Warren Buffett tells his managers: “There’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it.”
But what do you do when the lines shift?
Who’s Sorry Now?
McKinsey & Company, the world’s premier consulting firm, recently agreed to pay nearly $600 million to settle claims with states attorneys general relating to McKinsey’s work for opioid manufacturers.
In discussing the settlement, McKinsey’s global managing CEO, Kevin Sneader, stated that “while our past work with opioid manufacturers was lawful and never intended to do harm, we have always held ourselves to a higher bar. We fell short of that bar. We did not adequately acknowledge the epidemic unfolding in our communities or the terrible impact of opioid misuse and addiction, and for that I am deeply sorry.”
Sneader quoted from the settlement agreement acknowledging McKinsey’s “good faith and responsible corporate citizenship.”
Not all was sweetness and light. McKinsey also noted that it fired two partners. Reportedly, they had contemplated purging documents relating to McKinsey’s opioid work.
McKinsey partners pride themselves on their knowledge and smarts. Did these two partners never hear of Enron (run by ex-McKinsey partner Jeffrey Skilling), or of Enron’s auditor, Arthur Andersen?
Andersen — McKinsey’s counterpart in the accounting profession — doomed itself by shredding documents and deleting emails.
Sorry Vs Sorrowful
McKinsey is of course sorry. Had the firm the chance to do things over, it would stay far away from opioid work.
But how sorrowful is the firm, really? This may be impossible to tell. A good follow-up question might be when the dangers of opioid overuse popped up on the radar screen of McKinsey’s Healthcare Practice.
In early 2015, McKinsey Healthcare partner Daniel Tsai apparently took a leave of absence to serve as Assistant Secretary for MassHealth. In January 2016, MassHealth changed opioid prescribing rules in light of addiction/overdose data from 2014-15.
Tsai continued in this role at least into 2020. Curiously, Tsai’s LinkedIn profile omits this honorable public service. It may be fair to assume, though, that the public data Tsai reviewed as Assistant Secretary for MassHealth was also seen by his former colleagues at McKinsey.
Sneader states that McKinsey stopped advising opioid clients in 2019. A second follow-up question might therefore be when and to what extent McKinsey has advised clients on mitigating the harms caused by products it helped other clients sell.
Sorrowful Vs Serious
A cynic might wonder whether McKinsey has been working both sides of the street.
Sorrowful or not, McKinsey certainly takes the current situation seriously. Sneader states that the firm has made “fundamental changes to our professional standards, policies, risk management and culture over the past two years.”
These changes include:
— “Adopting a new Client Service Policy in 2019 that would have stopped us from doing this work on multiple grounds as the epidemic unfolded.
— Introducing a new code of conduct that leaves no room for doubt as to the conduct that is expected of every colleague.
— Adopting a purpose statement after a year of debate and dialogue and using this to inform the decisions that we make.”
Fundamental Changes Or Business As Usual?
Sneader’s statements evidence tension, if not contradiction.
As noted above, Sneader said of his firm, “We have always held ourselves to a higher bar. We fell short of that bar.”
Sneader thus presents McKinsey’s opioid work as an aberration. If so, why introduce “fundamental changes to…professional standards, policies, risk management and culture.”
In other words, if it ain’t broke, why fix it? And why fix it “fundamentally”?
Broke Vs Woke
Buffett’s Court Reconsidered
These questions bring us back to Buffett and his admonition to make money in the center of the court.
The general challenge McKinsey and other companies face is that the lines of the court are not static — not even in retrospect. What looked well inside the line at the time might now appear close to or outside of it. What was once the center of the court might now be considered on the edge or even out of bounds.
Where Should The Buck Stop?
America’s opioid disaster involved many parties. Media will trumpet the big names. Plaintiffs will stalk the deep pockets. McKinsey checks both these boxes.
But where in this debacle, for example, were the front-line doctors? To what extent did government policies permit or even abet abuse?
In this regard, a 2011 study of California Worker’s Compensation system found that 3% of prescribing physicians wrote 55 percent of all Schedule II (controlled-substance) prescriptions and 62 percent of all morphine equivalents. These prescriptions comprised 65 percent of all associated payments.
What’s more, according to the study, “nearly half of the Schedule II opioid prescriptions in California workers’ compensation were for minor back-injury claims, a treatment regimen that the American College of Occupational and Environmental Medicine describes as ‘typically not useful in the sub-acute and chronic phases.’”
At first glance, the above situation looks like legalized, wholesale drug dealing. If the lines and the court were indeed that messed up, whose fault is that?
Navigating The New Normal
This column neither condemns nor absolves. It does, however, argue for scrutiny and for context. It also calls for open and honest dialogue on the new normal.
We live in fast-changing, brutal times. What was recently scandalous becomes commonplace, and vice versa. People and businesses find themselves quickly and mercilessly condemned and canceled for past actions or words that at the time were “lawful and never intended to do harm.”
Sneader’s statement of contrition notwithstanding, it’s debatable whether McKinsey fell short of the bar, or the bar simply fell on McKinsey. And with opioid manufacturers and distributers now radioactive, who’s next? Artery-clogging fast-food chains? Obesity-inducing soft-drinks-and-snacks manufacturers? Globe-warming fossil-fuel companies?
In front but not leading
Heightened reputational risk from lawful and well-intentioned client service represents the new normal. McKinsey has taken serious steps to get in front of this challenge. The rest of us would do well to follow suit.
But a chance to lead has been lost. Is this new normal a good development? What principles should guide it? What countervailing principles should limit it?
If there ever were a higher bar for McKinsey to meet, leading such a discussion openly and honestly would be it.
Will anyone else step forward?
[Note — I worked for McKinsey & Company during 2000-2002 and 2013-2014. I maintain business relationships and friendships with numerous McKinsey consultants and alumni.]
[This column first appeared in Forbes. Reprinted here with permission.]