Transcript: Michael Forsythe

My interview with the New York Times reporter and co-author of When McKinsey Comes to Town

In 2019, in the magazine Current Affairs, a former McKinsey consultant wrote, “There is no secret society shaping every major decision and determining the direction of human history. There is, however, McKinsey & Company.” My guest on the program this week has spent years doing a deep-dive into the prestigious consulting company — and he’s here to talk about what he’s learned about its influence around the world, including here in Canada.

Michael Forsythe is an investigative reporter for The New York Times, and co-author of When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm, out in paperback next week. (Scroll down to read McKinsey’s response to the book.)

This is an edited transcript for paid subscribers. You can listen to the episode for free here.

---

TH: Michael, welcome to Lean Out.

MF: Happy to be here.

TH: It's great to have you on today to talk about McKinsey, which has made news in Canada in recent months. To start, I want to read a quote from your book — out in paperback next week — to set the stage for a conversation about the firm's outsized influence. You write, "For the past century, McKinsey has methodically built its marquee consultancy by selling its philosophy of scientific management to the world's best-known blue-chip companies. At one time or another, most Fortune 500 companies have paid McKinsey for advice. So have more than a hundred government agencies around the world." You go on to write, "The firm has advised virtually every major pharmaceutical company — and their regulators — along with health insurers, airlines, universities, museums, weapon makers, private equity firms, casinos, bookmakers, professional sports teams, and media companies, including The New York Times." This book began with a meeting during which your former executive editor, Dean Baquet, mentioned to reporters that he'd like to see a granular look at major corporations — to help readers understand how power is wielded in society. What made you and your co-author, Walt Bogdanich, land on McKinsey?

MF: All credit definitely goes to Walt for starting this. He was looking at the issue of income inequality in the United States before the 2016 election, and he was trying to find some root causes. He came across McKinsey and its work throughout the decades helping the boardroom, the C-suites of corporations, and thought it would be a good idea to look closely at that company to get at the root causes of the rise of populism in the United States, exemplified by Donald Trump. What was behind that? It took a while to get everybody convinced at the Times, but he brought me on and the two of us started working in earnest on this together in 2018.

TH: I want to talk about the income inequality piece, something that I've been thinking a lot about. Over the past few decades, McKinsey has led the charge when it comes to advising companies to initiate mass worker layoffs, to move production abroad, and to boost executive pay. Yale professor Daniel Markovits has accused McKinsey of destroying the middle class. Is that accurate? Has this company contributed significantly to the erosion of North America's middle class?

MF: I think we can describe McKinsey as an accelerant of trends. But when it comes to CEO pay, they were definitely more than an accelerant. By accelerant, I mean they pile on to trends, spread the gospel around the business world or even into the government — whether it's something like layoffs or offshoring, things like that.

With CEO pay, I think their role was much more active. Back around 1950, the U.S. had a real problem in that worker pay was catching up slowly with managerial pay. I'm being a little facetious here. But the gap between workers and executives was — after mass unionization during the 30s and 40s, that gap was shrinking. McKinsey was hired by General Motors to do a study of executive pay, and that study became gospel in the industry. It was spread around in magazines like Fortune and The Harvard Business Review. The idea is it started a little arms race. People started finding out what other executives were making, and wanted to make more. Ideas to avoid the high taxes of that era came about, like stock-based compensation, things like that. McKinsey really was a catalyst for starting that slow, but then rapidly accelerating, upswing in CEO pay in the United States.

TH: I want to talk about the opioid crisis as well. The Canadian federal government is joining a class-action lawsuit against McKinsey for its role in this crisis. You report that McKinsey advised pharmaceutical companies to target high-abuse-risk patients, to “turbocharge” opioid sales, and to tell patients the highly addictive OxyContin gave them the best possible chance to live a full life. How do we think through McKinsey's potential responsibility in the opioid deaths of hundreds of thousands of Americans and Canadians?

MF: As the press has pointed out, in Canada and the United States as well, McKinsey settled with most of the United States state attorney generals back in early 2021 to the tune of more than $600 million U.S. It didn't admit wrongdoing at the time. There's been a lot of documents that have come out, even since we've written the book, detailing in fine granular form McKinsey's role in encouraging companies, especially Purdue Pharma, which it worked with for a couple of decades actually, to boost its OxyContin sales.

I guess the way you would look at it is that McKinsey, when it goes in with a company, it really — these are very highly educated people. Dominic Barton, who I know we'll talk about some more, was a Rhodes Scholar. I started making a spreadsheet of Rhodes Scholars at McKinsey and I had to stop. I gave up. There were just so many people. They particularly recruit Rhodes Scholars. They have a program for that. This is my way of saying that there's some very smart, very hardworking people at McKinsey. When they get a job in a company, they sometimes lose the forest for the trees. They want to increase the company's bottom line and sometimes they're working so hard that they forget the big picture. That was certainly the case with Purdue Pharma, where they were so hellbent on increasing the bottom line, increasing profitability for their client, Purdue Pharma, that they got to the point of: How do we increase OxyContin sales? How do we talk to doctors about prescribing more opioids? How do we look at this scientifically? Where do we go in the United States to target certain areas where people might be particularly inclined to use this product?

There was no secret during much of this work that OxyContin was helping to start an addiction to opioid crisis in the United States, and in Canada as well, that just hadn't been there before the 1990s. McKinsey was intimately involved in this company. McKinsey was so involved that its consultants worked very, very closely, not only to help them turbocharge sales, but also to help them reformulate, to get approvals for their new versions of OxyContin. It was a very intimate relationship with this company. Not only with this company though, with other opioid makers as well.

TH: I do want to talk about China as well. McKinsey's client list includes a number of companies considered central pillars of the Chinese state — along with government ministries. How intertwined did the firm become with the Chinese Communist Party?

MF: One thing about McKinsey is it's a very decentralized company. It's modelled on a law firm, where country heads run fiefdoms almost and have an incredible amount of autonomy. McKinsey thinks of itself that way. They call themselves partners. The people they work for are not customers, they're clients. There's practice areas, all this vocabulary. China was no different. It was a very independent fiefdom, headquartered in Shanghai, with a huge office in Beijing as well. It recruited locals because the locals knew a lot more than these seasoned consultants from the West, often.

Over the years, starting in the 1990s, moving into the 2000s and into this past decade, more and more people at McKinsey were locals. Extremely well-educated, often at Harvard or Oxford, or a place like that. I think what happened with McKinsey in China is that it became extremely localized, and so it didn't see any problem or any contradiction with working with some of the marquee state-owned enterprises in China, whose heads are picked by the Organization Department of the Communist Party of China. Sometimes the work they were doing was quite at odds with U.S. and Canadian policy.

We highlight one that we broke and told the world about a few years ago, which was their work with this state-owned enterprise called China Communications Construction Company, which was the company that was building these islands in the South China Sea — these artificial islands that have turned the South China Sea into basically a militarized Chinese zone now. McKinsey, I don't think, was helping the company with island design. But it was advising this company on its strategy at the very time that it was building these islands. Of course, that's in direct contradiction to some other very important McKinsey clients, including the Pentagon in the United States.

TH: In addition to China, it has also advised the Saudi Arabian and Russian governments. Also controversial, it advised ICE, America's Immigration and Customs Enforcement Agency, including recommending to spend less on food and medical care for detainees. This led to an uprising within McKinsey. The company has been quick to say they don't do policy, but execution. To what extent has this allowed them to dodge scrutiny and the consequences of their advice?

MF: You often see this refrain at McKinsey — that they don't do politics — and it allows them to just focus on helping the client and not thinking about the consequences. And certainly its work with ICE, not only did it cause a rebellion within McKinsey, and a lot of very upset people at McKinsey when they learned about the extent of McKinsey's work with ICE, but some people at ICE were pushing back on them as well.

It is definitely a crutch when you say that. The thing is, it's really not that true. For example, when the former managing partner for McKinsey, the gentleman that was there after Dominic Barton, a guy named Kevin Sneader, was asked a few years ago about their work with Saudi Arabia. A lot of times these people will justify continued work in Saudi Arabia on political terms, like, "You need us there in Saudi Arabia or else the place will go to hell. Do you want Saudi Arabia to turn into some backward theocracy? It needs this Western expertise that comes through companies like McKinsey, so we have to be in Saudi Arabia." They give political justifications for work that is supposedly not political. Which to me seems a bit of a contradiction and a bit of a thorny knot there. But they do this work around the world.

Now, I will say that McKinsey has changed a bit in recent years. They have a new policy in the wake of all these stories that we and others have written about their work with authoritarian countries like Saudi Arabia, like China, like Russia, that they say they don't work with the defence ministries or the interior ministries or the justice ministries of these kind of countries.

But of course, in Saudi Arabia, they'll work with the economy ministry, so they're basically trying to bolster the effectiveness of a deeply authoritarian country by working with some of these other leading ministries. So it's extensive, not only with authoritarian countries, but also with kleptocratic countries. They certainly got into a lot of hot water in South Africa, as did other consulting companies with their work with the former president's administration, the Zuma administration, and these extremely corrupt state-owned companies in South Africa.

TH: We do, of course, have to talk about Dominic Barton, the Canadian who ran McKinsey during many of the scandals that you write about here. He would go on to become a key economic advisor to Prime Minister Justin Trudeau and then our ambassador to China. As best I can tell, he still sits on the Indo-Pacific Advisory Committee for Mélanie Joly, our Minister of Foreign Affairs. What should Canadians make of Dominic Barton's track record?