In the early 21st century, McKinsey & Company was faced with a dilemma. Reeling from the dot-com bubble crash, the prestigious consulting firm needed to enlarge its client pool to ensure its competitive edge over its rivals. The firm’s big idea? To compete for government contracts, not just with the United States, but worldwide.
In their new book “When McKinsey Comes to Town,” New York Times reporters Walt Bogdanich and Michael Forsythe reveal how McKinsey’s decision to venture into the public sector at home and abroad created a business model rife with conflicts of interest.
Domestically, some of these exploits are well-known, such as McKinsey advising the FDA while also advising pharmaceutical giant Purdue Pharma. Internationally, McKinsey’s work at times appears equally rife with potential conflicts of interest, courting state clients as diverse as the Pentagon, China, and Saudi Arabia.
Many of these conflicts of interest stem from McKinsey’s close relationship with the Pentagon.
Since 2008, McKinsey has been awarded upwards of $940 million worth of federal contracts, with the Department of Defense being its top client. This work has ranged from advising senior officials on developing technology for the Air Force and Space Force to evaluating the management of the F-35 program.
Plenty of former McKinsey consultants cycle through Pentagon posts: “Chewning, former DoD industrial head, returns to McKinsey,” reads one headline on a story about Eric Chewning, who served as an assistant defense secretary for industrial policy during the Trump administration. According to Bogdanich and Forsythe, “Internal McKinsey records show that from 2018 until early 2020, the U.S. Defense Department was among McKinsey’s top tier of clients.”
But even as McKinsey took up hundreds of millions of dollars in defense contracts, it also advised a cadre of foreign companies and governments. McKinsey’s own website brags about these connections: “We have long-standing relationships with ministries and departments of defense worldwide.” In Russia, they consulted weapons manufacturer Rostec. In China, they advised China Communications, the government-owned engineering company responsible for building man-made islands in the South China Sea. Bogdanich and Forsythe write that McKinsey’s client list in China, which included 19 state-owned clients from 2018 to 2020, conflicted with the Pentagon:
“In 2016, the same year McKinsey was advising China Communications, it was also studying how the U.S. Army could reduce costs in sustaining America’s industrial base for manufacturing ammunition. McKinsey has also worked with the Naval Surface Warfare Center in Dahlgren, Virginia, which helps develop the weapons that would be used in a conflict with China.”
McKinsey insists that consultants are unable to share client information because of an internal wall. But McKinsey’s opioid scandal revealed this firewall to be porous at best. While crafting materials for incoming health and human services secretary Alex Azar in 2018, McKinsey allowed consultants advising Purdue to provide input. The memo removed language deemed as hyperbolic, such as “crisis” and “epidemic.”
It isn’t just work for America’s adversaries that can create potential conflicts of interest. In 2016, a year in which McKinsey was carrying out 64 contracts for the U.S. government, the firm had 137 projects in Saudi Arabia. There, McKinsey became enmeshed in the government during Crown Prince Mohamed bin Salman’s Machiavellian rise. Their consultants all but assumed the role of government officials, earning the Planning Ministry the only half-sarcastic nickname “Ministry of McKinsey.”
Bogdanich and Forsythe write that part of the firm’s work was to engage in “sentiment analysis,” a form of opinion mining for the Saudi government. A McKinsey report identified three Saudi dissidents as prominent critics of the regime on Twitter. One was arrested. Another disappeared from Twitter. The third, Omar Abdulaziz, had his phone hacked, compromising his communications with fellow Saudi dissident and U.S. resident Jamal Khashoggi.
When Khashoggi was brutally assassinated, Senator Elizabeth Warren (D-Mass.) called out McKinsey for its role in a letter to the firm’s Managing Partner, Kevin Sneader: “I am concerned that McKinsey's report on public perception may have been weaponized by the Saudi government to crush criticism of the Kingdom's policies.”
Should a firm responsible for strengthening authoritarian leaders abroad and undermining the United States be allowed to receive federal contracts, especially on issues of national security?
McKinsey promotes its values fervently, promising young, idealistic consultants to change the world alongside them. But it simultaneously refuses to judge the values of its clients. One moment from “When McKinsey Comes to Town” lays bare these values: In March of 2019, just months after Jamal Khashoggi’s assassination, a reporter asked Sneader what McKinsey would do if they found out their client was a murderer. “You walk,” he replied. That same year, McKinsey’s revenue from Saudi Arabia increased over the previous year.
To that end, the United States is addicted to the same vice, oscillating from caring about human rights to ignoring its most fervid abusers when convenient. Even McKinsey’s refrain of, “If we don’t work with X authoritarian country, Boston Consulting Group will,” is a line that will sound familiar to students of U.S. arms sales. Ultimately, this shared agnosticism may be why the U.S. government hasn’t reined McKinsey in, even as the firm has increased its work with authoritarian governments.
At least one incremental step has been taken. Just after Christmas, Biden signed into law the Preventing Organizational Conflicts of Interest in Federal Acquisition Act. The new law seeks to strengthen and clarify the rules surrounding organizational conflicts of interest, which haven’t seen a significant change since the 1990s. Some want to go much further: Senator Marco Rubio (R-Fla.) has said that McKinsey “cannot be trusted” with federal contracts, citing “serious institutional conflicts of interest.”
Since McKinsey’s client list is their most closely-guarded secret, it’s often difficult to know whether the firm has organizational conflicts of interest. One way to find out would be to make public its client list and let organizations and governments decide for themselves. As one group put it: “We cannot know if McKinsey has any conflicts of interest because we don’t know who all their current clients are.”
Shrouded in a culture of secrecy, McKinsey’s foray into government contracts raises larger questions about how American tax dollars are being used. The FDA has announced it will no longer issue federal contracts to McKinsey, but the Pentagon remains one of McKinsey’s largest clients. Bogdanich and Forsythe write that perhaps the United States could learn from South Africa, where McKinsey is facing its first criminal charges in the firm’s 96-year history in a corruption scandal over the diversion of public funds into private hands:
“McKinsey had long profited from government contracts without accepting the responsibility to account for how it spent the public’s money. In the United States, its prestige and political connections, as well as the country’s favorable regulatory laws, often insulated the firm from questions about those contracts. It is surprising, then, that it took South Africa, a fragile democracy barely two decades old, to teach McKinsey lessons about accountability that it hadn’t learned in the United States.”
