When the US energy trading company, Enron, which allegedly had $US60 billion in assets went bankrupt in 2001 its auditor, Arthur Anderson LLP, which had missed Enron’s fraudulent accounting was dissolved.
Arthur Anderson had been one of the world’s largest auditing and accounting firms in the world.
Another consultancy which had also made tens of millions of dollars in consultancy fees from Enron continued on earning tens of millions of dollars from other companies as well as governments such as the Morrison Government.
The consultancy was of course McKinsey’s famous for packs of hundreds of Power Point slides and now famous for its Teflon capacity to shake off the impacts of disasters which would have sunk many others.
Walt Bogdanich and Michael Forsythe have published When McKinsey Comes to Town – a series of revelations about McKinsey from its early inception to today.
McKinsey was founded by an Ozarks accountant, James O. McKinsey whose first client was US Steel. McKinsey’s remained a pivotal advisor to the company through its history helping create what a congressional committee described as “a brutal system of wage slavery”. It also helped create a ‘transformational plan’ (under the name The Carnegie Way a nod to US Steel’s founder, Andrew Carnegie who loved libraries but hated unions) which ended up in a 2017 $US180 million loss, the biggest stock price fall in the company’s history and an appalling health and safety performance.
The authors point out that McKinsey has a thing about maintenance and the need to cut any costs incurred in maintaining things.
The worst example of this was at Walt Disney’s largest park, Disney World in Florida. Under Walt Disney the company had an impeccable safety record. But under McKinsey advice called “Transforming Maintenance: Defining the Disney Standard” standards were cut back, managers tasked with supervising safety on rides were fired and in 2000 and 2003 a series visitor deaths and horrendous injuries occurred.
In the notoriously litigious US Disney faced massive legal and compensatory costs probably greater than the fees McKinsey earned for the advice which created the situations.
The authors also recount in detail McKinsey’s role in the massive increases in executive remuneration in the US (with follow on impacts around the world); downward pressure on workers’ wages; increased casualisation; and the massive inequality which followed it.
McKinsey was also instrumental in Walmart’s efforts to avoid health care coverage costs by increasing the proportion of casual workers employed. Ditto with labour cost savings at AT&T and Verizon although at one stage in the Verizon gig there were almost as many McKinsey consultants working in the company as there were employees.
But McKinsey could be generous. It did pro bono work in Illinois on how to break the cycle of poverty and wean the poor of welfare by reorganising government. It also tackled the health care problem.
The pro bono advice was immensely profitable as McKinsey subsequently earnt millions in fees from the Illinois Government for setting up managed care systems and then more millions for advising managed care providers on how to profit from the system.
Still in the health care field McKinsey was hired to undermine the case for Obama’s Affordable Care Act with a survey which projected that a third of employers would stop offering full health coverage when the Act became law. Bogdanich and Forsythe say McKinsey initially refused to provide the data about their survey which contradicted the research of the Rand Corporation, the Urban Institute and the Congressional Budget Office.
Finally, they fessed up to the study’s shortcomings but not to the push polling it involved nor the huge amount of work the company was undertaking for health insurance providers.
…and when COVID arrived McKinsey was also on the wagon train earning more than $US100 million in the early days of the pandemic for advising local, state and federal officials on how to handle the pandemic.
The authors say: “For a company that expends so much effort presenting itself as a voice for health care reform, McKinsey has remained silent on some of the most important health issues of our time. It did not lead the fight against cigarettes, vaping or opioid abuse” nor the high cost of drugs nor “the tsunami of direct-to-consumer drug company advertisements.”
The authors devote a chapter to the work McKinsey undertook for the Trump Government Immigration and Customs Enforcement (ICE) while it was rounding up undocumented immigrants; separating children from their parents and shutting up young children in “chain-link enclosures no better than cages.”
They also advised on cost cutting at the agency and private contractors including areas such as ‘medical’
Many of the McKinsey staff revolted and copies of the inevitable power point slide packs ended up being reported on in the New York Times and ProPublica. They got support but one of the ring leaders was asked: “Did he know how much money in lost productivity his email (which started the controversy) had caused.”
The authors also recount how McKinsey, while earning hundreds of millions of dollars working for the US Defence Department and other defence agencies was seeking and working for many Chinese clients including a Chinese government-owned company building islands in the disputed waters areas; promoting the Belt and Road Initiative; and, organising a knees up four miles from one of Xinjian detention camps. It also employed the Chinese Premier’s son-in-law although this was surely a merit-based hire.
It was also a tad flexible about some human rights controversies. The company signed a full-page ad in the New York Times dedicated to George Floyd’s memory but sadly seemed to have missed saying anything about the massive Hong Kong pro-democracy riots which often took place quite near to their HK offices.