When McKinsey Comes to Town

When McKinsey Comes to Town Plot Summary

Introduction

In a nondescript conference room in Gary, Indiana, two McKinsey consultants presented their findings to U.S. Steel executives. Their recommendation was simple yet consequential: cut maintenance costs to improve profitability. Within months of implementing these changes, two workers died in separate electrocution incidents. The families blamed the cost-cutting measures for creating unsafe conditions. This scene, repeated countless times across industries and continents, exemplifies how decisions made in corporate boardrooms—guided by prestigious consultants—can have life-or-death consequences for ordinary people. McKinsey & Company operates largely in the shadows of global business and politics, yet its influence extends into nearly every aspect of modern life. This shadowy consulting giant advises 90% of the world's largest corporations, numerous governments, and powerful institutions while maintaining strict confidentiality about its work. From healthcare to banking, from tobacco to opioids, from authoritarian regimes to democratic governments, McKinsey's fingerprints can be found on some of the most consequential decisions of our time. While portraying itself as a values-driven organization that helps clients succeed, the firm has repeatedly prioritized profit over public welfare, accelerated economic inequality, and helped powerful institutions avoid accountability—all while maintaining an aura of intellectual superiority that shields it from scrutiny.

Chapter 1: The Birth of Corporate Consulting (1926-1970s)

In the aftermath of the Great Depression, American businesses faced unprecedented challenges that demanded new approaches to management and organization. Into this environment stepped James O. McKinsey, a University of Chicago accounting professor who founded his eponymous firm in 1926. McKinsey believed that businesses could be systematically analyzed using rigorous, fact-based methods—a revolutionary concept at a time when most companies were run on intuition and tradition. His approach combined financial analysis with organizational design, offering clients a comprehensive view of their operations and strategies for improvement. The firm's transformation into a global powerhouse began under Marvin Bower, who joined in 1933 and later became managing director. Bower, a Harvard-educated lawyer, established the principles that would define McKinsey for decades: hiring only the brightest graduates from elite universities, maintaining strict client confidentiality, and providing unbiased advice regardless of consequences. He insisted consultants dress conservatively in dark suits and white shirts—creating the archetype of the professional management consultant that persists to this day. Bower famously referred to McKinsey as a "firm" rather than a company, running a "practice" instead of a business, and conducting "engagements" rather than jobs—terminology that elevated consulting to the status of established professions like law and medicine. By the 1950s, McKinsey had become the trusted advisor to America's corporate elite. The firm helped companies like General Motors, AT&T, and General Electric restructure their operations, implement new management techniques, and improve efficiency. McKinsey popularized concepts like decentralization and the multidivisional structure, which became standard across industries. The firm's influence extended beyond individual companies to shape entire sectors of the economy, as its recommendations were adopted by competitors seeking similar advantages. McKinsey partner Arch Patton conducted influential studies on executive compensation that helped justify dramatic increases in pay for corporate leaders—setting in motion trends that would later contribute to growing inequality. McKinsey's expansion accelerated in the 1960s as the firm opened offices in Europe, establishing beachheads in London, Paris, Amsterdam, and other financial centers. This international growth reflected the increasing globalization of business and the spread of American management techniques. McKinsey consultants brought standardized approaches to diverse markets, helping multinational corporations coordinate their operations across borders. The firm's alumni network also began to expand its influence, as former consultants took leadership positions at major corporations, government agencies, and nonprofit organizations. This "McKinsey diaspora" ensured that the firm's approaches to business problems would permeate institutions worldwide. By the 1970s, McKinsey had established itself as the gold standard in management consulting, with an unmatched reputation for intellectual rigor and professional excellence. The firm's recommendations carried enormous weight with corporate boards and executives, who viewed McKinsey's involvement as a mark of prestige and forward thinking. This period also saw McKinsey develop deeper expertise in specific industries and functions, allowing it to offer more specialized advice to clients. As economic challenges mounted in the 1970s—including oil shocks, stagflation, and increasing international competition—McKinsey positioned itself as an essential guide for companies navigating uncertainty, setting the stage for even greater influence in the decades to come.

Chapter 2: Reshaping Capitalism: Downsizing and Inequality (1980s-1990s)

The 1980s marked a fundamental shift in American capitalism, as corporations moved away from the stakeholder model that had characterized the post-war era toward a singular focus on shareholder value. McKinsey played a central role in this transformation, providing intellectual justification and practical guidance for companies seeking to maximize returns to investors. The firm's consultants embraced the ideas of economists like Milton Friedman, who argued that a corporation's sole responsibility was to increase profits for shareholders. This perspective represented a dramatic departure from earlier views that companies had obligations to multiple constituencies, including employees, communities, and society at large. McKinsey's influence on corporate restructuring became particularly evident during this period. The firm developed and promoted methodologies for identifying redundancies, eliminating middle management layers, and outsourcing non-core functions. These approaches, which McKinsey implemented at hundreds of major corporations, resulted in massive job losses and contributed significantly to the hollowing out of the American middle class. One former McKinsey consultant described the firm as "the single greatest legitimizer of mass layoffs than anyone, anywhere, at any time in modern history." Companies that might have hesitated to eliminate thousands of jobs could point to McKinsey's analysis as objective justification for these painful decisions. The 1990s saw McKinsey champion the practice of offshoring, helping companies move manufacturing, customer service, and back-office functions to lower-wage countries like China, India, and the Philippines. The firm's McKinsey Global Institute published influential reports arguing that offshoring created value for the global economy and would ultimately benefit American workers through lower prices and new job creation. In a 2003 report titled "Offshoring: Is It a Win-Win Game?", McKinsey claimed that for every dollar of corporate spending moved offshore, the U.S. economy would gain at least $1.12 in benefits. Critics noted that these benefits were theoretical and long-term, while the job losses were immediate and concentrated among vulnerable workers. Executive compensation exploded during this period, with McKinsey playing a significant role in this trend. Building on Arch Patton's earlier work, the firm advised companies on creating compensation packages that aligned executive incentives with shareholder returns. These typically included stock options, performance bonuses, and other forms of variable pay that could reach astronomical levels when stock prices rose. McKinsey's studies showing correlations between certain compensation structures and financial performance gave boards cover to approve increasingly generous packages. The result was a dramatic widening of the gap between executive pay and worker wages—from roughly 30:1 in the 1970s to more than 300:1 by the end of the 1990s. The cumulative impact of these changes transformed the American economy and society. Income inequality reached levels not seen since the 1920s, job security declined dramatically, and many communities that had depended on manufacturing employment were devastated by plant closures and offshoring. While McKinsey was certainly not solely responsible for these trends, the firm had played a significant role in developing and legitimizing the management approaches that produced these outcomes. By providing intellectual cover for decisions that prioritized short-term financial results over long-term sustainability and social welfare, McKinsey helped create a form of capitalism that generated enormous wealth for some while leaving many others behind.

Chapter 3: Regulatory Capture: From Tobacco to Opioids

McKinsey's work with controversial industries revealed a pattern of ethical compromises that prioritized profit over public health. Perhaps nowhere was this more evident than in the firm's decades-long relationship with the tobacco industry. Beginning in the 1950s, McKinsey advised major tobacco companies like Philip Morris, R.J. Reynolds, and Lorillard, helping them improve their operations and marketing strategies even as evidence mounted about the deadly effects of their products. The firm's tobacco work continued long after the 1964 U.S. Surgeon General's report conclusively linked smoking to lung cancer and other diseases. In the 1980s and 1990s, McKinsey helped tobacco clients optimize their retail merchandising and display programs to maximize sales. The firm also advised on international expansion strategies as tobacco companies sought new markets in developing countries where regulations were weaker. For Lorillard, whose Newport brand was especially popular with Black customers, McKinsey sent Pamela Thomas-Graham, the firm's first Black female partner, to help lead its team—a choice that raised questions about the firm's willingness to exploit racial demographics to sell deadly products. McKinsey also helped tobacco companies develop a code of conduct to convince the world they could self-regulate, hoping to circumvent the World Health Organization's first global public health treaty. The pattern of ethical compromise continued with McKinsey's work for opioid manufacturers, particularly Purdue Pharma. Between 2004 and 2019, McKinsey received $83.7 million from Purdue for advice on boosting sales of OxyContin, a powerful and highly addictive painkiller that played a central role in America's devastating opioid epidemic. McKinsey consultants helped Purdue target high-prescribing doctors, counter efforts by regulators to restrict opioid use, and develop messaging to overcome "emotional" concerns about addiction. In 2013, as OxyContin sales were declining due to increasing awareness of addiction risks, McKinsey recommended that Purdue "turbocharge" its sales efforts. Perhaps most disturbing was McKinsey's proposal that Purdue pay rebates to pharmacy companies for patients who developed opioid use disorder or suffered overdoses. This callous suggestion, which treated human suffering as merely a business expense, exemplified the moral bankruptcy of McKinsey's approach. The firm appeared willing to help its client maximize profits regardless of the human cost, which ultimately included hundreds of thousands of deaths from opioid overdoses. Internal documents later revealed that McKinsey partners were aware of the ethical problems with their work. In 2018, senior partner Martin Elling sent an email to a colleague suggesting they consider "eliminating all our documents and emails" related to Purdue. In February 2021, McKinsey agreed to pay $573 million to settle investigations by 47 states, the District of Columbia, and five territories into its role in helping "turbocharge" opioid sales. The settlement came without an admission of wrongdoing, but it represented an unprecedented acknowledgment of the firm's contribution to a public health disaster. While McKinsey's managing partner apologized, saying the firm "fell short" of its standards, the tobacco and opioid cases illustrated a troubling pattern in which McKinsey's commitment to serving client interests often trumped broader ethical considerations about the impact of its work on society.

Chapter 4: Serving Both Sides: Conflicts of Interest in Government

McKinsey's ability to serve competing interests simultaneously has been a cornerstone of its business model and a source of persistent ethical concerns. Unlike law firms, which are prohibited from representing clients with conflicting interests, McKinsey routinely works for direct competitors within the same industry. The firm maintains that its internal "confidentiality protocols" prevent information sharing between teams serving competing clients, but former consultants have questioned the effectiveness of these barriers, noting that the firm's knowledge-sharing systems and promotion of collaboration can undermine these protections. This willingness to serve competing interests reached its apex in McKinsey's work with government agencies and the private companies they regulate. In the healthcare sector, McKinsey has advised pharmaceutical companies on how to maximize drug pricing while simultaneously consulting for the Food and Drug Administration, which regulates those same companies. Similarly, the firm has worked for health insurance companies seeking to minimize payouts while also advising state Medicaid programs on how to manage their relationships with those insurers. This dual service model creates obvious conflicts of interest, as McKinsey possesses insider knowledge about both regulators' strategies and the companies they oversee. A particularly stark example emerged in Illinois, where McKinsey secured contracts worth over $100 million to advise the state's Medicaid program on restructuring while simultaneously consulting for insurance companies bidding on those same Medicaid contracts. Four of the seven companies that won parts of Illinois' $63 billion Medicaid contract were either McKinsey clients or soon-to-be clients. When state comptroller Susana Mendoza discovered officials quietly funneling millions to McKinsey while essential services starved during a budget crisis, she froze $21.6 million in payments and demanded answers about why consultants "appear to be prioritized for payment ahead of critical services." Similar patterns emerged in Missouri and Arkansas. In Missouri, McKinsey won a $2.7 million contract to evaluate Medicaid after submitting a bid with extensive redactions and benefiting from a sudden change in selection criteria that de-emphasized cost. In Arkansas, Blue Cross Blue Shield offered the state a $1.5 million grant if it would hire McKinsey, which the state did through an "emergency" sole-source contract. McKinsey parlayed that initial $3 million into state business totaling more than $100 million without ever submitting a competitive bid. The revolving door between government and McKinsey further complicates matters, as officials who award contracts to the firm sometimes later join McKinsey or its clients. This creates incentives for government employees to maintain good relationships with the firm, potentially compromising their objectivity when making procurement decisions. From 2018 until early 2020, the U.S. Defense Department was among McKinsey's top tier of clients, yet the firm also advised Chinese state-owned companies building military bases in disputed waters, creating potential conflicts with American interests. McKinsey's defense against conflict of interest allegations has consistently relied on its claim of professional neutrality and strict internal information barriers. However, the firm's dual service model raises fundamental questions about whether a single organization can faithfully serve both regulators and the regulated without compromising its obligations to either. As one former partner put it, "The walls between teams are more like Swiss cheese than concrete," suggesting that McKinsey's assurances about information barriers may be more rhetorical than real.

Chapter 5: Authoritarian Partnerships: Enabling Controversial Regimes

As McKinsey expanded globally, it increasingly engaged with authoritarian regimes and corrupt governments, positioning itself as an apolitical advisor focused solely on economic development and organizational efficiency. This approach allowed the firm to work in markets that other Western companies might avoid due to ethical concerns, generating substantial revenue while raising serious questions about McKinsey's values and the impact of its work on vulnerable populations around the world. China became one of McKinsey's most important markets, with the firm establishing multiple offices across the country and working extensively with Chinese state-owned enterprises. McKinsey advised companies directly linked to the Chinese military and helped implement the government's "Made in China 2025" industrial strategy, which aimed to achieve Chinese dominance in key technologies. The firm also worked with companies involved in the Belt and Road Initiative, China's massive infrastructure program that has been criticized for creating debt traps for developing countries and expanding Chinese geopolitical influence. McKinsey's relationship with the Chinese government became particularly problematic regarding human rights issues. In December 2018, the firm held its annual retreat in China's Xinjiang region, just four miles from detention camps housing up to one million Uyghur Muslims and other minorities subjected to what the United States would later call genocide. While McKinsey consultants posted Instagram photos of themselves enjoying camel rides and desert activities, nearby people were being subjected to forced labor, political indoctrination, and cultural erasure. When questioned about this decision, McKinsey offered weak justifications rather than acknowledging the ethical problems involved. In Saudi Arabia, McKinsey's work began during the oil boom, helping the kingdom plan its transition from a Bedouin society to a modern economy. This relationship expanded dramatically after 2015 when Crown Prince Mohammed bin Salman began consolidating power and implementing his "Vision 2030" plan to diversify the Saudi economy away from oil. McKinsey consultants advised on everything from economic diversification to the development of new cities. In 2018, a nine-page McKinsey report titled "Austerity Measures in Saudi Arabia" identified three individuals as influential critics of government policies on social media. After the report circulated, one of those critics, Omar Abdulaziz, was approached by Saudi emissaries urging him to return to the kingdom. When he refused, his brothers were arrested, and his phone was hacked. The hack compromised his communications with journalist Jamal Khashoggi, who was later murdered at the Saudi consulate in Istanbul. Perhaps the most egregious example of McKinsey's ethical failures came in South Africa, where the firm became embroiled in a massive corruption scandal known as "state capture." McKinsey worked with Eskom and Transnet, two state-owned enterprises that were being systematically looted by corrupt officials and businessmen connected to then-President Jacob Zuma. The firm partnered with Trillian, a company linked to the notorious Gupta family, to secure contracts worth hundreds of millions of dollars through improper means. When the scandal was exposed, McKinsey was forced to return over $74 million in fees and faced criminal investigations. McKinsey's defense of these relationships typically invoked the idea that its work helped improve economic conditions and governance in these countries. The firm argued that engaging with problematic regimes was better than isolating them, and that its advice could help push these governments in a more positive direction. As Kevin Sneader, McKinsey's former managing partner, said regarding Saudi Arabia: "The world does not want Saudi Arabia to descend into a place where there aren't jobs, and where it gets really tough in a very nasty way." Critics countered that McKinsey was simply enabling corruption and human rights abuses while profiting handsomely from relationships with unsavory clients.

Chapter 6: Environmental Contradictions: Climate Advocacy vs. Fossil Fuel Clients

In public forums and published reports, McKinsey has positioned itself as a leader in addressing climate change. The firm regularly publishes research on decarbonization pathways, renewable energy transitions, and the business risks of climate inaction. At the 2019 Aspen Ideas Festival, McKinsey partner Dickon Pinner delivered a sobering presentation on climate science, warning that the world was "not on the right path" to avoid catastrophic warming. The firm has established a dedicated climate practice and advised companies and governments on reducing carbon emissions, suggesting a deep commitment to environmental sustainability. Behind this public advocacy, however, lies a different reality. McKinsey counts among its most valuable clients many of the world's largest polluters. Since 2010, the firm has worked for at least 43 of the 100 companies responsible for the majority of global carbon emissions since 1965. These clients include oil giants like Chevron, ExxonMobil, BP, and Saudi Aramco, as well as major coal producers and utilities heavily dependent on fossil fuels. Far from helping these companies transition to cleaner energy, McKinsey has often advised them on how to expand their fossil fuel operations and maximize returns from carbon-intensive assets. The contradiction became increasingly apparent to McKinsey's own employees, particularly younger consultants concerned about their professional legacy in an era of climate crisis. In 2019, a departing consultant named Erik Edstrom sent a farewell email that went viral within the firm, calling McKinsey "an amoral institution" for its work helping coal companies increase production while publicly expressing concern about climate change. He cited a McKinsey video celebrating how the firm had helped a coal mine increase production by 26%, describing this as "putting us on the incomprehensible fast-track to planetary omnicide." The internal tension escalated in March 2021 when more than 1,100 McKinsey employees signed an open letter to the firm's leadership. "The climate crisis is the defining issue of our generation," they wrote. "Our positive impact in other realms will mean nothing if we do not act as our clients alter the earth irrevocably." The letter demanded that McKinsey disclose information about its clients' total emissions and push all clients to align with the UN's pathway of limiting warming to 1.5 degrees Celsius. This unprecedented internal challenge reflected growing disillusionment with the firm's approach to climate issues. McKinsey's leadership responded by creating a new "McKinsey Sustainability" platform aimed at helping clients meet carbon reduction goals, but they refused to end work with fossil fuel companies. The firm's managing partner, Bob Sternfels, defended this position in The Wall Street Journal, writing: "Companies can't go from brown to green without getting a little dirty. And if that means some mud gets thrown at McKinsey, so be it." This response highlighted the fundamental tension in McKinsey's approach to climate change: while positioning itself as a catalyst for decarbonization, the firm continues to profit from the very companies most responsible for the climate crisis. The climate contradiction exemplifies a broader pattern in McKinsey's business model: the firm attempts to maintain credibility on important social and environmental issues while simultaneously serving clients whose activities undermine those same causes. This approach allows McKinsey to benefit financially from both sides of contentious issues—advising fossil fuel companies on expansion while helping other clients prepare for climate impacts, or assisting pharmaceutical companies with pricing strategies while advising governments on how to control drug costs. The result is a form of moral hedging that protects McKinsey's market position but raises serious questions about its actual commitment to addressing urgent global challenges.

Chapter 7: The Human Cost: Impact on Workers and Communities

Behind McKinsey's sophisticated analyses and PowerPoint presentations lies a human toll that often goes unexamined. At industrial facilities like U.S. Steel's Gary Works in Indiana, McKinsey's cost-cutting recommendations led to reduced maintenance schedules and staffing levels that workers claimed compromised safety. In 2016, a 61-year-old electrician named Jonathan Arizzola was killed while performing maintenance work at the plant. His widow later said he had complained repeatedly about deteriorating safety conditions following McKinsey's implementation of the "Carnegie Way" efficiency program, which had reduced maintenance staff and cut corners on safety protocols to improve short-term profitability. The human impact of McKinsey's work extended far beyond individual workplaces to reshape entire communities and regions. The firm's enthusiastic promotion of offshoring during the 1990s and 2000s contributed to the hollowing out of manufacturing communities across America's Midwest and Northeast. Towns that had depended on factories for generations saw their economic foundations collapse as companies followed McKinsey's advice to move production to lower-wage countries. The resulting unemployment, poverty, and social dislocation created what economists now call "deaths of despair"—increasing rates of suicide, drug overdose, and alcohol-related mortality among displaced workers who saw little hope for their future. In healthcare, McKinsey's influence has been equally consequential for ordinary people. The firm's work with insurance companies like Allstate transformed how claims were handled, moving from a model focused on fairly compensating policyholders to one designed to minimize payouts. McKinsey designed a system called the "Claims Core Process Redesign" that pushed adjusters to make quick, lowball offers rather than fair settlements. When claimants refused these offers or hired attorneys, they faced what McKinsey internally called the "boxing gloves" treatment—aggressive litigation tactics designed to wear them down. For accident victims and homeowners who had faithfully paid their premiums, this approach meant delayed or denied compensation when they needed it most. McKinsey's public sector work has similarly affected vulnerable populations. In Missouri, the firm received a $2.7 million contract to review the state's Medicaid program. Rather than focusing on improving healthcare outcomes, McKinsey's recommendations centered on cutting costs and reducing enrollment. Following implementation of these recommendations, nearly 100,000 children lost their Medicaid coverage, many of whom remained eligible but were dropped due to administrative barriers McKinsey had helped create. Families who depended on Medicaid for their children's healthcare suddenly found themselves without coverage, forced to choose between necessary medical care and other essential expenses. The firm's influence extends to immigration policy as well. Under the Trump administration, McKinsey received contracts worth $20 million from Immigration and Customs Enforcement (ICE) to identify cost-saving measures in detention operations. McKinsey consultants recommended cutting spending on food, medical care, and supervision for detainees, including asylum seekers and children. When ICE officials expressed concern about these recommendations, McKinsey consultants reportedly told them they were being "too soft." These cost-cutting measures had real consequences for detained immigrants, who faced deteriorating conditions in facilities already criticized by human rights organizations. These examples illustrate how McKinsey's technical approach to problem-solving often fails to account for human consequences. By reducing complex social issues to matters of efficiency and cost, the firm's recommendations can lead to policies that disproportionately harm the most vulnerable. While McKinsey maintains that it merely provides options for clients to consider, its prestige and influence mean that its recommendations carry significant weight in decision-making processes. The result is a disconnect between the firm's stated values of making a positive difference in society and the real-world impacts of its work on ordinary people's lives.

Summary

McKinsey & Company has shaped modern capitalism more profoundly than perhaps any other private institution, operating at the nexus of business and government while maintaining a veil of secrecy around its work. The firm's fingerprints can be found on nearly every major economic trend of the past century: the rise of executive compensation, the hollowing out of the middle class through mass layoffs and offshoring, the deregulation of financial markets, the opioid epidemic, and the continued dominance of fossil fuels despite climate change. Throughout these transformations, McKinsey has maintained an aura of intellectual superiority and ethical purpose while consistently prioritizing client interests over broader societal concerns. The firm's ability to serve both sides of contentious issues—advising regulators and the regulated, democratic governments and authoritarian regimes, climate advocates and fossil fuel companies—has allowed it to maximize profits while avoiding accountability for the consequences of its recommendations. The story of McKinsey reveals the fundamental contradiction at the heart of modern capitalism: the pursuit of profit often comes at the expense of public welfare, yet is justified through claims of efficiency, rationality, and progress. As we grapple with growing inequality, climate change, and the erosion of democratic institutions, we must question whether organizations like McKinsey truly serve the common good or merely provide intellectual cover for powerful interests. True reform would require not just new regulations or corporate policies, but a fundamental rethinking of the relationship between business and society—one that values human dignity, environmental sustainability, and democratic accountability over spreadsheet-driven efficiency and shareholder returns. Until then, McKinsey will likely continue operating in the shadows, shaping our world in ways that benefit its clients while the broader public bears the costs of its influence.

About Author

Loading...

Walt Bogdanich

Read more