March 23, 2021 at 5:00 am ET
It is hard to imagine how McKinsey & Co. can restore its reputation, but naming a new lead partner, Bob Sternfels, is a first step. The announcement may have anesthetized some partners’ pain from the firm’s recent $600 million settlement for allegedly optimizing Purdue Pharma’s opioid addiction business.
Unfortunately, the real challenge isn’t reputation. Scandals come and go, and the zeitgeist will move away from opioid addiction, just as it lost interest in McKinsey missteps with Enron, ICE detention centers, government corruption in South Africa and hedge fund insider trading. Instead, the issue reflects a deeper problem: the 100-year-old franchise’s cultural inertia as it struggles to adjust to a global postmodern society.
The business case for change at first appears dubious. McKinsey is the most successful franchise in the history of consulting. Why change? For many at McKinsey, “lean in” may understandably mean working harder to preserve the status quo.
McKinsey is by no means culturally tone deaf. In 2015, the firm issued a landmark study showing “ethnically diverse companies” are 35 percent more likely to “outperform.” It institutionalized its diversity research under an annual series called “Why Race Matters” and internally pledged to double its Black hiring and leadership over the next four years as part of its “10 actions toward racial equality.”
Beyond racial diversity, the firm reported in 2019 that women represented 44 percent of total employees and 39 percent of managers, and the company has received a score of 100 percent from the Human Rights Campaign every year since 2006 for its record on its “LGBTQ equity.”
Still, critics lambast the firm as out of touch, with The Economist saying that leadership is too steeped in McKinsey’s “cult-like culture” to recognize a need for change.
But clients have paid a premium for the firm’s legacy culture. Its long-term success has created and sustained a brand that works, even if The Economist characterizes it as “smug.”
As the Harvard Business Review notes, clients in the notoriously opaque consulting business “rely on brand, reputation, and ‘social proof’” as a proxy for quantifiable results. But this is changing as clients get access to more tangible measures of performance and value, with the advent of data analytics and automated intelligence rapidly disrupting the business. Clients are also building internal strategy groups made up of consulting firm alumni.
So where does all this leave McKinsey and its new lead partner? How do they rebuild reputation and begin to sweep out the remnants of a legacy culture amid an existential threat?
Perhaps these secular shifts represent the best reasons to pursue change. As McKinsey’s own market research implies, doing business today requires a sturdy, relevant culture. Without it, leaders handicap their ability to withstand increasingly intense competition, serve a shifting client landscape and absorb relentless public scrutiny.
Diversity and inclusion initiatives have shown promise as a catalyst for organizational change. Mentoring programs in which managers sponsor women and minorities for training and promotion are paying off. Equally effective are diversity task forces made up of representatives from departments across the organization. Members of the task force carry ideas and recommendations back to their departments, monitoring progress and promoting accountability up the line.
These exercises turn traditional hierarchy on its head, but they can also have unintended consequences. The C-suite should be prepared.
A recent survey by associates in a banking group at Goldman Sachs, widely reported in morning headlines, showed that the group reported suffering from a crushing workload, which was inflicting a heavy emotional toll. To its credit, Goldman treated the news as a chance to demonstrate its cultural awareness, issuing a plainspoken statement.
“A year into COVID,” said a spokesperson, “people are understandably stretched pretty thin, and that’s why we are listening to their concerns and taking multiple steps to address them.”
In the not-too-distant past, the firm would likely have declined to comment. But Goldman has learned to relax the grip of seniority and live with a little disorder.
External communications plays a powerful role in signaling real cultural change. Acknowledging tension demonstrates that change is indeed underway. It broadens public understanding and creates a positive feedback loop to the talent pool.
To the extent that companies want to show credible commitment to diversity, organizations should look for more opportunities to communicate about the process of change, not just promote goals and benchmarks. Corporate leaders and their communications strategists should highlight Black, female and LGBTQ professional experiences, as well as spotlight employees’ personal struggles and workplace challenges.
Cultural change is incremental. Market forces are the most reliable incentives for new business practices, behaviors and thinking. Otherwise, initiatives imposed in response to public opprobrium will usually appear tentative. Organic change, separate from economic self-interest, happens at the margin and below the radar.
To communicate the stories of cultural change, leaders and diversity officers need to step away from the podium and let others do the talking. For example, they could shift the focus to first-year associates and their junior managers, or hand the microphone to a veteran of the support staff. After all, these folks do the heavy lifting. They are the real culture carriers and, given the strains on today’s elite hierarchies, are probably too tired to read this.
Pen Pendleton is co-founder of CLP Strategies, a corporate and financial communications firm.
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