Strategy Consulting's Reputational Risks

These are the reputational risks now faced by US companies and they are very real in consulting.

Recently many strategy consulting firms have come under scrutiny for the morality of the advice they have given and the reputations of the clients they have taken on. Will public reputation issues like these impact the power of these firms to hire the level of talent they have in the past (an asset they aggressively market as their competitive differentiator)? If so, when will these negative repercussions end? What long-term impacts will this have on their brand reputation?

Unfortunately for the firm, as the largest strategy consulting firm, McKinsey has borne the large brunt of journalism’s peer into the work of the industry. 2019 was a particularly destructive year for the firm’s reputation as the New York Times lead an investigative journey into the firm. News outlets reported on how McKinsey had taken on disreputable clients including ICE as well as the Saudi and Chinese governments. Most recently, McKinsey was confronted for its role in the Opioid epidemic due to its advisory role to Purdue Pharma. McKinsey has since accepted its faults in this role and agreed to a settlement of $573.9 Million for its actions. PR issues like these were prevalent across the industry. Other firms like Bain and KPMG were being investigated of manipulating the South African government and BCG was accused of financial corruption in Angola.

Recognizing the threat to McKinsey’s reputation, Kevin Sneader released an op-ed in the beginning of last year through CNBC responding to many of the public’s concerns. Sneader discussed how the firm regrets the advice it gave in the past, but also what the firm’s plans are to make sure nothing like this ever occurs again. In July 2019, McKinsey put in place processes and guidelines to better scrutinize which clients they serve and what they do. The firm also committed to sharing more information highlighting the way the firm plays a positive role in developing and implementing the latest, strategic, technological and operational thinking around the world.

These types of actions will help mitigate some of the industry’s issues, but the journalistic curiosity has not disappeared, and the public’s image is currently tarnished. Journalists are keeping a closer eye on strategy consulting firms and questioning into their past. Many current employees are starting to grow tired of the constant questioning at the firm. Employees do not want to be in a situation where the press is reaching out for comments on their projects. Leaders in the group associated with the Purdue Pharma case have moved elsewhere to smaller shops like Strategy&. This is producing real damage on strategy consulting’s firms recruiting in the US and globally.

Even at the analyst level, college students are becoming more and more anti-business (many view McKinsey as the firm used to implement harsh cost-cutting strategies). The impact of this reputation has also been felt by many McKinsey Alumni. In the past, the McKinsey brand was a strong stamp to have on a politician’s resume, but in the recent 2020 election Pete Buttigieg was scrutinized over the firm’s actions and news scandals.

These are the reputational risks now faced by US companies and they are very real in consulting. McKinsey, Bain, and BCG (MBB) brand themselves on their ability to hire top talent. McKinsey advertises that the talent it hires is both faster and more effective than the average worker. If the market perceives that MBB is no longer able to retain that top talent it may look elsewhere for advisory services. In today’s business landscape many firms pay top dollar for MBB firms to please the boardroom, however, they may soon start looking elsewhere to smaller shops to avoid the association with MBB’s negative reputation.

It is vital for MBB firms to manage these PR issues and double-down on their ability to attract and retain top talent. McKinsey acted fast on the issue releasing public statements and declaring a mandate to avoid advisory in Opioid-related business. The firm also recently hired Ramiro Prudencio as their Global Director of Communications. Prudencio had been working at BCW as the Executive Vice President of Global Public Affairs & Corporate Reputation; his experience in corporate reputation and public affairs management could be extremely helpful to McKinsey and may signal a larger reputation rebuild effort at the firm.

Will problems like these challenge MBB’s dominant presence in the strategy consulting space? Direct competitors benefit immediately in the short term as high-level staff moves to other firms. The market will shake up slightly as close competitors like the Big 4 and Accenture take work away from MBB. However, these firms have an extremely long history with proven results – by reestablishing their top reputations they can continue to retain the level of talent they have in the past.

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