In a process as secretive as a papal conclave, involving only slightly less mystique, McKinsey’s senior partners refused Kevin Sneader a second term as CEO.
Shareholder democracy has spoken. But what did it say?
A Rare “One And Done”
McKinsey & Company operates as unified global partnership. The firm’s approximately 650 senior partners elect the firm’s CEO for a three-year term.
Previous CEOs have often served three such terms, helming the company for a total of nine years.
In 2018, the firm limited CEOs to two terms, for a total of six years. Sneader’s failure to win a second term thus comes across as a very public rejection and rebuke.
Cleaning Up Someone Else’s Mess?
Sneader became CEO in 2018. Addressing fallout from McKinsey’s work for opioid manufacturers has dominated his time as CEO. The bulk of such work occurred prior to his tenure.
McKinsey has also come under fire in other cases, however, for its selection of clients (Juul, Saudi Arabia) and assignments (vaping products, immigration, national- security-related issues, etc.) Public criticism over McKinsey’s client selection arose well before, but also during, Sneader’s time as CEO.
As CEO, though, Sneader must take responsibility for McKinsey’s near $600 million opioid-related settlement with 49 states. His responsibility also embraces public comments relating to the settlement, as well as “fundamental changes” McKinsey has undertaken in selecting which clients to serve, and on what matters to advise.
Divining The Partners’ Message
News reports suggest that, in the eyes of some partners at least, Sneader took too soft and apologetic a line in dealing with opioid related liabilities and reputational harms.
Perhaps more upsetting to some partners were limitations and controls the firm under Sneader placed on partners’ customary discretion over whom to advise, and on what matters. Changes included hard-and-fast rules against serving defense, intelligence, justice, or policing institutions in nondemocratic countries. Sneader also oversaw formation of a centralized client service risk committee, with the power to override partners’ client-engagement decisions.
Of course, Sneader did not take these steps on his own. McKinsey is an owner-managed business, which makes internal deliberation a practical necessity. Sneader also formally answers to McKinsey’s Shareholders’ Council, the firm’s board of directors, whose members are also elected by the global partnership.
It is possible that partners denied Sneader a second term simply because the firm’s problems came to a head on his watch.
On the other hand, if Sneader’s ouster springs from broad-based rejection of his policies and changes, it portends further turnover among McKinsey management and governance bodies.
How To Place Bets With House Chips?
In its talents, reach, and prestige, McKinsey may be unique. But its current challenge is common.
Any organization’s most valuable long-term asset is its reputation. How does the organization prevent an individual executive or partner from placing unwise bets with the organization’s reputational chips?
In high-performing owner-managed firms in fields like law and accounting, for example, at least two partners must sign high-risk documents such as opinion letters. Special fee arrangements, such as results-based billing, typically go through a committee.
McKinsey has customarily granted its partners wide discretion choosing and advising clients. With such trust and authority come extraordinarily high performance goals. Combining these elements has made the firm nimble, entrepreneurial, and responsive.
However, businesses across sectors now face unprecedented reputational risk. Balancing discretion and oversight without hamstringing partners represents a real operational and cultural challenge.
It would make a great McKinsey study.
Assuming, of course, that McKinsey’s client service risk committee permits it.
[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.com. Reprinted here with permssion.]