McKinsey 'Embarrassed' Over Galleon, Focused on Future

by Phil Stott | July 13, 2011

Pop quiz: the leader of which major corporation this week showed that he's aware that illegal actions committed by former employees may have irrevocably damaged the brand? And went as far as to call the situation "incredibly distressing and embarrassing" and his own firm "arrogant"?

All those who guessed McKinsey, give yourselves a pat on the back. But be sure to deduct marks for gratuitous wishful thinking if the words "News International," "News Corp," or "Rupert Murdoch" occurred to you while pondering it.

In an interview with the Financial Times this week, McKinsey's global managing director, Dominic Barton, conceded that the firm had taken a significant reputational hit as a result of the Galleon Group insider trading case—and that it could take several decades before the full extent of that damage is known.

For those requiring a refresher course, Galleon's founder and former head, Raj Rajaratnam, was recently found guilty on 14 counts of insider trading--a verdict that means he now faces up to 25 years in prison.

The problem for McKinsey? Two of its former senior executives—Anil Kumar and Rajat Gupta—were implicated in the investigation. Kumar has admitted providing insider information to Rajaratnam, while Gupta "has been charged with civil violations by the Securities and Exchange Commission but denies wrongdoing," according to the FT.

In an industry where reputation is everything, it's small wonder that Barton is so concerned about the long-term picture for McKinsey. As he told the FT, he feels "like some turpentine was thrown on the hood of the car," and that "I wish I could say [the state of the brand] changed next week or in six months … I really think it will be in the 10 to 20 year time frame we'll know."

Whether the turpentine analogy stretches quite far enough is open to question: damaged paintwork doesn't affect a car's roadworthiness, but the loss of luster at McKinsey does raise significant questions about its ability to keep rolling along in quite the same fashion.

But Barton does seem to be keeping his eyes on the horizon, and is certainly making all the right noises about how the firm is dealing with the fallout from the scandal. Perhaps most interesting is his attempt in the interview to weave McKinsey's specific woes into a wider story about corporate trustworthiness in general, and the need for reform of the entire capitalist system.

"Mr Barton said there was a wider drop in trust in business since the global financial crisis, which would require capitalism to adopt a longer-term perspective, freeing executives from running their companies to hit quarterly earnings targets."

That focus on long-term results is a note that Barton has consistently sounded in the past (most notably here), and it's refreshing that he seems prepared to practice at home what he clearly preaches to clients.

The downside: it would appear that you'll have to check back in 20 years to find out if he was right. Set your calendars now.

Read More:

FT: McKinsey concedes Galleon case 'embarrassing'

Harvard Business Review: Capitalism for the Long Term

McKinsey's Dominic Barton on his road to the top

Filed Under: Consulting


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