinsey, founded in 1926 by an eponymous professor of accounting at the University of Chicago. An early client was Marshall Field’s, a large department store in the Windy City that had fallen on hard times in the Great Depression. James O McKinsey took charge of the company to ensure his recommendations were followed. Some 1,200 jobs were cut in what became known as “McKinsey’s purge”.

Any reputational damage was short-lived. By 1968, Stephen Aris, a business journalist, wrote that the name McKinsey was “becoming as synonymous with managerial reform as Hoover is with vacuum cleaning”. He defined McKinsey as both a noun and a transitive verb: to shake up, reorganise, declare redundant, abolish committee rule; it was applied mainly to large industrial companies. “If God were to remake the world,” Aris wrote, “he would call upon McKinsey for assistance.”

Bogdanich and Forsythe cut the gush. They open with a harrowing account of fatal accidents at US Steel and Disney, which they blame on thoughtless cost-cutting recommended by McKinsey consultants. Far from doing the Lord’s work, the authors suggest, the Devil’s footprint is all over some of the company’s more recent assignments.

McKinsey advised Purdue Pharma and the Sackler family on how to boost sales of OxyContin painkillers, turbocharging the opioid crisis; the firm provided advice to Big Tobacco while it did likewise for the Federal Drug Administration, without disclosing a potential conflict of interest; meanwhile, its consultants continue to pull in millions for advising fossil fuel giants such as Chevron and ExxonMobil, while the firm insists that it is committed to a greener, more environmentally sustainable world.

The firm’s shift into work for governments has proved lucrative but reputationally high risk. In South Africa, McKinsey became involved in tainted contracts involving, at one remove, the corrupt Gupta brothers. In Saudi Arabia, McKinsey, along with all the big consulting firms, took a sizeable chunk of the $1bn-plus fees controlled by Crown Prince Mohammed Bin Salman, the de facto ruler.

Most of the business was related to “Vision 2030”, the crown prince’s plan for reducing the Desert Kingdom’s dependency on oil. But consulting for MBS was not a one-way bet. McKinsey, working with Bain and Cambridge Analytica, the dodgy data-mining company, appear to have promoted the use of “sentiment analysis” to track public attitudes. The Saudi regime subsequently used the mined social media posts for keywords to track political opponents. 

McKinsey pleaded innocence, but one of the government’s targets was a Saudi national based in Canada who was an associate of Jamal Khashoggi, the journalist-dissident gruesomely murdered in the Saudi consulate in Istanbul in 2018. 

McKinsey denies working with Cambridge Analytica or its parent SCL on behalf of the Saudi Ministry of Economy and Planning. The authors include a perfunctory reference to the (admittedly narrow) denial, along with a quote from Kevin Sneader, then the firm’s managing partner. “The world does not want Saudi Arabia to descend into a place where there aren’t jobs, and where it gets tough in a very nasty way,” said Sneader.

Surely he has a point. MBS may be a thuggish autocrat, but he is in good company in the Middle East. He has curbed the influence of the Wahhabi clerics who blessed the 9/11 terrorist attacks on the US. A reversion to radical Islam could be far worse than the crown prince’s stumbling efforts to drag his country into the 21st century.

The trouble is McKinsey has long behaved like—as one Economist headline put it—the smuggest guys in the room. The firm’s mantra is that the client always comes first. Its self-image is of a genteel professional services firm, a thought leader embodied by its in-house thinktank, the McKinsey Global Institute.

McKinsey’s shift into work for governments has proved lucrative but reputationally high risk

In fairness, Deloitte has a “university” located outside Dallas, with offshoot campuses in Brussels, Hyderabad, Mexico City, Singapore and Toronto. So does CapGemini outside Paris. This “quasi academic” respectability is an essential part of the management consultant brand.

What both these books miss is how McKinsey fundamentally changed in the decade after the global financial crisis. I witnessed this first-hand as FT editor when McKinsey agreed to co-sponsor the Business Book of the Year award.

In 2009, Dominic Barton, a hard-driving Canadian, succeeded Ian Davis as managing partner. Davis, a suave Englishman, had a keen commercial eye and a cute turn of phrase, once advising his consultants to act as “viziers and courtiers” in Saudi Arabia. Barton, ever courteous, had even greater ambitions.

He recognised that the fallout from the financial crisis presented a once-in-a-generation opportunity. Over the next decade, dozens of new partners were appointed. The firm’s revenues doubled to more than $10bn. Paradoxically, McKinsey’s reach expanded with the “agreed departures” of lower-performing staff. These often went on to well-placed jobs and became part of the worldwide McKinsey alumni network.

With that expansion came an excessive focus on fees. Fearful of being eased out, some partners chased dubious mandates, especially with governments. The firm became harder to manage. Failures of oversight resulted in the departure of Sneader, Barton’s hapless successor. The disconnect between the firm’s high-minded public image and the grubby pursuit of profit was unsustainable. McKinsey turned into a case study in mismanagement. 

Mazzucato and Collington pursue a different line of attack, scoffing at the quality of advice. Consulting firms, they claim, work from a cost-cutting playbook with minimal attention to individual company needs. Boards use consultants as an insurance policy, either to justify a pre-planned course of action or because they are too timid to act themselves. 

It’s true that consulting firms, like ad agencies and investment banks, are all about the mandate. Once signed, the grunt work is handed over to junior teams, who are often stretched in order to save money. But is there really no example of where a second pair of eyes has helped a company to change course for the better? Apparently not.

The argument that governments have become overly reliant on consulting firms is more persuasive. Outsourcing public services started with privatisation under Margaret Thatcher and accelerated with the Blair-Brown Third Way. Public-private partnerships and the Private Finance Initiative (PFI) became increasingly popular, partly because the liability was usually recorded off balance sheet and thus excluded from the public debt. This helped burnish New Labour’s claim to be responsible stewards of the economy. But there was a catch. A UK Treasury analysis in 2015 showed that the cost of servicing debt accrued through PFI was, by then, double that of government borrowing.

David Cameron railed against “government by PowerPoint”, but the scale and scope of contracts awarded to outsourcing consultancies only accelerated during the austerity years. Companies such as Carillon, G4S and Serco became responsible for cleaning hospitals, delivering school meals and providing security for public events, including the Olympics. 

These same companies took over running asylum detention centres, border controls, prisons, as well as a disastrous Chris Grayling-inspired excursion into the probation service, since rescinded. The Covid pandemic opened the door wider. Deloitte earned £1m a day from the widely criticised Test and Trace contracts, while McKinsey had a front-row seat on vaccine distribution. 

All this raises basic questions about the role of the state and the civil service and democratic accountability, argue Mazzucato and Collington. They bemoan the loss of “capacity” and expertise in Whitehall and the NHS. In their view, consultants have “infantilised” government. Their remedies—an “entrepreneurial state”, a more responsible media narrative, “a network of dynamic public institutions that invest along the entire value chain”—sound like jargon. Their thesis reads more like an attempted demolition of liberal capitalism. Consultants are collateral damage, not perpetrators of economic crimes.

Their broader point holds. The public sector remains a critical actor in the economy. The pendulum has swung too far. In the digital economy, the private sector is an indispensable source of creativity and innovation, but it does not have all the answers. Humbled and perhaps a little wiser, McKinsey knows that better than most.