Wednesday, March 2, 2011

"Is McKinsey & Co. the Root of All Evil ?"

You are, of course, familiar with the phrase "Too clever by half"?
From The Big Picture:
“Enron has built a reputation as one of the world’s most innovative companies by attacking and atomising traditional industry structures.”
-McKinsey report, published a few months before Enron’s collapse.>
Rajat Gupta was more than a mere board member of Goldman Sachs, Procter & Gamble, and others. He ran McKinsey & Co. from 1994 to 2003, and was a senior McKinsey partner until 2007.
When the Securities and Exchange Commission brought insider trading charges against Gupta, it did more than merely accuse him of being a crook. It shined a long overdue light on a company that has successfully dodged responsibility for some of the worst financial ideas in history.

McKinsey, the global consulting firm, has created dubious strategies for all manners of companies ranging from Enron to General Electric. Indeed, where ever there has been a financial disaster in the world, if you look around, somewhere in the background, McKinsey & Co. is nearby.

That’s a pretty significant accusation. But it is bore out by the track record of the firm. Some of the more questionable strategies of McKinsey:
• Advocating side pockets and off balance sheet accounting to Enron, it became known as “the firm that built Enron” (Guardian, BusinessWeek)
• Argued that NY was losing Derivative business to London, and should more aggressively pursue derivative underwriting  (Investment Dealers’ Digest)
• General Electric lost over $1 billion after following McKinsey’s advice in 2007 — just before the financial crisis hit. (The Ledger)
• Advising AT&T (Bell Labs invented cellphones) that there wasn’t much future to mobile phones (WaPo)
• Allstate reduced legitimate Auto claims payouts in a McK&Co strategem (Bloomberg, CNN NLB)
• Swissair went into bankruptcy after implementing a McKinsey strategy (BusinessWeek)
• British railway company Railtrack was advised to “reduce spending on infrastructure” — leading to a number of fatal accidents, and a subsequent collapse of Railtrack. (Property Week, the Independent)

Despite the fact that Mr. Ritholtz was obviously tired when he typed this he is on to something.
He doesn't mention that Enron's former president, Jeff Skilling, was one of the "youngest-ever" McKinsey partners.
Cara Ellison at The Enron blog doesn't pull her punches though. In October 2009 she posted "No, Really, McKinsey Is Evil":

I had a funny email conversation with a friend who, like approximately 88% of the Enron staff, worked at McKinsey before Enron. I thought you’d find this amusing:
After the Enron book, my next amazing trick will be….
MCKINSEY EXPOSED! Learn how this global consulting firm makes its billions of dollars. What was its relationship with Enron and Halliburton? Why do so many executives begin there? ARE THEY TRYING TO TAKE OVER THE WORLD? (Or is it just an accident???) Find out in Cara Ellison’s amazing bestseller revealing all the juicy secrets of MCKINSEY & CO!
Maybe McKinsey is like the Illuminati or the Skull & Bones Club!
I think it is! It’s craaaaaaaaaaaaaaazzzzzzzzzzzzy creepy! Like ENRON! Enron was really the Taliban and they were paying Dick Cheney. Hey, did you know that Ken Lay actually MET WITH THE PRESIDENT???????
Evil, I tells ya.
And I hear McKinsey only hires, like, smart people so it’s like this club of the wealthy smart elite and they’re trying to take over the world.
I shall expose them!...MORE
In  July of last year she got into some of the nitty-gritty with "McKinsey at Enron".

As far back as 2002 BusinessWeek was taking a look "Inside McKinsey":
Enron isn't its only client to melt down. Suddenly, times are trying for the world's most prestigious consultant...