When management guru Tom Peters first came to town he filled Auckland’s largest indoor venue with thousands of acolytes who wanted his wisdom on being successful in business.
It was the 1990s and the New Zealand economy was only just beginning to gain from the pain of deregulation, a floating dollar, an end to industrial disruption, low barriers to trade, the removal of subsidies, and subdued inflation.
In 1982, Peters had co-authored In Search of Excellence, which sold a million copies in its first printing. By 1996, when two writers from The Economist published The Witch Doctors, sales had topped five million.
The Witch Doctors was the first critical study of the management-theory phenomena, which turned a handful of brainy analysts and popularisers into figures known in boardrooms around the world – Peter Drucker, Gary Hamel, Charles Handy, Rosabeth Moss Kanter, Michael Porter, and Steve Covey were among the heavy-hitters. Even psychologists (Edward de Bono) got into the act, while John Naisbitt and Alvin Toffler turned trend predictions into bestsellers.
Apart from Peters, who came here often enough to buy a bach at Takaka in Golden Bay, others made speaking tours, urging New Zealand’s business community to embrace the opportunities of the free market and the global economy.
Pioneering studies
Drucker was the founder of management theory, with his pioneering studies of big business in the 1940s. Born in fin-de-siècle Vienna, when that city was the world’s leading crucible of modern ideas, he moved to America to avoid Hitler along with the most of central Europe’s intellectual elite.
If Drucker’s The Concept of the Corporation (1946) remains the bedrock of management theory for all aspiring managers, it was Peters, like his Biblical namesake, who was the evangelist who built it into a worldwide phenomenon (I hesitate to use fully religious metaphors).
Peters did not confine himself to one-hour sessions; they were all-day performances that extolled Drucker’s ‘knowledge workers’ and how companies could get the best out of their people at all levels of an organisation.
When I last encountered Peters in Auckland a few years ago, he was in his 70s, and keen to talk about his downtime in New Zealand to escape the New England winter. His audiences had dwindled and his books were more concerned with the esoterica of artificial intelligence than practical problems in business.
Tom Peters (2014).
This is reflected the titles he chose for his more recent books; words such as liberation, crazy, chaos, ‘brand you’, and re-imagine. Lately, he has swung back to ‘excellence’ with The Excellence Dividend and Excellence Now.
No fluke
The success of In Pursuit of Excellence was no fluke. It was the result of seven years spent at McKinsey & Co, a management consultancy established in 1926 by University of Chicago professor James McKinsey.
America in 1982 was mired in economic stagnancy, with unemployment rising to its highest level since the Great Depression. Books on Japanese management were all the rage, with their emphasis on efficiency and quality.
When Peters left to set up on his own, McKinsey was a clear leader in giving advice to corporates, governments, and other organisations in 65 countries. Its reputation was based on putting the client’s interests first, insisting that “we don’t do policy, we do execution”, and recruiting only the best and brightest each year from the world’s top universities, which usually meant the business and law schools at Harvard, Stanford or Cornell.
McKinsey has offices in 65 countries.
A job at McKinsey was not only the most sought after for graduates, but it was also considered the most rewarding because of the high fees the firm charged. First-year graduates can earn as much as US$195,000 a year including bonuses.
The worldwide organisation today employs about 34,000, many of whom leave each year, not always for the wrong reasons. In fact, McKinsey alumni have moved on to some of the world’s top positions in business, public service, and academia.
Held in awe
In short, McKinsey was held in awe by its rivals and outsiders for its ability to get into boardrooms as well as for the secrecy of its methods. It didn’t boast of its achievements, leaving that to clients. Nor did consultants get blamed for cost-cutting on equipment maintenance, or staff layoffs, two of the most common McKinsey solutions.
That changed in 2018, when McKinsey became the target for the world’s most powerful media outlet, the New York Times, which began a series of exposés concerning work for corrupt or authoritarian governments in Russia, South Africa, Saudi Arabia, and Malaysia.
McKinsey was advising companies in Russia on how to avoid sanctions over the seizure of Crimea, as well as being hired by major state-owned enterprises in China that provided economic and military support to its communist regime.
In the US, reporters from the Times accused McKinsey of “turbocharging” sales of the deadly opioid epidemic in the US through its advice to drug companies Purdue Pharma and Johnson & Johnson.
The Times uncovered a revolt in McKinsey’s Washington DC office over work for President Donald Trump’s harsh immigration policies, and was tipped off about a global protest by more than 1100 consultants over the firm’s ties to fossil fuel companies that contributed to greenhouse gases and global warming.
Heavily documented
All these controversies, and many others, are heavily documented in When McKinsey Comes to Town, by Walt Bogdanich and Michael Forsythe, investigative reporters for the Times. They had previously worked for the Wall Street Journal and Bloomberg, respectively, and are among America’s most awarded journalists.
The book is no rehash of the above-mentioned headline stories. The 280 pages of text traces McKinsey from its origins, while notes and sources add a further 70-odd pages. The authors say this is the culmination of several years’ work, as well as that of their colleagues.
Tom Peters makes an early appearance on page 27, commenting on the opioid scandal: “I am shocked, I am appalled, and I am pissed off.” Many more comments like this follow as the authors devote a dozen chapters on case studies.
For example, Allstate was advised it could substantially reduce insurance payouts by giving claimants without lawyers a lowball take-it-or-leave-it offer. The former would be paid out immediately. If not, costly litigation would ensue. The authors claim that between 1995 and 2018, an estimated US$94 billion was transferred from policyholders to Allstate as a result.
McKinsey was a pioneer in securitisation of debt, which featured in the collapse of energy trading company Enron as well as the 2008 global financial crisis triggered by the failure of subprime mortgage securities on Wall Street.
The arcane world of sports analytics gets a chapter for McKinsey’s work with the Houston Astros, a baseball team whose winning streak ended suddenly when it was found cheating. In this, and other cases, McKinsey’s policy of confidentiality enabled it to escape responsibility.
Houston Astros general manager Jeff Luhnow lost his job in a cheating scandal.
Web of corruption
That was not the case in South Africa, where the firm was at the centre of a web of corruption involving the ruling African National Congress, President Zuma, the Gupta family of India , and contracts for state-owned railway and energy companies. The authors say McKinsey netted some US$100 million in fees, half of which it is paying back in the firm’s biggest financial setback.
The ever-sceptical writers at The Economist sneered: “For almost 95 years, McKinsey has sought to portray itself as a genteel professional services company, not a grubby business. Unlike, say, a profit hungry Goldman Sachs banker, who walks into a room aware she may be hissed at, a McKinsey consultant expects his halo to be noticed.”
Another major misstep was a “sumptuous” retreat held by its burgeoning China office just few kilometres away from a Uyghur detention centre in western China. Naturally, that story made the front page of the New York Times in December 2018, while highlighting McKinsey’s extensive work on President Xi’s Belt and Road infrastructure and Made in China 2025 plans, both of which have since been scaled back.
One McKinsey project that has advanced rather than retreated is ‘smart cities’, where widescale surveillance is used to improve policing and crime prevention. As the authors state, the use of this technology has a far different meaning when deployed in China, where there is no rule of law, than in London, Tokyo, or New York.
The authors question McKinsey’s ability to work on both sides of major contracts. This includes advising governments funding healthcare as well as the companies that provide it. Or helping the Chinese to build military outposts in the South China Sea, while being contracted to the Pentagon in efforts to combat China’s aggressive foreign policy stances.
This book may make some potential clients pause before welcoming McKinsey to their town, but the figures show otherwise. Fee revenue has doubled in the past decade to US$10b while to its critics the firm’s touted values make it seem as smug as ever.
When McKinsey Comes to Town, by Walt Bogdanich and Michael Forsythe.
When McKinsey Comes to Town, by Walt Bogdanich and Michael Forsythe (The Bodley Head).
Nevil Gibson is a former editor at large for NBR. He has contributed film and book reviews to various publications.
This is supplied content and not paid for by NBR.
