Philippa Kaur

GERMANS ARE used to being top of the class. Early in the pandemic, when Germany controlled its outbreak better than most of the West, they felt they were. In vaccinating citizens against covid-19, by contrast, the country has been a laggard. One in 20 has received a shot, compared with nearly a third of Britons, a sixth of Americans and, as Die Welt, a daily, recently grumbled, even a tenth of Moroccans.
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German bosses are losing patience. Many workers at the industrial firms that dominate corporate Germany are vulnerable to covid-19 because factory or construction jobs cannot be done from home. Nearly all companies in the DAX 30 blue-chip stockmarket index, as well as countless CEOs of smaller firms, are therefore preparing to launch their own immunisation drives. They include BASF and Bayer (in chemicals), BMW and Volkswagen (carmaking), Deutsche Wohnen and Vonovia (property development) and RWE (energy).
The vaccines will come from the government, which has the doses but apparently not the capacity to get them quickly into arms. Firms are buying ultra-cold freezers for shots that need such storage. The jabs will be administered by company doctors. Germany has between 15,000 and 20,000 of them (not counting nurses), many more than other European Union countries, America or Britain. About one-third of them are employed directly by firms and the rest run practices that serve employers in their area.

Anette Wahl-Wachendorf of VDBW, an association of company doctors, hopes that from April such medics will be able to dispense jabs alongside family physicians and 400-odd public vaccination centres. They may reach perhaps 45m employees and their relatives, she reckons. That is more than half of all Germans.
“As soon as we get the vaccine, we will get started,” promises Rolf Buch, boss of Vonovia. His firm has already set up centres that will, starting this month, test employees who wish to return to the office for the virus. These venues will be used to vaccinate its 10,000 employees and adult members of their immediate families, in keeping with official guidelines on who gets priority.
German labour law allows companies to give bonuses to workers who get vaccinated for any illness (though not at this time to make vaccination mandatory). Such carrots are common in America, where Aldi and Lidl, two big German supermarkets, are offering workers payments of up to $200 to roll up their sleeves. Neither grocer, nor any other big German firm, is currently planning to use such incentives at home, for fear of the controversy this might cause (see article). Still, Mr Buch expects the vast majority of his staff to accept the offer of free shots. Those who decline may be barred from office parties and other group activities.
Once Mr Buch is done with Vonovia employees and their families, he is willing to turn the company’s centres over to the general vaccination effort. Other bosses are starting with the broader population. In early December, before the first vaccines were approved for use in the EU, business folk in Bremen, a city in north-west Germany, launched a campaign to convert an exhibition centre next to the central railway station into a giant vaccination site. Kurt Zech, a hotel-and-construction tycoon, contributed furloughed staff. Mercedes, a carmaker, threw in tables and chairs. Another company donated laptops. A software firm adapted its programs for use in a call centre that helps residents to schedule appointments.

Thanks to the pushiness of Bremer businesspeople, up to 16,000 of their fellow burghers a day will get jabbed from mid-March, more than ten times what the local government had planned. Their goal is to have 70% of the city’s adults inoculated by the end of July, months ahead of the government’s schedule. ■
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All our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also listen to The Jab, our new podcast on the race between injections and infections, and find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.
This article appeared in the Business section of the print edition under the headline “DAX vaxxers” More

FROM DRIVE-IN cinemas to drive-through restaurants, Americans love doing things without getting out of their cars. During the covid-19 pandemic they have taken to shopping in a similar fashion, too. Kerbside pickup, where buyers’ vehicles pull up to retail outlets and dedicated staff help load online orders into the boot, helped supermarket chains notch up a banner year. One in two American shoppers used kerbside or in-store collection last year, according to a survey by ShipStation, a maker of shipping software.
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No big retailer in America can do without kerbside pickup. Those that had it before the pandemic, including Target, Walmart and Kohl’s, have expanded their offerings. On March 2nd Target reported record digital sales, which accounted for two-thirds of revenue growth last year. These were powered by such “drive-up” purchases, which ballooned more than six-fold in the final quarter of 2020. Shops that lacked kerbside operations hurriedly created them from scratch. Some analyses have found that around 60% of American retailers now have the service, twice the share 12 months ago.
Even malls, which were struggling before the pandemic added to their woes as self-isolating consumers moved en masse to online purchases, are giving it a whirl. Sarah Fossen, head of marketing at Rosedale Centre, a mall near Minneapolis with 150 retail tenants, recalls starting a service with parking space set aside for kerbside pickup at two entrances, only to discover that there was sufficient demand to add such space at all five main entrances.

Successful efforts get a number of things right, says Tom Enright of Gartner, a research firm. Some of the imperatives are straightforward (install clear signs, offer sufficient parking space). Others require retailers to make bigger changes; since they do not have to lug stuff to their car themselves, for example, kerbside shoppers often buy bulkier crates of bottled water or bigger bags of pet food. A bit of technological nous comes in handy. Some retailers are, for instance, using location tracking in their apps to know when exactly customers might arrive, so as to minimise waiting times, says Jean Chick of Deloitte, a consultancy.
Some waiting will be inevitable. But, says Mike Robinson, who used to run digital operations at Macy’s, a big department-store chain, the period in line need not be wasted. Lingering customers could be enticed with other offerings, from promotions to new products, in the same way that you might grab a chocolate bar while waiting at the cashier. It is “the perfect time” to engage shoppers, Mr Robinson says.
Many shops still have to crack important aspects of this transition. Most are not equipped for returns or exchanges and lack a seamless way for customers to add and pay for last-minute items. Retailers could improve the experience with pop-up tables in the parking lot stocked with popular items. As Mr Enright notes, “If kerbside is going to replace an in-store experience, it has to bring a lot of those in-store experiences out into the parking lot.” ■
Dig deeper
All our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also listen to The Jab, our new podcast on the race between injections and infections, and find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.
This article appeared in the Business section of the print edition under the headline “Drive-through rules” More

WHICH ECONOMY contracted most sharply last year? That dubious honour almost certainly belongs to Macau, a former Portuguese colony that is now part of China. On March 5th the autonomous region’s statistical agency is expected to announce that GDP fell by at least half from 2019. Unsurprising, perhaps, given that the covid-19 pandemic has dealt a blow to Macau’s sole engine of growth: casinos. Gross gaming revenue in Macau, the only place in China where casinos are legal, plummeted from $36bn in 2019 to $7.5bn last year. The first two months of 2021 brought little respite.
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Yet despite collapsing revenues and heavy pre-tax losses, share prices of Macau’s six casino operators have held up remarkably well (see chart). Three of them are worth more than they were before the pandemic. Recently, after reporting that annual revenues had fallen by three-quarters, the biggest, Galaxy Entertainment, saw its market value swell to $42bn. Investors also reacted with a collective shrug when MGM China, a listed subsidiary of Las Vegas-based MGM Resorts International, disclosed a similar drop in its top line.
Why are investors feeling lucky? First, Macau expects a speedy recovery in visitors from mainland China, who account for seven in ten non-Macanese punters. For much of 2020 virus-induced travel restrictions stemmed their flow. Last month Macau exempted all mainland visitors from quarantine. Today the casino hub is the only jurisdiction with which the mainland has a two-way travel bubble.

The second reason for thinking the odds of recovery are good relates to a new directive from the central government in Beijing. Last summer it created a “blacklist” of overseas gambling destinations that were “endangering the personal safety and property of Chinese citizens”. A second blacklist of prohibited destinations was added in January. Neither list has been made public—perhaps because the government concluded that international leisure travel is still impractical and thus did not feel compelled to say more. But most gambling-industry watchers assume that Macau has been spared. Indeed, some believe that the blacklist may have been drawn up specifically to shelter the city. Either way, one long-term effect could be the repatriation of the demand for gaming.
Macau may need to overcome a countervailing force. A new law that took effect in mainland China on March 1st prohibits any individual or group from “organising Chinese citizens” to partake in overseas gambling, on pain of imprisonment. Unlike the blacklist, this regulation appears to apply to all jurisdictions outside the mainland, including Macau. Casinos there often rely on agents in mainland China to organise such jamborees. They will now be forced to keep a lower profile. Still, investors appear to be betting that enough individual Chinese like a flutter. They greeted the new law with another shrug. ■

This article appeared in the Business section of the print edition under the headline “Let the good times roll” More

WALL STREET’S glass ceiling cracked at last on March 1st, as Jane Fraser took charge of Citigroup, becoming the first woman to head a big American bank. That cracking sound has also been echoing across the rest of America Inc. Last year Carol Tomé became boss of UPS, a package-delivery giant. In January Rosalind Brewer became only the third black woman ever to run a Fortune 500 company (Walgreens Boots Alliance, a pharmacy chain). A month later Thasunda Brown Duckett was picked to run TIAA, a big pension fund.
America ranks below the average for the OECD club of industrialised countries in The Economist’s annual glass-ceiling index of female empowerment, owing to poor marks on parental leave and political representation. But it has a high share of women in management (41%) and on company boards (28%). In both cases America outpaces egalitarian Germany, which in January enacted a quota for female board members (and where the shares for management and boardrooms are 29% and 25%, respectively).

Most countries have a long way to go. Just one in three managerial positions across the OECD’s 37 members is occupied by a woman. A recent study by SIA Partners, a consultancy, found that in Britain bias against women in senior corporate hiring remains systemic.
At least signs of progress can be seen even in traditional laggards like Japan. Mori Yoshiro had to resign as chief of the Tokyo Olympics in February after he complained that women talked too much in meetings. A woman replaced him.
This article appeared in the Business section of the print edition under the headline “More cracks appear” More

HONG KONG’S Central district has long housed the offices of the world’s poshest law firms. Recently a few of them, such as Baker McKenzie, Bryan Cave Leighton Paisner, and Freshfields, have left for parts of the city with cheaper rents. Central still teems with lawyers, except that they toil for mainland firms like Zhong Lun, JunHe Law Offices and Fangda Partners.
These are members of the so-called Red Circle of elite Chinese practices that increasingly compete with London’s venerable Magic Circle (of which Freshfields is one) and New York’s white-shoe partnerships. And not just for office space. They are poaching legal eagles from Western rivals, or merging with them to create large groups such as Dentons (Dacheng in Mandarin). And they are opening outposts across the globe. The overarching aim, supported by authorities in Beijing, is to offer Chinese lawyering alongside other professional services, such as accounting, consulting and investment banking.

Chinese firms have so far made little headway in the City or Wall Street. A study last year of 1,400 cross-border deals between 2010 and 2018 that involved at least one Chinese party, by Li Jing of Tilburg University in the Netherlands, showed that only 3% of law firms hired in China by American companies were Chinese. One reason may be cultural. From the West’s wood-panelled boardrooms the Red Circle can look like arriviste apparatchiks. James William Freshfield, the British firm’s eponymous founder, died in 1864. Wei Xiao, who in 1989 launched JunHe, China’s first law partnership, only recently stepped down as managing partner. Like Mr Wei, who used to work at the justice ministry, many founding partners came from Beijing’s officialdom, still speak its parlance and view the world through its lens. Their names often reflect traditional virtues.
Culture is not the whole story, however. For Chinese companies, too, have often preferred to retain Western counsel. Ms Li’s research showed that only one in six law firms hired by Chinese groups to help with foreign transactions were Chinese; nearly two in five were American. Even for inbound investments only about half of firms retained by Chinese companies were local. State-owned enterprises were even less likely to hire home-grown firms.
A bigger reason for Red Circle’s low profile is lack of experience in common law, which underpins much of international commerce. As Western companies globalised in the 1970s they brought their legal advisers with them, spreading the influence of British and American law firms. Many cross-border contracts are still inked in the common-law entrepots of Hong Kong, London, New York or Singapore.
Part of Chinese law firms’ effort to catch up with the Anglo-Saxons involves learning the rules of the old order, says Liu Sida of the University of Toronto. Hence the expansion in Hong Kong. In 1998 just one of Hong Kong’s 49 registered foreign law firms came from mainland China. By 2017 about 30% of 84 such firms had their headquarters in Beijing or Shanghai, according to a study by Mr Liu and Anson Au, also of the University of Toronto.

Chinese practices are finding it easier to recruit local lawyers versed in common law, thanks in part to institutions such as Peking University’s School of Transnational Law in Shenzhen, which offers degrees in both American and Chinese law. In recent years many more graduates have joined Chinese firms rather than American ones, which they overwhelmingly favoured in the past, observes its dean, Philip McConnaughay. Growing size and ability to compete with global rivals on pay has “clearly lifted the prestige” of Chinese firms in a relatively short period, he says.
China is not content mastering the niceties of the old order. It is also subtly forging a new one around Chinese law. This begins by luring international students to its law schools, mostly from poor countries along the Belt and Road Initiative (BRI), its globe-spanning programme of infrastructure works. Plenty receive plush bursaries from the government in Beijing. Since only Chinese citizens can practise law in China, many foreign graduates prefer to return home, as paid-up members of China-friendly legal networks.
Some of these networks are formal. The All-China Lawyers Association, equivalent to Western bar associations, established an international group in 2019 to promote legal co-operation and is active in at least 36 countries. Chinese-owned firms like Grandall are setting up BRI practices. King & Wood Mallesons, created by the merger between a Chinese firm called King & Wood and Mallesons, an Australian one, has launched a think-tank-like affiliate to connect Chinese lawyers with local firms, companies and governments across Africa and Asia.
But it is informal webs that are more numerous, and possibly more powerful. Chinese companies seeking to enter new markets hire Chinese firms, which then enlist friendly local lawyers. The locals conduct due diligence, manage compliance with domestic law and appear in court on behalf of Chinese corporate clients, says Matthew Erie of Oxford University, who has studied such arrangements. The Chinese law firms oversee cross-border transactions and dispute resolution. Fees are split accordingly.
Sustained
These networks attract less attention than new Red Circle digs in Manhattan or tie-ups with white-shoe firms, says Mr Erie. In time, they may nevertheless be as successful at spreading Chinese influence as Anglo-Saxon law firms were in perpetuating that of the West. More

ONE OF THE best explanations for the triumph of a “solution shop” like McKinsey was co-written by the late Clayton Christensen of Harvard Business School in 2013. When hiring a management-consulting firm, he said, clients do not know what they are getting in advance, because they are looking for knowledge that they themselves lack. They cannot measure the results, either, because outside factors, such as the quality of execution, influence the outcome of the consultant’s recommendations.
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So they rely on reputation and other squishy factors—the consultants’ “educational pedigrees, eloquence, and demeanour”—as substitutes for tangible results. On that basis, no one would hire Schumpeter to help fix McKinsey’s problems. His diagnosis is as lacking in eloquence as he is in demeanour. In his unschooled view, those of the firm’s 650 senior partners who voted to oust their global managing partner, Kevin Sneader, on February 24th, are in a clueless mess. Worse, they don’t get that they don’t get it.
The Byzantine voting system that has done away with Mr Sneader has not yet determined which of his two potential successors will replace him. Nor is it clear for what precisely the 54-year-old Scot is paying the price. Some see his departure as the firm’s strangled mea culpa; the ousting of a boss is typical of a firm engulfed in the sort of scandals Mr Sneader has had to cope with, from dodgy dealings in South Africa and settling conflict-of-interest lawsuits to paying almost $575m to settle claims that its advice helped exacerbate America’s opioid crisis. Yet the roots of all those crises predate his three-year tenure. He is, at most, the fall guy.

More likely, sticking his nose into his partners’ businesses to avoid future calamities could have rubbed enough of them up the wrong way that they voted against him. That would suggest that a majority cannot fathom how serious McKinsey’s problems are.
At heart, they stem from a simple delusion. Its partners see themselves as missionaries. Yet they are also mercenaries—“guns for hire”, as Duff McDonald, a biographer of the firm, calls them. They have a mantra that puts their clients’ interests above their own, and a belief, drawn from the firm’s pristine heritage, that no one knows better how to distinguish between right and wrong. Yet in some cases, as in working with Purdue Pharma, maker of the addictive painkiller OxyContin, their moral compasses go haywire. That is most likely because of the lure of lucre.
Numerous notes of dissonance follow from this. For almost 95 years, McKinsey has sought to portray itself as a genteel professional-services company, not a grubby business. Unlike, say, a profit-hungry Goldman Sachs banker, who walks into a room aware she may be hissed at, a McKinsey consultant expects his halo to be noticed. However much its senior partners insist that they are not motivated by outsized profits, they can earn as much each year as that Goldman banker. Revenues have roughly doubled in a decade to over $10bn. Partners number 2,600. The firm’s employees revel in the aura of the old McKinsey—of autonomy, discretion and intellectual prestige—while embracing the growth, profits and power that have come in more recent years. Rarely do they doubt whether they can have it all.
More people and more wealth inevitably make oversight more important. Still, McKinsey continues to think of itself as a partnership built on trust, not one that requires centralised command and control. Its voting system resembles an elite Athenian democracy. The more trouble it is in, the more it needs a Spartan leader, backed by a strong risk-control apparatus, to keep it on the straight and narrow. McKinsey’s 30-person “shareholder council”, its board of directors, may be too steeped in the firm’s cult-like culture to realise how pressing is the need for change. Mr Sneader started the reforms. His defenestration seems ominous for those hoping they will go much further under his successor.
As scrutiny of it intensifies, McKinsey must learn to balance preserving its discretion on behalf of clients with greater transparency. The more work it does for governments, the more public attention it will receive. Its costly legal encounters are bringing to light details of more client contacts, including with Johnson & Johnson, which last year settled an opioids lawsuit with a group of state attorneys-general. McKinsey’s settlements over opioids—in which it did not admit wrongdoing—require it to publish reams of correspondence, which increase the risk of reputational damage.
First, identify the problem
Within the cryptic world of McKinsey, what signs would indicate that the firm recognises the crisis that it is in? The winner of the run-off to replace Mr Sneader, which will reportedly be between Sven Smit from the Amsterdam practice and Bob Sternfels from San Francisco, should say which aspects of his predecessor’s reforms he intends to keep. More risk control is a must. Client payments should be more standardised. Most are flat fees (albeit fat ones) but about 15% are tied to performance; the latter create incentives for abnormally turbocharging results. Bruised by scandal, a truly progressive firm would launch its own version of a truth-and-reconciliation commission to see if anything else is lurking in the closet. It could shunt a generation of partners towards retirement. That would make it less unwieldy and make way for those more accustomed to the glare of publicity.

Above all, when it does open up, the firm should adopt some radical new talking-points. Rather than cloak itself in righteousness and assert its right to complete discretion and total opacity over how it behaves, it should admit that it exists to make cold, hard cash, and make explicit the ethical lines that it will not cross and the process it has to police them. Well-run companies confront and manage conflicts of interest. McKinsey has tried to blag its way through them with a narcissistic recklessness. Its partners like to think of themselves as the smartest guys in the room. They should have realised the perils of their self-delusion long ago. ■
This article appeared in the Business section of the print edition under the headline “The smuggest guys in the room” More

ON MARCH 5TH 2020 Mumbai’s horseracing season culminated with the Poonawalla Breeders’ Multimillion, a day-long extravaganza dominated by India’s first family of the sport, the Poonawallas. Triumphs at the track were accompanied by news reports on the Bollywood lifestyles of Adar Poonawalla and his wife, Natasha, whom Elle magazine described as “India’s first lady of fabulousness”. Only cursory attention spilled over to the couple’s day job running Serum Institute of India, the press-shy vaccine-maker at the root of the family fortune.
A year on it is the company, not its flamboyant owners, that is making headlines. As the covid-19 vaccination drive encounters production glitches in Europe, hits distribution snags in America, and faces a geopolitical scramble for supply everywhere, Serum Institute has emerged as the one firm apparently able to ramp up production fast and export the doses without courting controversy. By the end of the year, Mr Poonawalla says, it will add 1.5bn covid-19 shots to 1.3bn-1.5bn doses against diseases from measles to tuberculosis that it already produces annually. On February 23rd it dispatched the first mass shipment, of 70m shots of the Oxford-AstraZeneca vaccine, to India and two dozen other poor countries in the COVAX vaccine-sharing programme. On March 1st Canada said it will procure 500,000 doses from the company. The relatively small family concern, which entered last year with annual revenues of $735m and a workforce of 6,000, is becoming mission-critical to the global fight against the coronavirus.

Mr Poonawalla’s plans are ambitious, to put it mildly. He wants to raise monthly production of the Oxford vaccine from the current 60m-70m to 100m by April. That month the company will start churning out 40m-50m of a shot developed by Novavax, an American biotechnology firm, to build up a “large stock” as it undergoes accelerated review by a number of global regulators. By late summer Serum Institute expects to be making another vaccine, by Spy Biotech, a British startup. In early 2022 it hopes to be producing a one-dose nasal vaccine being developed by Codagenix, another American biotech firm.
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Mr Poonawalla estimates that until rivals’ new capacity comes online in the autumn, his company’s output will account for perhaps 40-50% of the world’s supply. Unlike Pfizer, an American drug giant which recently upped its production goal from 1.3bn to 2bn doses this year, Serum Institute’s shots are cheap and do not need to be stored at ultra-low temperatures. They will inoculate swathes of the poor world.
Some of the factors behind the company’s rise to prominence, like the pandemic and scientists’ rapid response to it, have been beyond its control. But Serum Institute has also placed bold bets that run counter to the traditional process of making vaccines, in which investments in capacity and distribution follow years of research, then more years of clinical trials for safety and efficacy. A brief conversation last April, between Mr Poonawalla and his father Cyrus, the firm’s founder, resulted in a decision to start producing the Oxford vaccine before any clinical trials had begun.

It is the latest daring coup by the Poonawallas. In the 1960s Cyrus turned his horse-breeding business into one that used retired steeds as living vessels to create antibody serum for treatment of snake bites, tetanus and other scourges. Forty years later his son, who has been chief executive since 2011, has added 165 countries as customers (often while courting Natasha on holidays). International sales now account for 70% of the firm’s total. In December the firm released the first vaccine to be fully developed in India, against a variant of pneumonia which kills 68,000 Indian children a year.
The company’s initial investment of $80m in capacity to produce the untested Oxford shot came from its billionaire owners’ own pocket—a tidy sum next to the previous year’s $46m in capital expenditure. Since then Serum Institute has received a further $800m: $270m from the Poonawallas, $300m from the Bill & Melinda Gates Foundation, the world’s biggest charity, and the rest from prepayments by governments, including those of Bangladesh and Morocco.
The privately held firm will not say how much of that money has already been deployed. But Mr Poonawalla says it has doubled production capacity. It could do this quickly, he adds, thanks to a strategy of installing “excess capacity ahead of demand”. For decades it had been adding a new building each year; one that was ready to go shortly before the fateful chat between father and son was immediately repurposed for the covid-19 effort.
A long-standing collaboration with Oxford and Novavax as part of an effort to create a malaria vaccine allowed Serum Institute to secure their recipes early. Deep relationships with suppliers of everything from glass vials to expensive “bioreactors” for the production of biological substances have helped smooth procurement. Serum Institute has hired 1,000 new employees, increasing its workforce by a sixth. Another 500 construction workers are putting up new buildings with higher production capacity to add to the 30 or so that the company has erected over the years.
At the current pace, Mr Poonawalla thinks, it will take at least two years for the global supply of covid-19 jabs to meet demand. It could take less if the world’s regulators co-ordinated more closely for the duration of the crisis, he ventures. Until then Serum Institute expects to be selling the jabs more or less at cost, which means about $3-5 a dose for the Oxford vaccine. After that, margins will eventually rise. “This situation will last for a long time and there will be future demand,” Mr Poonawalla predicts. Covid-19 looks certain to become endemic in many parts of the world, with annual vaccination drives akin to those for influenza becoming the norm. Output will peak at 600m-700m a year doses for each of the four vaccines it is currently eyeing, he says.
The pandemic will leave vaccine-making more prominent than ever before, Mr Poonawalla believes—and much more crowded. This will inject competition into what most drugmakers consider a thankless volume business with considerable capital outlays. A fire earlier this year at one new building sent a shudder down the spines of the world’s covid-responders until the company assured them that the accident, which affected a production line for a tuberculosis jab, will not hurt the pandemic effort. Although the bet on the Oxford vaccine has paid off, and the one on Novavax looks likely to, Codagenix and SpyBiotech are not yet shoo-ins. And vaccine nationalism could stymie exports from India or imports of ingredients and kit.
Mr Poonawalla nevertheless remains confident that his firm will maintain its leading position. In contrast to big pharma, which spends billions on marketing costly medicines, it sells its vaccines chiefly to national health authorities, which prize low prices and reliable supply above all. Those have always been Serum Institute’s strong suits. And the Indian company’s remarkable response to covid-19 has bought it more global goodwill than any advertising campaign could hope to. More

ONE OF THE best explanations for the triumph of a “solution shop” like McKinsey was co-authored by the late Clayton Christensen of Harvard Business School in 2013. When hiring a management-consulting firm, he said, clients do not know what they are getting in advance, because they are looking for knowledge that they themselves lack. They cannot measure the results, either, because outside factors, such as the quality of execution, influence the outcome of the consultant’s recommendations.
So they rely on reputation and other squishy factors—the consultants’ “educational pedigrees, eloquence, and demeanor”—as substitutes for tangible results. On that basis, no one would hire Schumpeter to help fix McKinsey’s problems. His diagnosis is as lacking in eloquence as he is in demeanor. In his unschooled view, those of the firm’s 650 senior partners who voted to oust their global managing partner, Kevin Sneader, on February 24th, are in a clueless mess. Worse, they just don’t get that they don’t get it.

The Byzantine voting system that has done away with Mr Sneader has not yet determined which of his two potential successors will replace him. Nor is it clear for what precisely the 54-year-old Scot is paying the price. Some see his departure as the firm’s strangled mea culpa; the ousting of a boss is typical of a firm engulfed in the sort of scandals Mr Sneader has had to cope with, from dodgy dealings in South Africa and settling conflict-of-interest lawsuits to paying almost $575m to settle claims that its advice helped exacerbate America’s opioid crisis. Yet the roots of all those crises predate his three-year tenure. He is, at most, the fall guy.
More likely, sticking his nose into his partners’ businesses to avoid future calamities could have rubbed enough of them up the wrong way that they voted against him. That would suggest that a majority cannot fathom how serious McKinsey’s problems are.
At heart, they stem from a simple delusion. Its partners see themselves as missionaries. Yet they are also mercenaries— “guns for hire”, as Duff McDonald, a biographer of the firm, calls them. They have a mantra that puts their clients’ interests above their own, and a belief, drawn from the firm’s pristine heritage, that no one knows better how to distinguish between right and wrong. Yet in some cases, as in working with Purdue Pharma, maker of the addictive painkiller Oxycontin, their moral compasses go haywire. That is most likely because of the lure of lucre.
Numerous notes of dissonance follow from this. For almost 95 years, McKinsey has sought to portray itself as a genteel professional-services company, not a grubby business. Unlike, say, a profit-hungry Goldman Sachs banker, who walks into a room aware she may be hissed at, a McKinsey consultant expects his halo to be noticed. However much its senior partners insist that they are not motivated by outsized profits, they can earn as much each year as that Goldman banker. Revenues have roughly doubled in a decade to over $10bn. Partners number 2,600. The firm’s employees revel in the aura of the old McKinsey—of autonomy, discretion and intellectual prestige—while embracing the growth, profits and power that have come in more recent years. Rarely do they doubt whether they can have it all.

More people and more wealth inevitably make oversight more important. Still, McKinsey continues to think of itself as a partnership built on trust, not one that requires centralised command and control. Its voting system resembles an elite Athenian democracy. The more trouble it is in, the more it needs a Spartan leader, backed by a strong risk-control apparatus, to keep it on the straight and narrow. McKinsey’s 30-person “shareholder council”, its board of directors, may be too steeped in the firm’s cult-like culture to realise how pressing is the need for change. Mr Sneader started the reforms. His defenestration seems ominous for those hoping they will go much further under his successor.
As scrutiny of it intensifies, McKinsey must learn to balance preserving its discretion on behalf of clients with greater transparency. The more work it does for governments, the more public attention it will receive. Its costly legal encounters are bringing to light details of more client contacts, including with Johnson & Johnson, which last year settled an opioids lawsuit with a group of state attorneys-general. McKinsey’s settlements over opioids—in which it did not admit wrongdoing—require it to publish reams of correspondence, which increase the risk of reputational damage.
First, identify the problem
Within the cryptic world of McKinsey, what signs would indicate that the firm recognises the crisis that it is in? The winner of the run-off to replace Mr Sneader, which will reportedly be between Sven Smit from the Amsterdam practice and Bob Sternfels from San Francisco, should say which aspects of his predecessor’s reforms he intends to keep. More risk control is a must. Client payments should be more standardised. Most are flat fees (albeit fat ones) but about 15% are tied to performance; the latter create incentives for abnormally turbocharging results. Bruised by scandal, a truly progressive firm would launch its own version of a truth-and-reconciliation commission to see if anything else is lurking in the closet. It could shunt a generation of partners towards retirement. That would make it less unwieldy and make way for those more accustomed to the glare of publicity.
Above all, when it does open up, the firm should adopt some radical new talking points. Rather than cloak itself in righteousness and assert its right to complete discretion and total opacity over how it behaves, it should admit that it exists to make cold, hard cash, and make explicit the ethical lines that it will not cross and the process it has to police them. Well run companies confront and manage conflicts of interest. McKinsey has tried to blag its way through them with a narcissistic recklessness. Its partners like to think of themselves as the smartest guys in the room. They should have realised the perils of their self-delusion long ago.■ More