McKinsey in soul-searching mood after Bob Sternfels’ re-election

Unlock the Editor’s Digest for free

When Bob Sternfels welcomed guests to a memorial for McKinsey’s revered former global managing partner Ron Daniel on New York’s Park Avenue last Thursday, it was not clear if his own tenure in that role was going to be extended for another three years or cut short after just one term.

A vote among the consulting firm’s 750 senior partners was still open, bringing an unusual undercurrent to the proceedings. As Sternfels’ predecessors eulogised Daniel’s “servant-leadership” from 1976 to 1988 in front of an audience that included the former New York mayor Michael Bloomberg and McKinsey alumni such as ex-Morgan Stanley boss James Gorman, it was clear that today’s firm housed deep doubts over how Sternfels had run it.

Only later that evening did the firm announce that the 54-year-old Rhodes Scholar had finished a nose ahead of McKinsey’s sunny digital practice chief Rodney Zemmel, who had taken the election all the way to a run-off. Attention now turns to how Sternfels will respond to complaints that he has concentrated decision-making in too few hands and has run McKinsey more like a corporation than the collegial partnership of old.

“Daniel’s particular genius was getting people to think his ideas were their own,” said John Seaman, a business historian and consultant who has written about the firm. “The best managing partners in McKinsey’s history have tried to syndicate authority as widely as possible . . . but as the firm grows it needs systems and administration. It needs to be managed, not just governed.”

There was a demonstration of what was at stake as guests at the memorial were in their seats on Thursday, when it emerged Sternfels had been called to testify before the US Congress about McKinsey’s work for Saudi Arabia’s sovereign wealth fund.

The Saudi government is one of a number of clients that have got the firm into hot water in recent years. McKinsey faced criminal charges in South Africa in a government corruption scandal, and it is still working through the legal fallout from advising US drug manufacturers on how to “turbocharge” opioid sales, which led to claims that the firm had contributed to the country’s epidemic of addiction. Settlements over that have totalled more than $900mn since 2021.

Sternfels has touted $700mn of investment in risk and compliance, including new procedures for vetting clients, under his leadership and that of his predecessor Kevin Sneader, but some senior partners have chafed at the extra oversight. Sneader was voted out in 2021 after just one term.

Sternfels has also pushed to make far-flung McKinsey offices work more closely together to better serve global clients, a project he said would require a second term to come to fruition. A back office restructuring last year that led to 1,400 job losses was in the same mould, designed to streamline the firm and protect profits.

McKinsey has grown to more than 45,000 employees in 65 countries, a two-thirds increase in headcount in the past decade. It has doubled revenue to $16bn over the same time. Old decision-making arrangements are no longer fit for purpose, some say.

One person familiar with the internal dynamics complained that things that would be normal practice in most companies seemed at McKinsey to spark anguish over whether the firm was being true to its values.

Recently departed senior partners described a “soul-searching” mood that explained Sternfels’ unexpectedly tough re-election battle.

“There is perhaps a feeling that there is not enough focus on the second part of McKinsey’s mission, which is ‘to help our clients make distinctive, lasting and substantial improvements in their performance and to build a great firm that attracts, develops, excites and retains exceptional people’,” one said.

The dual mission statement hints at how internal McKinsey debates are often cast as a choice between growth and values, even if managing partners inevitably claim to be balancing the two.

“Ron Daniel’s mantra was that if you serve the right clients the right way with the right people, you never need to worry about the economics because they will take care of themselves,” said another former senior partner.

There is, meanwhile, a nagging feeling that every step further away from its historic core as an elite strategy adviser to chief executives — into the larger-scale but more mundane project implementation work that Sternfels has branded as that of an “impact partner” — erodes McKinsey’s claims to being unique.

“There’s a collective soul-searching about what does special mean after a certain point,” said another former senior partner.

These are the questions confronting Sternfels now that it is assured he will be the global managing partner overseeing McKinsey’s centenary in 2026. Before then, he is expected to launch a review of the firm’s governance, according to people familiar with the situation. That review, if it follows the previous pattern, will involve task forces and partner committees and, in all likelihood, plenty of disagreement.

“This is a different firm, in a different time and a different economy, in an industry that has radically changed,” said Seaman, the historian.

“Consultants want to make money and therefore need to grow, but at the same time they are supposed to be collegial and non-hierarchical,” he said. “That becomes increasingly hard as the firm grows.”

Via

Leave a Comment