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McKinsey Has Either Assembled An Incredibly Conflict-Free Client Roster Or Is Hiding Something

McKinsey Has Either Assembled An Incredibly Conflict-Free Client Roster Or Is Hiding Something

Artist’s impression of McKinsey & Co.

Being a fiduciary is a real drag, Just ask the asset management industry, which tried like hell to avoid such a designation but who now labor under its onerous terms.

At least money managers only have to balance their own pecuniary interests against those of their clients! Consultants have to do that, too, but also balance the competing interests of their clients, also known as “conflicts of interest.” It’s really, really hard to be a gigantic consultancy and not have these. And yet, if a consultancy wishes to do some lucrative bankruptcy consulting, boom! It’s a fiduciary. Which is why the average Chapter 11 bankruptcy filing includes hundreds of pages of disclosures about potential conflicts of interest on the part of the professional firms working on those restructurings. By contrast, McKinsey & Co., one of the very largest such firms, averages all of five disclosures per filing. Five! The average is 117; one firm disclosed more than a thousand potential conflicts in American Airlines’ 2011 filing.

This didn’t sound right to one person. Or rather, it did. Because that person is Jay Alix, founder and namesake of consulting firm AlixPartners, which has been losing ground the McKinsey for years. Jay Alix suspected the precious few McKinsey disclosures were not the result of McKinsey’s near-total lack of potential conflicts, but the result of McKinsey just deciding not to disclose the universe of potential conflicts that come with being McKinsey. Among other improprieties, even! And now, Jay Alix is saying so in lawsuit form.

Mr. Alix, the founder of the consulting firm AlixPartners, filed suit under the federal Racketeering Influenced and Corrupt Organizations Act, saying McKinsey “knowingly and intentionally submitted false and materially misleading declarations under oath” in cases where it had been hired as a bankruptcy consultant.

The declarations allowed McKinsey “to unlawfully conceal its many significant connections to ‘interested parties’” in the bankruptcies, according to the complaint. Had the connections been known, it said, McKinsey would have been precluded from working on those cases.

The complaint also accused McKinsey of offering “pay to play” deals to various bankruptcy lawyers, in which McKinsey would offer “to refer its vast network of consulting clients” to them if in exchange they would refer their bankruptcy clients to McKinsey’s restructuring business.

Not that Alix wanted it to come to this. No! He tried to reason with McKinsey managing partner Dominic Barton. And this lawsuit is what happens when Dominic Barton fucks a competitor in the ass.

Mr. Barton initially expressed concern and said he would follow up, according to the complaint. When the two next met, Mr. Barton “revealed that he had been upset and angry to learn that McKinsey had, in fact, been making pay-to-play offers to bankruptcy lawyers,” and spoke with outside counsel, who confirmed that such conduct was illegal….

But Mr. Barton also asked Mr. Alix to be patient. He was up for re-election soon as McKinsey’s global managing partner, and re-election would allow him to address the legal issues from a position of greater strength…. After he was re-elected, Mr. Barton showed no sign of addressing the issues, according to the complaint. When Mr. Alix asked him about it, the McKinsey chief offered to introduce Mr. Alix to a mining company in Australia and a car company in Europe that might be interested in AlixPartners’ services.

Lying and bribery and now more alleged bribery! Oh my.

McKinsey Hid Conflicts of Interest From Courts, Lawsuit Says [NYT]
McKinsey Is Big in Bankruptcy—and Highly Secretive [WSJ]

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