How can an institution built on trust survive a seemingly complete breach of that very thing?How can an institution built on trust survive a seemingly complete breach of that very thing?
By Duff McDonald
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Art credit: Peter Crowther[/caption]
What is good news? What is bad news? It all depends on your perspective, doesnât it? For journalists working on a story, any news about your subject can be good news, except if that particular piece of news forces you to throw out everything youâve done. The same holds true if youâre writing a bookâif something major happens in the midst of your writing, itâs got to be good news, regardless of the particulars, doesn't it?
Thatâs the situation in which I found myself in early 2010, when former McKinsey managing director Rajat Gupta was first implicated in the Galleon insider trading scandal. Iâd been working on my history of the legendary consulting organization, The Firm: The Story of McKinsey and Its Secret Influence on American Business, since the fall of 2009. I received numerous emails from friends congratulating me on having had the foresight to write about an organization that suddenly seemed capable of exploding in an Enron-like conflagration at the perfect time for me, Duff McDonald, author. And I will admit being somewhat âexcitedâ about what was certainly a painful experience both for Gupta and McKinsey itself. Not in the sense that I enjoyed their pain, but in the fact that it had the potential to help sales of my book. Iâm just being honest here.
The Galleon debacle made for a more dramatic ending to my own book than it otherwise might have had, but the really interesting thing about it was not what it did to McKinsey but what it didnât do. While the firm could certainly have done without all the negative publicity engendered by Guptaâs ethical and legal transgressions, the experience is already receding in the rear-view mirror for McKinsey, which has emerged from the whole experience largely unscathed. The fact that it has is testament to the power of what may be the greatest brand in the history of professional services.
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Thatâs the kind of consideration you earn from your clients not just by doing good work, but also by doing it for yearsâor decades.
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How is it, you might ask, that an institution built on a foundation of trustâclients trust that McKinsey consultants know what theyâre talking about, that they will keep their secrets, that they have the clientsâ best interests in mind and not their ownâwas able to survive what seems, by any reasonable interpretation, to be a complete breach of that very thing? For McKinsey, the Galleon imbroglio boiled down to this: At the same time that Gupta was breaching the confidentiality of his board seat at Goldman Sachs, another McKinsey partner was selling client secrets to Galleon in an utter violation of the consulting compact. How did they not bring McKinsey down with them along with Galleon itself? (While the news of Guptaâs travails did indeed prove to be very good for one author, it wasnât me. Rather, it was Anita Raghavan, Câ86, writer of The Billionaireâs Apprentice: The Rise of The Indian-American Elite and The Fall of the Galleon Hedge Fund.)
One reason that I was given by several of McKinseyâs clients, including the CEO of an accounting firm that had been working with the partner in question, is that most CEO s of giant companies subscribe to the bad apple theoryâtheyâre prepared to give an institution the benefit of the doubt when it appears that a problem is the result of one bad actor and not an institutional failing. The directors of McKinsey immediately launched an internal investigation to see if others within its ranks were subverting client trust. It was not the case, and thus every single client CEO that I spoke to was willing to see the case for what it was: The crimes were of an individual natureâ not an institutional one.
Thatâs the kind of consideration you earn from your clients not just by doing good work, but also by doing it for yearsâor decades. While thereâs no shortage of critics of the management consulting industry or of McKinsey itself, thereâs a reason that some 85 percent of McKinseyâs business comes from repeat customers; it has made a habit of delivering on its promises to clients. The nature of those promises has changed and expanded over timeâfrom the firmâs original claim to speak truth to power (i.e., telling the CEO something everyone else is afraid to say) to providing what I call âde facto industrial espionage,â to giving a board of directors comfort that the alternatives of a decision have been thoroughly consideredâbut McKinsey nevertheless has a long and well-documented history of satisfied customers.
How did it get that way, and how has it stayed there? To explain that would take a bookâyou may feel free to purchase mine if youâd like the long answerâbut the methods McKinsey used are quite obvious, if also remarkably difficult to actually put into practice. First, know who you are and what you do. Second, hire the best people, invest heavily in their training and development, but also cull your ranks of nonperformers with the same vigor. Third, face up to your mistakes,learn from them and evolve. And fourth, believe in yourself, even if there are those who donât. Thereâs a reason that people who have left McKinsey even decades ago still use the word âweâ when describing the firm in the present tense. In all my years in journalism, I have never come across a company that becomes a bigger part of the self-image of those who work there as McKinsey. The whole Gupta scandal did more damage to McKinseyâs own opinion of itself than it did to anybody elseâs. But they will recover. They always do.
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Duff McDonald, W'92[/caption]
Duff McDonald, Wâ92, is a New York-based journalist. A contributing editor at The New York Observer, he has also written for The New Yorker, Vanity Fair, New York, Esquire, Bloomberg BusinessWeek, Conde Nast Portfolio, Fortune, GQ, WIRED, Time, Newsweek and others.

