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How McKinsey Became One Of The Most Powerful Companies In The World - YouTube
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From boardrooms to the
White House and beyond
[3]
McKinsey's influence in
business is virtually
[5]
unparalleled.
[6]
It is quite possibly
the most influential
[9]
private institution on
the planet.
[12]
An organization has a
[14]
problem that they cannot
[17]
solve with their
internal resources.
[19]
That's the most classic
way that McKinsey is
[22]
brought in.
[23]
I have had a
lot of exposure to
[25]
firms with a high
opinion of themselves.
[28]
McKinsey takes the cake.
[29]
Its alumni control some of
the largest and most
[32]
powerful companies in
the world.
[34]
And have also been involved
in some of corporate
[36]
America's Most
Sensational scandals.
[39]
Now is the company having
a moment of reckoning?
[42]
One of the world's
most storied and respected
[44]
management consulting firms is
finding itself in
[46]
the subject of
critical media scrutiny.
[48]
Or will it somehow
continue to fly
[51]
below the radar?
[59]
McKinsey was founded in
1926 by James
[62]
O McKinsey.
[63]
He was a professor at
the University of Chicago
[65]
and an expert
in management accounting.
[68]
The firm began
advising companies locally
[71]
and slowly opening up
offices in major urban
[74]
hubs around the country.
[76]
By the 1950s the firm
was assisting the White
[79]
House with staffing
organization which according
[82]
to the company would lead
to the creation of the
[84]
chief of staff role.
[86]
In 1970 McKinsey
helped create the
[89]
barcode. Yes.
[92]
That barcode with
the uniform grocery
[95]
product Code Council.
[97]
It's all about solving
the most pressing and
[99]
complicated business
problems.
[102]
First of all you know people
who go to work for
[105]
McKinsey tend to be elite
[107]
individuals in terms
of their
[110]
intellectual ability
business acumen
[112]
drive ability to
think creatively.
[115]
Plenty of people have said
you know going to
[117]
McKinsey is like
[120]
getting the PHD on
top of your MBA
[123]
but in a much more
polite way than an academic
[126]
way.
[126]
The company touts more than
30 Rhodes Scholars on
[129]
its staff and at
least six Olympians.
[132]
The way I sketch it
out in the book there
[135]
are three
main ingredients.
[137]
Fact based hypothesis
driven and
[140]
structured it's not so
much what the
[143]
specific structure is but the
fact that there is
[145]
a structure and it's
logical and coherent.
[148]
And it drives
[150]
the problem solving
process in
[153]
terms of what is
the problem? How
[156]
do we scope it out
break it into its constituent
[158]
elements go about
getting the data?
[161]
All the way down to how
do we then present it to
[163]
the client in a
way that will
[166]
enable them to
implement the changes
[169]
that McKinsey might
be recommending.
[171]
The experience the tools
[175]
and the way to think
to try to bring
[178]
this information.
[181]
These questions these data
that we were
[184]
gathering to a level
[186]
shots that you can
draw a conclusion.
[189]
And I think at McKinsey what
you learn is to be
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able to move really
up and down.
[194]
Up and down the hierarchy
up and down the problems
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up and down the
levels of thinking.
[200]
And I think this
is extremely different
[203]
when you compete with the
people who didn't have
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the chance to go
through this experience.
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Mckinsey is not the
only firm offering
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consulting services
like these.
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It has serious competition
like Bain and Company
[215]
and The Boston
Consulting Group.
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But out of the Big
Three as they're called
[219]
McKinsey is the leader
when it comes to
[221]
management consulting revenues
according to ALM
[224]
intelligence.
[225]
They're still quite prominent
from a revenue
[227]
standpoint they're also
on that
[230]
temptation standpoint but
when you really
[233]
look at consulting today
[236]
they're not as prominent
as the big four
[239]
accounting firms.
[240]
Deloitte TWC and
[243]
Eli and KPMG
they're actually the
[246]
largest consulting firms but
of course it's
[249]
also about who you know.
[251]
Certainly when I
was there
[254]
McKinsey was famous
for having decades
[256]
long relationships with
any number
[259]
of Fortune 500 companies.
[262]
They were on tap for the
[265]
senior executives.
[266]
You always think with
McKinsey about strategy
[269]
but you work
with people which
[272]
later I used
to that Solar
[275]
Impulse Solar Impulse
was a
[277]
project which was
considered impossible
[280]
by the.
[281]
But the aviation
industry we
[284]
wanted to be an airplane
which was bigger than a
[286]
747 in terms of
wingspan but the weight
[289]
of a car and I got
[292]
out of my time
at McKinsey essentially
[295]
working with teams the
way to were to
[298]
organize these people and
to make them understand
[300]
where they would go all
they could go there
[303]
and deep look
through right empowerment.
[306]
There's no point not
to hire McKinsey
[309]
if you can afford it
because it's a SWAT
[312]
team of analysts that
is at your beck
[315]
and call.
[316]
They traffic and
influence industry
[319]
intelligence helping
executives
[321]
make a decision I've
already made by backfilling
[324]
a report.
[325]
It's basically a firm that
will come into the
[328]
office and say What do
you want us to do.
[331]
The nature of the role
does not necessarily make
[333]
the consultants at McKinsey
the most popular
[336]
people.
[337]
Their job is
to help organizations
[340]
become as efficient and
effective as possible and
[342]
to complete their
own missions.
[344]
It is simply a fact
of life it's not necessarily
[347]
pleasant and that's
why sometimes when
[349]
consultants whether it's McKinsey
or anybody else
[351]
comes in they
can be viewed
[355]
not particularly favorably
by the
[357]
people in the
organization themselves.
[360]
Certainly it was part
of my experience.
[362]
In many ways it's management
bringing them in to
[364]
do it so they
don't have to.
[366]
The people who work there
they do very well.
[369]
They don't get.
[370]
They don't make hedge
fund money but they're
[372]
making more than most of
the people you know.
[375]
Nobody brings McKinsey in
[378]
because they've got
the world
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in their hands.
[382]
And the firm gets
paid handsomely for its
[385]
services.
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Generally the fee
rates are closely
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guarded and they are
all over the
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map and at the same
time they can be
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quite well known.
[395]
The government naturally
publishes the fee
[398]
rates for McKinsey
and others.
[400]
You know the inside
joke in the
[403]
industry is you hire
McKinsey and it's two
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hundred fifty thousand dollars
a week for a
[408]
team.
[409]
However consulting pay
structures have evolved.
[412]
Alternative fee
structures.
[414]
Results based fees for taking
a stake in the
[417]
client an equity stake.
[419]
Something like that.
[420]
It's very attractive
for clients when
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they hear that they pay
a smaller upfront fee.
[427]
It's also a way to get
more bang out of the
[430]
project than just the
straight time and
[432]
materials.
[433]
The forces that McKinsey
stands for which are
[436]
efficiency and
rationality.
[439]
It's hard to have a
problem with those on their
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face you know who
votes for inefficiency
[444]
but I think that
we have to
[447]
decide what our values are
what do we want
[450]
as a people and is
[452]
efficiency our
top priority?
[457]
Perhaps even more infamous
than the company's work
[459]
itself is its
alumni network.
[462]
Many years after I left
[464]
McKinsey I was still
talking about we
[468]
and not about they people
that have worked at
[470]
McKinsey run the gamut
of corporate leadership.
[474]
Big names include the likes
of Sundar Pichai the
[476]
CEO of Google James
Gorman CEO of
[479]
Morgan Stanley Jørgen
Vig Knudstorp
[483]
chairman and former CEO
of The Lego Group
[486]
and Sheryl Sandberg the
chief operating officer
[489]
of Facebook.
[490]
Yeah McKinsey is
everywhere and
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they have built
a machine that
[496]
sort of
[498]
the alumni interaction with
the with the current
[501]
firm sort of feeds
itself in a constant
[503]
virtuous circle of
fees and
[506]
engagements.
[507]
It's kind of
stunning to behold.
[510]
And the influence
extends into politics.
[513]
Republican Senators Tom Cotton
and Ben Sasse
[516]
have both either worked
for or advised McKinsey
[518]
briefly.
[519]
Chelsea Clinton also did a
stint with the firm.
[522]
As did Susan Rice
Obama's national security
[525]
adviser.
[526]
And Democratic mayor of
South Bend Indiana Pete
[529]
Buttigieg who's running
for president.
[531]
McKinsey is a private
company so it doesn't
[533]
regularly disclose sales
or profits.
[536]
It's even impossible to find
a complete list of
[539]
their clients.
[540]
Although McKinsey told CNBC
that it serves more
[542]
than 90 of the
top 100 companies
[545]
worldwide.
[546]
Duff McDonald lists
AT&T General
[549]
Motors and IBM just
to name a few.
[552]
He also reports praise from
Jamie Dimon CEO of
[555]
JP Morgan Chase – all
in his book the
[557]
firm.
[558]
This is a firm that has a
[561]
historical policy
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of not disclosing anything about
what they do to
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anybody.
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One of the most difficult
things to find is
[570]
satisfied McKinsey clients
because what McKinsey
[573]
does that it sells
credit for its ideas.
[576]
If you're the CEO of a
company and hire them you
[578]
don't want them running
around saying we told
[580]
them to make that
acquisition that was us.
[582]
That was us.
[583]
They take no credit and
they take no blame.
[585]
That is also a brilliant
part of their business
[588]
model. For years they claim
they were only in the
[591]
advice business and what
their clients did with
[593]
their advice was
up to them.
[596]
I think that's a
little less defensible than
[597]
they'd like you to think.
[600]
And the company's alumni have
had ties to some
[603]
major recent
corporate scandals.
[605]
Good evening.
[606]
The stunning collapse
of Enron.
[609]
The main question Did
Enron illegally conceal
[611]
hundreds of millions of dollars
in debt that it
[613]
racked up from outside
investments making it
[616]
appear more profitable than
it actually was.
[618]
Jeff Skilling was briefly
the CEO of Enron
[621]
during the company's fall
from grace spent 12
[624]
years in prison.
[625]
He worked at McKinsey for
more than a decade.
[628]
Reports at the time
confirmed Enron was McKinsey's
[631]
client for years.
[633]
The Wall Street Journal
called the firm
[634]
instrumental in the
energy companies
[636]
transformation.
[637]
A major insider trading
case getting under way
[640]
today and Bertha Coombs is
live in New York City
[643]
as Rajat Gupta goes
on trial in a
[645]
separate scandal.
[646]
Rajat Gupta who was
convicted of insider trading
[649]
in 2012 was a
managing director at
[652]
McKinsey from 1994 to
[654]
2003.
[656]
More recently pharmaceutical
company Valent
[659]
was one of the hottest
stocks from 2012 to 2015
[663]
before it lost more than
90 percent of its value
[666]
in an accounting and
price gouging scandal.
[668]
What you're seeing in
this stock is mass
[670]
abandonment of
this story.
[672]
Now it already was done in
this was a $240 dollar
[674]
stock six months ago.
[676]
Its CEO Michael Pearson
was a McKinsey
[678]
consultant for more
than 20 years.
[681]
Mr. Pearson began begin
with their testimony.
[684]
Valeant was too aggressive
and I as
[687]
its leader was
also too aggressive.
[690]
As a company McKinsey
was not legally
[693]
implicated in any
of these scandals.
[697]
Mckinsey's global footprint
is expanding.
[699]
It tells CNBC it's
in 133 cities
[702]
across 66 countries around
the world with about
[705]
17000 consultants.
[708]
While 75 percent of the
firm's business was in
[711]
what they call core
management consulting 15
[714]
years ago,
[714]
today it's only about
a quarter of their
[716]
business as McKinsey
is expanding into
[719]
technology data
analytics and
[721]
visualization artificial
intelligence
[724]
and industrial design.
[726]
You bring into McKinsey
because they are change
[729]
agents.
[730]
Think about it this way.
[730]
Consultants are the least been
one step ahead of
[733]
their clients.
[734]
That's how they sold
themselves more and more
[736]
companies are saying well
you don't really need
[739]
consultants to help us
in the big
[742]
picture. We need them
in just very tactical
[745]
little areas and those
kinds of projects are
[748]
not the kind
that can sustain
[751]
organizations the size
of McKinsey.
[754]
You got to
feed the beast.
[755]
And that's that's why they
got to change their
[757]
business.
[758]
They are everywhere
in D.C.
[760]
and abroad also you
know McKinsey is very
[763]
influential in
Western Europe.
[765]
They have been for
half a century.
[768]
Whether that's Englander in
Germany or elsewhere.
[771]
But also some recent
New York Times reporting
[774]
has shown that
they are very
[777]
involved with China.
[779]
A lot of state
owned enterprises Saudi Arabia.
[782]
South Africa is
a great example.
[785]
There the company was
ensnared in a government
[787]
corruption scandal.
[789]
McKinsey repaid about 74
million dollars in
[792]
fees and while not
admitting legal wrongdoing
[795]
has apologized for its
involvement in global
[797]
managing partner Kevin
Sneader told CNBC
[800]
Africa.
[801]
I think we've learned many
lessons from this saga
[803]
not the least of which is
when you make a mistake
[805]
it's best to say sorry
quickly and clearly and
[807]
then take steps to ensure
you don't repeat the
[809]
errors.
[810]
And so the second thing
we're doing is really
[812]
looking hard at
what went wrong.
[814]
And then on the back
of that we've already
[815]
started to make a number
of changes to how we
[818]
serve clients.
[818]
The oversight the risk
policies the kind of
[821]
clients we serve and
more importantly the
[823]
partners that we choose
to do client service
[825]
with.
[826]
We really know much
more digging into the
[828]
backgrounds of those who are
not just going to
[829]
accept at face value
what people tell us.
[832]
You know McKinsey is an
institution that is built
[835]
on trust.
[837]
Everybody is supposed
to trust it.
[839]
Its clients are supposed
to trust securities
[841]
regulators are supposed
to trust.
[843]
The public is supposed
to trust it.
[845]
And increasingly
we've seen
[847]
different instances where that
trust may appear
[850]
to have been misplaced.
[852]
This is a firm that could
be a seedbed of all
[854]
manner of potential
conflicts of interest.
[857]
We're supposed to trust
that they manage them
[859]
properly. It may be
that they're so
[862]
big now that that
is almost an impossible
[865]
task.
[866]
The New York Times reported
in early 2019 that
[869]
McKinsey runs a
multi-billion dollar hedge
[872]
fund that may have a
stake in the outcome of
[875]
some of the corporate
restructurings the company
[877]
consults on including their
work trying to
[880]
turnaround the public finances
of Puerto Rico.
[883]
This has opened up questions
about what needs to
[885]
be disclosed by the
company in bankruptcy court.
[889]
McKinsey called the New
York Times report quote
[892]
fundamentally misleading and
said the
[894]
assertion of a conflict
of interest between our
[897]
consulting activity and
MIO the company's
[900]
investment wing is wrong.
[902]
Specifically on Puerto Rico
the company insists
[905]
there was no information
sharing between its
[907]
consultants and its fund.
[910]
And it pointed to
an independent report
[911]
commissioned by Puerto Rico's
oversight board to
[914]
backup its position.
[915]
Overall I think they
have maintained their
[918]
quality and for the most
[920]
part and you can
always point to the
[923]
failings of an organization
you know but they
[926]
mostly maintain their
integrity and they've
[929]
maintained their relationships
long term with
[932]
major industrial companies
and financial
[934]
companies while trying as
much as possible to
[937]
move into space spaces
filled by new industries.
[943]
Will McKinsey's secretive
behind the scenes
[945]
business model persist in
this more transparent
[948]
world of the
digital economy.
[950]
Only time will tell.
[952]
One of the first articles
that covered us when I
[954]
joined the firm was
the McKinsey mystique.
[956]
I think there is a
period of time when mystique
[958]
was a good thing.
[959]
Mystique is not a
good thing anymore.
[960]
People don't like secrecy
and we have to
[963]
change with that.
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