The Downfall of McKinsey
This business news story is so important, and not that many people know about it. The business consulting firm McKinsey has been taking US Government money, and then going to work for China and Russia. I am going to be explaining their conflicts of interest in this video. WATCH NOW
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Sources:
Consulting Overview
https://hackingthecaseinterview.thinkific.com/pages/top-best-consulting-firms
NBC News
CNBC
Senator Rubio letter
Washington Post
https://www.washingtonpost.com/business/2021/02/04/mckinsey-opioid-settlement-purdue/
Settlement agreement
https://ag.ny.gov/sites/default/files/final_new_york_mckinsey_consent_judgment.pdf
National Review
FAR regulations
https://www.acquisition.gov/far/52.203-13
VIDEO SUMMARY
McKinsey is widely recognized as the top business consulting firm in the world. That is why I think this news story has not gotten more publicity. These people are so powerful and so rich that everyone is afraid to speak out against them. They have 30,000 employees and operate out of 130+ offices around the world. These are some of the most powerful people in the world.
To give you an idea of the size of McKinsey, here are the top three consulting firms by annual revenue:
- McKinsey $10.5B
- Boston Consulting Group $8.5B
- Bain & Company $4.5B
What business consultants do is they are supposed to be the experts. A business will hire a consultant so they will:
- share knowledge
- train staff
- develop strategy
McKinsey has been facing a lot of scandals. Recently, they agreed to pay $573.9M to settle charges for its role in the opioid epidemic. We all know that opioids are a huge drug problem in the US. It is devastating communities. McKinsey was hired as a business consultant for the drug company Purdue Pharma which sells OxyContin. McKinsey worked with the drug company for 15 years to “turbocharge” sales. They were pushing these drugs without any concern for the harm to the community.
To be fair to McKinsey, they do not admit to any wrongdoing in the settlement and wanted to quickly resolve the matter.
What is troubling about this case is the clear conflict of interest. At the same time they were working for the drug companies, they were also working for the government and nonprofit groups on how to fight the opioid crisis. They were making money off the problem that they themselves were creating. The settlement specifically requires McKinsey to disclose any potential conflicts of interest to government clients.
More recently McKinsey has been in trouble again with their conflicts of interest in China. McKinsey does a lot of consulting work for the Department of Defense. These are the amounts of McKinsey contracts by select agencies since 2008. It is an enormous amount of money. One of these even includes DARPA. For those of you who do not know, DARPA is the R&D laboratory that develops the most advanced, secret weapons systems for the United States. McKinsey is working with major military programs.
They are also working in China, and that presents a conflict of interest. China is openly hostile towards the US. What makes it difficult to determine the conflicts of interest is that McKinsey has a policy of never disclosing who their clients are. McKinsey says they do not have any conflicts, but we do not know for sure, because we do not know who they are working with.
Someone who has recently been raising these concerns about McKinsey is Senator Marco Rubio. Rubio is the Vice Chair of the Senate Intelligence Committee, so he would know a lot about these contracts. He has written a series of letters to McKinsey trying to establish some guarantees that they are not engaging in a conflict of interest.
Over their series of letters, McKinsey has been slowly changing their story.
- In July 2020, McKinsey wrote a letter stating “To our knowledge, neither the CCP nor the Chinese government has ever been a client of McKinsey.”
- In August 2020, McKinsey wrote another letter and acknowledged that McKinsey “works for state-owned enterprises in China” but does not mention the CCP or the Chinese government.
Then in a bankruptcy court filing in Sept 2020, McKinsey admitted in the document that it has “client connections” to “China” as well as the “Chinese government-Fed/Prov.” This clearly contradicts what they were telling the Senator. McKinsey quickly clarified this to say that they only worked with local and provincial governments, not the main Chinese Communist Party.
- During a Zoom call in March 2021, McKinsey said that “they had no knowledge of the CCP or the Chinese government having ever been a client.”
The progression of these statements is disturbing. McKinsey started by saying the Chinese government was never a client. Then they worked with state-owned enterprises. Then they worked with local and provincial governments.
In December 2021, Senator Rubio wrote a letter to McKinsey directly accusing them of lying, saying “As you well know, any dealings with the Chinese government are necessarily dealings with the CCP.”
The big question is, are they doing the same thing they did with the drug companies. We all give our money in taxes to the US government. The US government gives that money to the US military. The US military then gives that money to McKinsey. Then McKinsey goes to work in China. Whether they are working for a regional government or the central CCP, seems like semantics.
To find out whether McKinsey was lying to the Senator, the news outlet National Review did some digging. They researched on a web archive portal and were able to pull up on older version of the McKinsey website. It turns out that McKinsey states on their old website, “In the past decade alone, we’ve served over 20 different central provincial and municipal government agencies on a wide range of economic planning, urban redevelopment, and social sector issues.” Next to this promotion they include pictures of Chinese government buildings. The website was taken down in 2019.
Just to give you some idea of more work we know McKinsey is doing in China: In the same bankruptcy case document, McKinsey admitted to working with a Chinese company called DJI. Specifically, DJI makes drones that are used to surveil Uyghurs in Xinjiang. The US Treasury has added DJI to an investment blacklist linked to the “Chinese military industrial complex.” The US has called what is happening to the Uyghurs in Xinjiang, a genocide. Just to be clear, we do not know if McKinsey is participating in the genocide, we just know they worked with this company. It seems to me that if this is just one example of who McKinsey is working with in China, it raises the question of whether this is the same type of conflict of interest we saw with the Opioid crisis?
Federal contracts are all governed by Federal Acquisition Regulations called FAR. FAR 52.203-13 requires timely disclosure in writing of any conflict of interest. In addition, in the settlement of the opioid crisis McKinsey’s conduct was so bad, that they agreed to disclose in writing any conflict of interest for any government contract.
I think this is an example of a politician actually doing his job. I know that not everyone likes Senator Rubio, but let us at least give him some credit for standing up to one of the most powerful companies in the world. This is what politicians are supposed to do. Senator Rubio is actually holding McKinsey accountable, and I do not know why he is not doing more. Why is McKinsey getting any money from the US Military? There are so many amazing government contractors in this country that do not engage in conflicts of interest. Why are we not giving the contracts to any of them rather than McKinsey.
But hold on, it gets worse. McKinsey has also been doing business with Russia. NBC News reported yesterday that McKinsey has recently done business with a Russian state-owned company called Rostec. Rostec makes weapons for the Russian military, weapons that Russia is using in its war against Ukraine. To understand what Rostec is, imaging all the US weapons companies were combined together and owned by the government. That is what Rostec is for Russia. It should be noted that McKinsey has pulled out of Russia since the war began. McKinsey has admitted to working for Rostec, but says that they have not worked on any weapons systems.
But hold on, it gets worse. McKinsey has been supporting Putin behind closed doors. When Russian opposition leader Alexei Navalny was poisoned and detained by Putin, there were mass protests in Russia. During the chaos, the McKinsey office sent their employees an email that threatened “McKinsey employees must not support any political activity either publicly or privately. This ban does include posts in social media featuring your political views or your attitude to any action with a political flavour. This line of conduct is mandatory.” In other words, if you posted anything on Facebook that opposes Putin, you would be fired.
I want to add some context here. I am not making this video to bash McKinsey. This is a company with an amazing history. They were the first business consulting firm. No one did it before them. Nowadays business consulting is an established part of the business environment. For McKinsey to create an entire industry is a pretty incredible thing.
I think that we can acknowledge the great accomplishments McKinsey has made, but also we need to stand up for ourselves. This is our money. We are talking about taxpayer dollars. So, we as taxpayers need to make sure there are safeguards in place so that our tax dollars are not misused. It seems from these news stories that McKinsey is starting to lose their way. This is a case where McKinsey is working for the US military on top secret weapons system, and then they go and work for China and Russia in some capacity that we are not really sure. It is kind of like a company that sells guns to both sides during a war. Now they are a private company. They can do what they want. If they want to go work for China, they can do that. But we can do what we want. We can tell our politicians to stop hiring these people. McKinsey has done $875M worth of work for the Department of Defense since 2008, and in my opinion, they should not be given another dime of the military’s money.
I have to reiterate, that McKinsey denies that they have done anything wrong. They deny they have any conflicts of interest. They deny they have violated any contracting laws. And they say they have been settling lawsuits without admitting fault in order to quickly resolve the matter.
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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.