McKinsey partners vote out as leaders in wake of opioid regulation, other crises

Mr. Sneader, a 54-year-old Scot and McKinsey veteran for more than three decades, has spent much of his tenure trying to clear up the controversies surrounding McKinsey’s earlier work with past clients, including the settlement of this month’s $ 573 million with states on work, OxyContin maker Purdue Pharma LP and other drug manufacturers are advising to aggressively market opioid painkillers.

The company has also highlighted its work with e-cigarette maker Juul, as well as some autocratic foreign governments, including Saudi Arabia. In December, it reached a settlement with the Justice Department watchdogs over how the company reports potential conflicts of interest. In both the opioid and disclosure settlement, McKinsey admitted no wrongdoing.

Much of Mr. Sneader on those crises has led McKinsey to move from a culture that relied on the judgments of individual partners to one that was based on systems, rules and processes, fueling discord within the higher ranks, say people familiar with the matter. Traditionally, her partners enjoyed great leeway in their work and customers. McKinsey declined to make Mr. Sneader available for an interview.

Historically, McKinsey’s business model has relied on “hiring the best people to do the most important work at a great price,” says one person who spent years with the company. If a potential customer was not considered important enough, or did not contribute to a greater good, the business would succeed. “Refusing work is at the heart of his ethos,” the person said.

But in the years leading up to Mr. Sneader’s ascent, McKinsey experienced rapid expansion. The company was looking for new ways to grow, and with a decentralized management structure, there were few safeguards to prevent an ambitious partner from taking on lucrative, albeit problematic, customers, the person said.

Under Mr. Sneader had to approve the company’s top partners for controversial new clients, and McKinsey said it wouldn’t serve defense, intelligence, justice, or police agencies in non-democratic countries. This made it potentially more difficult for non-US partners to take on a number of customers, and was seen as a centralization of power away from partners, according to people familiar with operations. In an interview with the Financial Times published this week, Mr. Sneader said the company’s customer service risk committee, which assesses any new work that could throw flags, reviewed more than 2,000 projects by 2020.

“He has certainly introduced higher risk protocols; higher levels of diligence; red lines about serving the public sector in some countries, ”said the person who spent years with the company, adding that the partners in Mr. Sneader’s camp believed it was“ not feasible to go back to an era. in which you can just do what you like or you don’t have to be governed by a compliance regime. “

The company’s recent opioid settlement also drew opposition from some non-US partners more willing to fight, people familiar with the case said. Mr. Sneader’s letter to employees about the settlement was blunt in criticizing the company’s behavior, saying McKinsey was not up to standards and “the epidemic unfolding in our communities or the terrible impact of abuse and opioid addiction not sufficiently recognized, and I am very sorry for that. “

Some partners felt that the language was too strong and that McKinsey’s advice to customers was legal and given in good faith, said people familiar with the matter.

The shift in power highlights the complexities of running a global partnership. As a global managing partner, Mr. Sneader was more of a first among peers than a chief executive, and his reforms were approved by senior partners. But when he was up for re-election for another three-year term, there were enough dissent to keep him from the final vote.

Because he failed to make it to the second and final ballot, there are two other senior partners in the running to replace Mr. Sneader to succeed: Bob Sternfels and Sven Smit, senior partners in McKinsey’s San Francisco and Amsterdam offices respectively.

Senior partners of McKinsey will decide whether Messrs Sternfels or Smit will replace Mr Sneader in a final round of voting, expected to take place in March, people close to the case said. Mr. Sternfels is seen as a protégé of Dominic Barton, who led McKinsey from 2009 to 2018 and was credited with accelerating its growth.

As part of the process, senior partners nominate several candidates and then vote in a first round. The two candidates with the most votes advance to a final round.

One of the simmering problems Mr. Sneader faced was McKinsey’s work with e-cigarette company Juul. In 2019, a former Juul employee said in a lawsuit that even when the company said it was withdrawing flavored products from the market, McKinsey advised it to sell mint-flavored nicotine pods. The New York Times and ProPublica reported that year that McKinsey also helped U.S. immigration and customs enforcement with changes, including reducing food and medical expenses for inmates and expediting deportations. In addition to the Saudi government, McKinsey also worked for the Chinese government and held a retreat four miles from a camp where Uyghurs, members of a Muslim minority, were interned, the Times reported.

McKinsey also played a central role in the rise of Saudi Crown Prince Mohammed bin Salman. In 2015, Prince Mohammed, son of the new king, had no direct route to the throne. His father, King Salman, put the prince in charge of economic reform, and McKinsey was involved in devising a strategy to divert the kingdom’s economy from its dependence on oil.

In late 2015, the company’s research arm, the McKinsey Global Institute, released a public report entitled ‘Saudi Arabia Beyond Oil’ which stated: ‘We see a real opportunity for the Kingdom to bring a new dynamic to the economy through a productivity and investment project. led transformation. “

The report fleshed out McKinsey’s strategy that Prince Mohammed was pursuing at a time when he was seeking approval from foreign businessmen and political leaders to legitimize his claim to a greater role in the kingdom. His father, the king, gave him extra responsibility, and in 2017 the prince imprisoned his nephew, then crown prince, and took the title himself. Since then, the Crown Prince, known as MBS, has been the daily ruler of the kingdom. He led economic reforms, as well as a brutal bombing campaign in Yemen that sparked a humanitarian crisis, blocking many of his critics and a team of men who murdered dissident writer Jamal Khashoggi in 2018.

A major project the company has been working on recently was the prince’s plan for an all-new town called Neom on Saudi Arabia’s remote west coast. The prince envisioned a technology-driven metropolis populated by the world’s elites, full of flying robot taxis and an automated police force. McKinsey and other consultancies were brought in to assist with the plan. In thousands of pages of internal planning reports reviewed by the Journal, McKinsey detailed using a ’13 pillar livability framework’ and big data to quantify how enjoyable it would be to live in Neom. The Saudi government has begun to move local people from the country to build the city.

Corrections and reinforcements
Bob Sternfels and Sven Smit are senior partners in McKinsey’s San Francisco and Amsterdam offices respectively. An earlier version of this article falsely stated that they were heads of those offices. (Corrected on February 24)

Write to Justin Scheck at [email protected] and Vanessa Fuhrmans at [email protected]