This is not original reporting, more of a summary of the other in depth and brutal coverage from the FT, NYT, BB, and WSJ over the last two and half years. Not a particularly clear summary either. I would recommend those if you are interested, and have linked some below.
[McKinsey’s internal investment company] first came under scrutiny because of the investments it holds in the clients of the firm’s bankruptcy consultancy work. For years, McKinsey did not disclose those investments to the court when applying to be a bankruptcy adviser — and still has disclosed very few. Under bankruptcy law, advisers are required to be “disinterested persons,” and cannot own the debtor company’s debt or equity, directly or indirectly.
My impression is that McKinsey is kind of like Arthur Anderson and Enron balled into one international criminal organization. AA had the undisclosed conflicts of interest part and E had the screwing over your employees’ retirement funds part. Top that with helping Saudi Arabia track down dissidents under the guise of “public opinion research.”
Low level McK emp. Don’t care to get too involved here, and will only share personal opinions.
This article seems to be mostly anger fluff. A lot of it seems to reference someone’s lawsuit over a 401k deal with overly dramatic wording. Maybe someone can clarify but I don’t actually see anything illegal or even particularly unethical. As the article states, it’s not entirely unreasonable for a private company to offer better options to senior officials. Low level employee benefits are significantly above average and I don’t believe anyone seriously feels sleighted.
As for whether there is insider trading involved with the MIO, I think it is unlikely. The opportunity for fraud exists, but not moreso than the personal risk for committing fraud. I have no comment on the specifics of individuals behaviors. Might bad actors exist? Certainly. Although it would seem strange for them to try and commit fraud through a massive diluted operation like this. The culture of internal controls and communications is frankly very strong in my opinion.
People will be able to find examples of bad actors. I don’t feel it disproves any particular points. I do see active decisions about firm and personal ethics. And people are actively encouraged to not work on things they oppose.
There was a NYT article about a study looking at improving marketing for Opioids. No doubt, that was not good. The Chinese thing was distasteful. Does it represent the firm culture? Personally I don’t think so.
The media, the NYT in particular, has been painting the firm as an evil shadow organization. They released an article that basically said they’re going to continue to write attack articles against it because it’s secretive. Well it’s secretive because it protects client confidentiality.
It has made money in 24 out of the past 25 years — a period that includes the dotcom bust and the global financial crisis of 2008-09 — earning hundreds of millions of dollars for McKinsey partners and alumni, according to an investor in Compass. Over the same period, the average fund of hedge funds has lost money in five years, according to data provider Hedge Fund Research.
"Think about it...McKinsey is the foremost management consultancy with better links/knowledge and influence over the World's leading companies. Its partners are very smart. Yet they can operate and compete in the highly competitive world of investment - not a management consultancy's core area of expertise - better than large, established professional money managers - without the competitive advantages coming from their insight as management consultants! Really! If that were true, they would spin off MIO and run it 'for profit' becoming one of the leading global money managers. Or does an opaque structure work better for them?"
This quote is misleading. It implies that McKinsey consulting partners are the ones making the investment strategies which is false. The large investment unit is run by... surprise surprise... finance professionals. Furthermore 90% of the MIO’s investments are in externally managed funds, the investment decisions of which the MIO does not control.
Spinning off the MIO as a for profit firm would frankly be misaligned with the firm values. It’s also not especially opaque, as it’s fully registered and files documents on its structure and what not. Journalists have simultaneously been using those filings and claiming the structure is opaque.
Again. It’s possible that McKinsey partners engage in insider trading (although it is very difficult as all trades in the firm are required to be approved by compliance). But I really don’t think there’s a logical thread by which partners take enormous risks to circumvent internal controls and provide tips to the MIO just to boost the fund performance. That’s a very high risk, low payoff idea, because even if your secret info is super profitable, it’s diluted across thousands of other partners before benefiting you personally. Claiming that it happens on a massive scale to offset that is just silly and is frankly a huge accusation with no basis. It’s fully possible that the fund was just well managed.
I believe, to some extent, outsiders want to see prestigious organizations fail, as it will make us feel better about our lot somehow. Journalism certainly plays on this as we see the most prestigious firms across consulting, tech, and finance get flame pieces written about relatively small scale issues internally quite often.
While I enjoy the scrutiny organizations draw when due, I can't help but think that most of the news and journalism that gets written about companies like McKinsey is really insignificant in the scheme of their company. 100's of millions of dollars is pretty small in McKinseys organization, and there really is no evidence of a systemic problem here, just a small anomaly/mistake that a few partners called the shot on.
I believe these type of pieces can really bring serious harm to brands that don't necessarily deserve it, but I'm open to hear others opinions. It just seems that traditional news media is becoming the worlds best click baiters, while the importance of what the report on diminishes beneath them.
> I believe, to some extent, outsiders want to see prestigious organizations fail,
That certainly appears to be the case in recent years at the very least. Thinkng of finance, tech, consulting, etc
>100's of millions of dollars is pretty small in McKinseys organization
I see their business somewhat differently, in that the trust behind those dollars was far more precious. They would almost certainly give back just about any sum to retain the trust of clients they have worked with for literally generations in some cases. Which is why this panoply of stories is so frustrating for them, and also so tempting to speculate on (is it a trend? Have ethical standards lapsed? Is Marvin Bower turning over in his grave? )
For the TL;DR, as someone asked, there are a few big stories bouncing around but only on a few themes.
1. Corruption/pro-autocratic assignments in the developing world (Large fees for small amounts of work in what would become a political earthquake stemming from fraud in South Africa, social media suppression enabling research in Saudi, work with Chinese SOEs)
2. Poor disclosure around a very uncommon investment structure where partners invested in a proprietary hedge fund run by other (theoretically firewalled) partners. This bit them hard in their distressed advisory business as the hedge fund owned paper that was profoundly affected by negotiations they advised on as a firm. Distressed world also has the most strict disclosure requirments around, and they were notorious for handing in comically thin disclosure documents while others wrote books.
This also pissed off one Jay Alix, a brilliant and bulldog-like man who is the eponymous founder of distressed advisor Alix partners, though he no longer works there. It also called into question just about every case they advised on, which is a big chunk of everything period. Because distressed world is super small, and recent years have been very thin on work (the msot counter-cyclical business around by definition.)
I don't think I can over-emphasize how uncommon the core structure was/is, or how susprising it was when it became more widely known.
3. Shitty idiosyncratic seeming events (unless of course, well you get it) like their former CEO (technically head partner) being the guy who was tipping off Raj Rajaratnam of Galleon insider trading fame using his prveledged position as a board member at Goldman Sachs. Being on the wrong side of hitory it increasingly looks like as it regards to pharma corps' liabilities for things that were one step removed.
Bonus for making it to the botton - the hedge fund that was being tipped off by the former head partner, Galleon, they had a pop/hip-hop song (as their anthem?) that is catchy as all hell. Listen to it here:
This isn't a flame piece. This is what journalism looks like. This sort of elbow-throwing happens at every level of reporting, from local ordinances on garbage collection to international politics.
> 100's of millions of dollars is pretty small in McKinseys organization, and there really is no evidence of a systemic problem here, just a small anomaly/mistake that a few partners called the shot on.
Take a moment and think about what you wrote here.
If you were a partner at McKinsey, is this what you'd tell yourself?
If you were a non-partner employee at McKinsey, how would you feel about your own retirement funds being invested in MIO, given its performance?
Non-partner employee here. Same poster as elsewhere on a different throwaway.
The benefits are very strong. I had not heard of this issue previously, and don’t especially care. I’m not clear on if you mean the performance is too high or too low because the article kind of implied both. I don’t think the amount was particularly material nor do I think it’s especially bad if the firm gives preferential treatment to partners because... it’s a privately owned firm... by the partners... and in general it treats its employees very well.
I’m not sure I’m communicating this well because the underlying facts feel vague. But I would give my employer an A+ based on my experience so far. The possibility that a percentage point of returns was lost on my 401k is bottom of the barrel priority. I can’t tell from the article what happened, but it would be really hard to outweigh the visible, conscious investment in its people that the firm does.
I recognize this sounds like I’m drinking the Kool Aid here, but frankly, very few companies invest much into their employees. The best case scenario is often lame office perks for tech workers. But tech workers get shitty non competes. McKinsey, for example, gives you weeks of fully compensated time off to find your next job elsewhere. I think it’s a remarkably healthy culture.
My pet theory is that McK is re-orging the NYT to be more commercial and the writing staff is rebelling, while Jay Alix is more than willing to help out.
22 comments
[ 2.4 ms ] story [ 72.8 ms ] threadhttps://www.ft.com/content/7c6700bc-2976-11e6-8b18-91555f2f4...
https://www.nytimes.com/2019/02/19/business/mckinsey-hedge-f...
https://www.bloomberg.com/news/articles/2018-07-08/mckinsey-...
https://www.nytimes.com/2019/02/19/reader-center/mckinsey-he...
https://www.nytimes.com/2018/06/26/world/africa/mckinsey-sou...
https://www.bloomberg.com/news/articles/2018-10-21/mckinsey-...
https://www.nytimes.com/2019/01/09/business/mckinsey-bankrup...
edit: A couple of people pinged me on the FT article, which was groundbreaking, and a one-week copy can now be found here:
https://pastebin.com/jqkAytZp
The NYT article (your second link) covers the same topic more clearly indeed.
(Can't read the paywalled FT article).
p.s. love your username.
From the article, wouldnt be surprising for a bunch of people to go to jail and/or lose licenses.
My impression is that McKinsey is kind of like Arthur Anderson and Enron balled into one international criminal organization. AA had the undisclosed conflicts of interest part and E had the screwing over your employees’ retirement funds part. Top that with helping Saudi Arabia track down dissidents under the guise of “public opinion research.”
This article seems to be mostly anger fluff. A lot of it seems to reference someone’s lawsuit over a 401k deal with overly dramatic wording. Maybe someone can clarify but I don’t actually see anything illegal or even particularly unethical. As the article states, it’s not entirely unreasonable for a private company to offer better options to senior officials. Low level employee benefits are significantly above average and I don’t believe anyone seriously feels sleighted.
As for whether there is insider trading involved with the MIO, I think it is unlikely. The opportunity for fraud exists, but not moreso than the personal risk for committing fraud. I have no comment on the specifics of individuals behaviors. Might bad actors exist? Certainly. Although it would seem strange for them to try and commit fraud through a massive diluted operation like this. The culture of internal controls and communications is frankly very strong in my opinion.
People will be able to find examples of bad actors. I don’t feel it disproves any particular points. I do see active decisions about firm and personal ethics. And people are actively encouraged to not work on things they oppose.
There was a NYT article about a study looking at improving marketing for Opioids. No doubt, that was not good. The Chinese thing was distasteful. Does it represent the firm culture? Personally I don’t think so.
The media, the NYT in particular, has been painting the firm as an evil shadow organization. They released an article that basically said they’re going to continue to write attack articles against it because it’s secretive. Well it’s secretive because it protects client confidentiality.
"Think about it...McKinsey is the foremost management consultancy with better links/knowledge and influence over the World's leading companies. Its partners are very smart. Yet they can operate and compete in the highly competitive world of investment - not a management consultancy's core area of expertise - better than large, established professional money managers - without the competitive advantages coming from their insight as management consultants! Really! If that were true, they would spin off MIO and run it 'for profit' becoming one of the leading global money managers. Or does an opaque structure work better for them?"
- https://www.ft.com/content/7c6700bc-2976-11e6-8b18-91555f2f4...
This quote is misleading. It implies that McKinsey consulting partners are the ones making the investment strategies which is false. The large investment unit is run by... surprise surprise... finance professionals. Furthermore 90% of the MIO’s investments are in externally managed funds, the investment decisions of which the MIO does not control.
Spinning off the MIO as a for profit firm would frankly be misaligned with the firm values. It’s also not especially opaque, as it’s fully registered and files documents on its structure and what not. Journalists have simultaneously been using those filings and claiming the structure is opaque.
Again. It’s possible that McKinsey partners engage in insider trading (although it is very difficult as all trades in the firm are required to be approved by compliance). But I really don’t think there’s a logical thread by which partners take enormous risks to circumvent internal controls and provide tips to the MIO just to boost the fund performance. That’s a very high risk, low payoff idea, because even if your secret info is super profitable, it’s diluted across thousands of other partners before benefiting you personally. Claiming that it happens on a massive scale to offset that is just silly and is frankly a huge accusation with no basis. It’s fully possible that the fund was just well managed.
While I enjoy the scrutiny organizations draw when due, I can't help but think that most of the news and journalism that gets written about companies like McKinsey is really insignificant in the scheme of their company. 100's of millions of dollars is pretty small in McKinseys organization, and there really is no evidence of a systemic problem here, just a small anomaly/mistake that a few partners called the shot on.
I believe these type of pieces can really bring serious harm to brands that don't necessarily deserve it, but I'm open to hear others opinions. It just seems that traditional news media is becoming the worlds best click baiters, while the importance of what the report on diminishes beneath them.
That certainly appears to be the case in recent years at the very least. Thinkng of finance, tech, consulting, etc
>100's of millions of dollars is pretty small in McKinseys organization
I see their business somewhat differently, in that the trust behind those dollars was far more precious. They would almost certainly give back just about any sum to retain the trust of clients they have worked with for literally generations in some cases. Which is why this panoply of stories is so frustrating for them, and also so tempting to speculate on (is it a trend? Have ethical standards lapsed? Is Marvin Bower turning over in his grave? )
For the TL;DR, as someone asked, there are a few big stories bouncing around but only on a few themes.
1. Corruption/pro-autocratic assignments in the developing world (Large fees for small amounts of work in what would become a political earthquake stemming from fraud in South Africa, social media suppression enabling research in Saudi, work with Chinese SOEs)
2. Poor disclosure around a very uncommon investment structure where partners invested in a proprietary hedge fund run by other (theoretically firewalled) partners. This bit them hard in their distressed advisory business as the hedge fund owned paper that was profoundly affected by negotiations they advised on as a firm. Distressed world also has the most strict disclosure requirments around, and they were notorious for handing in comically thin disclosure documents while others wrote books.
This also pissed off one Jay Alix, a brilliant and bulldog-like man who is the eponymous founder of distressed advisor Alix partners, though he no longer works there. It also called into question just about every case they advised on, which is a big chunk of everything period. Because distressed world is super small, and recent years have been very thin on work (the msot counter-cyclical business around by definition.)
I don't think I can over-emphasize how uncommon the core structure was/is, or how susprising it was when it became more widely known.
3. Shitty idiosyncratic seeming events (unless of course, well you get it) like their former CEO (technically head partner) being the guy who was tipping off Raj Rajaratnam of Galleon insider trading fame using his prveledged position as a board member at Goldman Sachs. Being on the wrong side of hitory it increasingly looks like as it regards to pharma corps' liabilities for things that were one step removed.
Bonus for making it to the botton - the hedge fund that was being tipped off by the former head partner, Galleon, they had a pop/hip-hop song (as their anthem?) that is catchy as all hell. Listen to it here:
https://www.huffpost.com/entry/galleon-rap-song_n_4789970
Or perhaps the 99% doesn't like these "prestigious" organizations live above the law?
> 100's of millions of dollars is pretty small in McKinseys organization, and there really is no evidence of a systemic problem here, just a small anomaly/mistake that a few partners called the shot on.
Take a moment and think about what you wrote here.
If you were a partner at McKinsey, is this what you'd tell yourself?
If you were a non-partner employee at McKinsey, how would you feel about your own retirement funds being invested in MIO, given its performance?
The benefits are very strong. I had not heard of this issue previously, and don’t especially care. I’m not clear on if you mean the performance is too high or too low because the article kind of implied both. I don’t think the amount was particularly material nor do I think it’s especially bad if the firm gives preferential treatment to partners because... it’s a privately owned firm... by the partners... and in general it treats its employees very well.
I’m not sure I’m communicating this well because the underlying facts feel vague. But I would give my employer an A+ based on my experience so far. The possibility that a percentage point of returns was lost on my 401k is bottom of the barrel priority. I can’t tell from the article what happened, but it would be really hard to outweigh the visible, conscious investment in its people that the firm does.
I recognize this sounds like I’m drinking the Kool Aid here, but frankly, very few companies invest much into their employees. The best case scenario is often lame office perks for tech workers. But tech workers get shitty non competes. McKinsey, for example, gives you weeks of fully compensated time off to find your next job elsewhere. I think it’s a remarkably healthy culture.