Corporate corruption, greenwashing, and responsibility evasion
Last year, Penguin Random House published When McKinsey Comes to Town – The Hidden Influence of The World's Most Powerful Consulting Firm by investigative journalists Walt Bogdanich and Michael Forsythe. The book exposes the shady business practice of McKinsey – the world's original and most prestigious management consultancy – and the long-term harm it has caused society.
Going to a management consultant is like visiting a doctor. Governments and corporations hiring a consultant for advice on business-critical matters pour out all available information, believing they will get professional and impartial advice in return. And, of course, the whole thing is confidential, and no information is to be shared with anyone, unless it is necessary to devise good business advice. Or so the Australian federal government thought back in 2015.
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Canberra hired PricewaterhouseCoopers (PwC) – one of the four largest global accounting and strategy networks along with KPMG, Ernst & Young, and Deloitte – to draft laws for making big global companies like Google, Facebook and Apple pay their fair share of taxes in Australia. That resulted in the legislation known as the Multinational Anti-Avoidance Law (MAAL), the legal tool under the Base Erosion Profit Shifting project of the Organisation for Economic Co-operation and Development (OECD), aiming to stop major companies, particularly tech giants, from shifting their profits away from higher-taxing countries to others with lower tax rates.
But there was a problem.
Despite signing multiple non-disclosure agreements, PwC's international tax expert Peter-John Collins, the principal consultant, compromised confidentiality. That gave the firm an advantage because it could also devise ways for companies to get around paying the new tax. As the book exposes, it used this advantage to secure new jobs and make more money, a practice McKinsey has long followed.
One essential element of the McKinsey culture is corporate greenwashing, whereby a company makes a false claim about something it is doing for a good cause, such as environmental preservation. Besides, on McKinsey's advice, many corporations have reduced or eliminated the middle managers and given a hefty pay rise to the top ones – the chief executive officer, chief financial officer, all the roles that start with the title "chief" (the C-suite). In the 1970s, American CEOs made 20 times more than the typical workers. It has now risen to 278 times. This skewed compensation model has squeezed the middle class out of the scene, forcing them to join an army of outsourced staff or subcontractors without the usual company benefits.
Founded in 1926 by James O McKinsey, the firm quickly formed a culture of euphemism, coining new feel-good words to sweeten the ruthless business practices it adopted, starting by selling itself as a "values-driven organisation." The "firm" became a "practice" that "engaged" with clients, not "worked" for them. The effect of such euphemism became so deeply ingrained that even when an ill-advised "optimising" and "rightsizing" (actually severe cost-cutting by reducing maintenance staff and operation) in Disney theme parks caused several deaths, it quickly shrugged off all responsibilities by saying that none of its staffers were involved in maintaining the facilities that had caused the deaths. One can easily guess there was a disclaimer with every McKinsey recommendation to the effect that it wouldn't be responsible for the outcome of the actions based on it. Such cost-cutting and brutal redundancy programmes became the norm of the day simply because they increased company profits.
The practice (or is it malpractice!) continued unabated. Remember the energy giant Enron that collapsed in 2001 after a massive accounting fraud? McKinsey promoted Enron as the new corporate innovation model, implementing the off-balance-sheet accounting practice. However, after Enron's implosion, McKinsey absolved itself from any responsibility, saying it was not an adviser on financial and reporting matters. There is more. Just before the company's bankruptcy, on McKinsey's advice, Enron's top five executives took nearly $300 million in wages in one year alone.
The saga goes on. The opioid crisis, in which Purdue Pharma kept selling the drug despite knowing the risks and caused more than 564,000 deaths between 1999 and 2020, Saudi Arabia's harassment of dissidents, including Jamal Khashoggi's execution in 2018, and President Donald Trump's ruthless immigration detention policy from 2017 onwards, all have a common thread – McKinsey. However, the most significant harm it has done is perhaps introducing a culture of impunity in the corporate world by giving a way to evade responsibility should things go wrong: disclaimers, employee declarations, and a masquerade of elite company culture. We may call it the McKinsey culture.
One essential element of the McKinsey culture is corporate greenwashing, whereby a company makes a false claim about something it is doing for a good cause, such as environmental preservation. Besides, on McKinsey's advice, many corporations have reduced or eliminated the middle managers and given a hefty pay rise to the top ones – the chief executive officer, chief financial officer, all the roles that start with the title "chief" (the C-suite). In the 1970s, American CEOs made 20 times more than the typical workers. It has now risen to 278 times. This skewed compensation model has squeezed the middle class out of the scene, forcing them to join an army of outsourced staff or subcontractors without the usual company benefits.
Such ruthless cost-cutting made possible the obscene pay rise for the C-suite, with a large amount of disposable cash to spend on unnecessary and luxury items – such as big cars and houses, fast fashion, and expensive family holidays, besides huge investments in stocks and properties – that consume more energy and resources, causing irreparable environmental damage and social inequality.
As is the current norm, every corporation has a code of practice that includes pro-environment, anti-corruption, pro-workplace safety, and pro-gender balance policies, to name a few, which its employees must sign off on. But often, it doesn't work because corporations exist to make money. Their budget targets assume growth by default, for which the ends justify the means. The McKinsey culture has infiltrated every sphere of corporate governance, adversely impacting millions worldwide.
Is there a way out?
Dr Sayeed Ahmed is a consulting engineer and the CEO of Bayside Analytix, a technology-focused strategy and management consulting organisation.
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