Turning up to the World Bank as an environmental campaigner to complain about McKinsey & Company one might expect something of a frosty reception.  After all, McKinsey is reputed to be a bank favourite, so the famous premises at 1818 H Street Washington DC should be very much the management consultancy’s home turf.  But that was not my experience this week.

McKinsey is just not having the best time of it at the moment.

First there was the implication of former McKinsey heavyweights Anil Kumar and Raj Rajaratnam in the largest crackdown on hedge-fund insider trading in US history, a case has received some brutal coverage.  CNBC’s John Carney wrote “right now, McKinsey is looking very, very bad. If the corruption started at the top, it’s a good bet it spread throughout the firm”.  In his blog for London’s FT John Gapper observed that “McKinsey now faces a crisis of corporate reputation which it needs to address in order to avoid its brand being badly tarnished”.

McKinsey staff are known to affectionately refer to their employer as “the firm”, presumably in the knowledge of the Sydney Pollack film of the same name.  The use of that nickname may not be such a good idea any more.

Now McKinsey has become embroiled in a second high level controversy with environmental organisations Greenpeace and the Rainforest Foundation publishing reports highly critical of the firm’s influence on the plans of various rainforest nations to reduce rates of deforestation.  It was this that had taken me to Washington.

Deforestation accounts for just under a fifth of annual global carbon emissions.  Although the world community is mired in painfully slow progress on the climate negotiations generally, there is at least international agreement on the need for a global mechanism to reduce emissions from deforestation and degradation of forests (REDD).

But reducing deforestation is easier said than done. And that is where McKinsey comes in, as it has been retained to provided high-level advice to key rainforest nations on national REDD plans.  Writing about the case of Papua New Guinea, one of the few mainstream journalists who really follows REDD, Economist correspondent Natasha Loder, evoked McKinsey’s involvement this way in her blog back in 2009:

the climate consultants du jour are McKinsey. If Papua can find a mere $2m, McKinsey will load up its crack team of climate consultants into the Batplane, fill it up with biofuel, and send it swooping down on Port Moresby to help the country prepare itself … by developing the national REDD and climate change plan, deploying cost-abatement curves from their utility belts …

Unfortunately, the McKinsey-influenced national REDD plans have proven more Joker than Batman.  Indeed it seems that Batplane management consultants may not actually be particularly well suited to the task of understanding the complex biological and social systems associated with rainforests.

The Rainforest Foundation describes the McKinsey approach as “misleading for decision makers”.  Greenpeace says that “when rainforest countries employ McKinsey to apply its trademarked cost curve to their REDD+ prospects, few if any of the resulting plans meet basic standards of accuracy, rigour, utility or ethical acceptability”.  Both organisations argue that McKinsey-influenced plans could perversely result in an increase in deforestation and carbon emissions, as well as accompanying biodiversity loss and the mass violation of the rights of rainforest peoples.

Either the insider trading or the rainforest destruction scandals alone would have been highly damaging to McKinsey, but taken together they are necessarily even more potent.  The controversies leave the story McKinsey tells about itself looking more than a little ironic:

We are a values-driven organisation. For us this means to always:

  • Put the client’s interest ahead of our own
    This means we deliver more value than expected. It doesn’t mean doing whatever the client asks.
  • Behave as professionals
    Uphold absolute integrity. Show respect to local custom and culture, as long as we don’t compromise our integrity.
  • Keep our client information confidential
    We don’t reveal sensitive information. We don’t promote our own good work. We focus on making our clients successful.

…

Ours is a firm of leaders who want the freedom to do what they think is right.

No enterprise can afford a credibility gap to open up around their business.  In McKinsey’s case, clients who choose to pay the allegedly eye-watering fees are buying the cachet of the McKinsey brand as much as anything else.  But a brand linked — even by association — to messy insider trading trials and rainforest destruction does not look so shiny any more.

McKinsey is reported to have recently committed to an internal ethical review.  The firm could do worse than widen the remit of the undertaking to include a substantive revision of its practice around advice on rainforests.