Which Potential Partners or Customers Are Ethically Toxic?
I have already written about McKinsey and its troubles at least twice in this new newsletter, but the removal of the firm’s managing partner by the senior partners this week warrants one more observation. It may be that Kevin Sneader simply was in the wrong place at the wrong time. The Wall Street Journal suggests that he tried to extract McKinsey from a succession of misconduct scandals, apologizing in turn to the South African government, to its own employees for an engagement with ICE to implement Trump’s harsh policies, and most recently for its project to turbocharge sales of opioids. In the past there was also a scandal in which McKinsey was accused of consulting on bankruptcies in which it had conflicts of interest, and one of Mr. Sneader’s predecessors, Rajat Gupta, was convicted of basic insider trading.
At least four of these scandals included decisions involving who you work for and what projects you undertake. It is a fundamental and unavoidable ethical dilemma facing almost every company: which clients, suppliers, and business partners are so odious that you do not want to work with them—or present conflict of interest or other issues which must determine whether you accept the business.
Some professional firms—law and consulting firms—have a mandatory review of any new business relationship. Whereas law firms have long done this primarily to avoid conflicts of interest, some firms have expanded this standard review to assess the ethical and reputational risk of working for a particular client. In a number of companies, any proposed contract for a business relationship activates a mandatory review of the character of the proposed partner. This began in earnest when firms had to assure themselves they were not involved with corrupt partners in third world countries, but today it is more common—and should be.
Two related incidents from the past echo. When Lockheed was caught in its major bribery scandal in Japan in the 1970s, there had been a deliberate decision to engage a shady consultant which ended up facilitating the bribes to sell L1011 aircraft. And in the 1980s, I sat with a committee of one of the U.S.’s largest banks to approve customer relationships. I vividly recall an “ethics” discussion whether there were moral differences between doing business with Playboy Inc. and with firms that published more hardcore content. Another discussion focused on whether to do business with an individual who had not been convicted but was widely assumed to be engaged in organized crime. Deciding whom to do business with is an unavoidable ethical dilemma of every firm.
Every firm needs a way of assessing and making these choices. Whatever system has existed at McKinsey has been woefully inadequate. You cannot leave such decisions to an individual partner who stands to enrich himself greatly by taking on questionable business. Who makes these decisions in your firm? And, of course, by what criteria?
Relevant articles:
How Does Your Firm Decide Which Potential Partners or Customers Are Ethically Toxic?