McKinsey’s Business Model Is Unethical

The Purdue Pharma scandal is business as usual

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Original photo from Yuri Gripas/Reuters

Over the weekend, the New York Times published a damning piece revealing McKinsey Co. — the world’s largest consulting firm — worked with Purdue Pharma to incentivize pharmacies to write OxyCotin prescriptions. Their solution? To offer nearly $15,000 to pharmacies like CVS when one of their patients developed an addiction or overdosed on the opioid.

In a 2017 presentation, according to the records, which were filed in court on behalf of multiple state attorneys general, McKinsey laid out several options to shore up sales. One was to give Purdue’s distributors a rebate for every OxyContin overdose attributable to pills they sold.

The presentation estimated how many customers of companies including CVS and Anthem might overdose. It projected that in 2019, for example, 2,484 CVS customers would either have an overdose or develop an opioid use disorder. A rebate of $14,810 per “event” meant that Purdue would pay CVS $36.8 million that year. — Walt Bogdanich and Michael Forscythe, The New York Times

When Purdue Pharma went to court over their involvement in the opioid crisis — which has killed over 450,000 people — McKinsey apparently went into panic mode and did their best to distance themselves from the company and the scandal. One email shows they at the very least considered destroying documents.

All of this is outrageous, and in this writer’s opinion warrants an investigation and prison time for those involved. Unfortunately I’m not a lawyer, so my opinion doesn’t really matter.

What I can do is remind readers that this is not an isolated incident. McKinsey has drawn ire over the years for their “restructuring” practices that involve lay-offs for their clients simply to line the pockets of shareholders and executives.

This isn’t to say every consultant at McKinsey is some villain. In Seth Green’s essay on McKinsey, he outlines how the company is filled with good people, but the core principles of the company are flawed.

McKinsey is filled with good people and problematic values. — Seth Green, Fortune

Green’s words on McKinsey are a bit more generous than I will be. I do believe there are good people at the firm, of course. However, the consulting company’s foundations are filled with rot and shady business. McKinsey — at its core — has an unethical business model, and it’s time to air some of the company’s dirty laundry.

The McKinsey Documents

Perhaps one of McKinsey’s most salacious moments came during the mid-2000s with the release of the notorious McKinsey documents. In essence, McKinsey collaborated with major firms in auto and health insurance such as Allstate and Blue Cross Blue Shield to maximize profits by low-balling or outright refusing to payout customers when they needed coverage. In one of their notorious PowerPoint slides, they referred to insurance as a “zero-sum game” among insurers and their customers.

Here are a few fast and dirty details, with the full report on Allstate being found here:

  • Taking the advice of McKinsey, Allstate and State Farm took harsh “take it or leave it” stances on policy payouts, offering as little as $50.
  • If policyholders wanted to take the companies to court, McKinsey recommended a “sit and wait” approach to draw the cases out in court in an effort to discourage pushback. This strategy was called Deny, Delay, and Don’t pay. The method was so effective lawyers stopped taking Allstate cases all together.
  • After adopting these policies, Allstate had record profits, all at the expense of its policyholders.

This information largely became public beginning in 1997 thanks to the work of David J. Berardinelli, a lawyer representing a client after Allstate refused to cover payments for his client’s injuries after a car accident. He later published his findings in From Good Hands to Boxing Gloves, revealing McKinsey and Allstate’s efforts to reduce payouts.

McKinsey’s Close Ties With Regimes and Corruption

To put it simply, McKinsey has complicated and concerning relationships with corrupt foreign powers. The firm’s international operations quickly gained attention and mounting criticism after a scandal in South Africa. Here is a brief overview of some of the firm’s international practices.

  • McKinsey worked with Trillian — a shady firm ran by the Gupta family and accused of siphoning public funds in a corruption scandal. McKinsey continued their relationship, even after publicly stating they no longer worked with the company. The firm also apparently ignored warnings from South African officials not to work with the group due to ongoing investigations.
  • Earlier this year, McKinsey (along with Boston Consulting Group and PwC) were caught in another scandal, this time in Angola. The firms coordinated with Isabel dos Santos — the daughter of the African nation’s former president — to launder state funds in an effort to give her billionaire status. Santos received state funds through shell companies then later transferred them to tax havens. McKinsey and other firms advised her along the way. The firms’ involvement was revealed in the Luanda Leaks.
  • In 2018, McKinsey compiled a “nine-page report measuring the public perception of certain Saudi economic policies, and cited three individuals who were driving much of the largely negative coverage on Twitter…” (Sheelah Kolhatkar, The New Yorker). After the report was released, the journalists in question or their families were arrested by the Saudi government. While he was not named in the report, that same year journalist Jamal Khashoggi was brutally murdered by Saudi Arabian agents as an apparent retaliation for his reporting. While McKinsey may not be at fault or involved in that, their willingness to work for a regime with a consistently violent history is troubling, to say the least.
  • McKinsey became involved with a railroad project in Mongolia, but quickly became wrapped up in legal trouble as it tried to skirt investigations and cozy up with Mongolian public officials. Three people were eventually charged with corruption. McKinsey has since been barred from working in the country.

“They are there as all-purpose providers of whatever these elites are trying to do…They have no moral status — they are what you make them.” Ricardo Soares de Oliveria, The New York Times

The Destruction of the American Dream

McKinsey has existed for nearly a century, but starting in the 1970s and accelerating int 80s and 90s the firm pushed forward with a new philosophy and modus operandi. The sole focus of the firm was the client’s needs, i.e. their bottom lines and shareholder interests.

As The Atlantic thoroughly details, McKinsey effectively dismantled the middle class that had burgeoned throughout the early twentieth century. This took away key opportunities for advancement, removed benefits packages, and put many workers in shaky subcontractor positions or part-time work. It also surgically removed a robust middle management class, leaving a gaping hole in institutions that only McKinsey and other consulting firms could fill.

In doing so, the law firm has made a powerful demand for itself that conveniently leaves out average Americans, both from key decision making and the higher wages they were once afforded.

Daniel Markovits’s essay is excellent and worth the read.

So Where’s the Accountability?

Well, there isn’t any. The truth is that the actions of McKinsey are pretty typical in the upper echelons of the American economy. Yes, companies pay fines when they do bad things, but these are effectively slaps on the wrist (and very gentle ones at that). The truth is most people engaged in corruption and white collar crimes rarely ever see prison time, and if they do it isn’t very significant.

The only way we will see a major shift in behavior from firms like McKinsey is with encompassing and severe regulation. McKinsey and their ilk are part of a corporate culture that promotes accountability, except when it comes to owning up to wrong-doing.

Until the government begins reigning in the actions of companies like McKinsey, expect to hear more heinous and cruel stories coming from them. It’s business as usual, after all.

Thank you for reading. If you enjoyed this, follow me on Twitter and Instagram for more rants and ravings.

Written by

Caleb is a full-time writer that writes about fiction, tech, films, and occasionally about politics. He is also an aspiring author.

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