Loyola University Chicago School of Law, JD 2022
In February 2021, McKinsey and Company’s 650 global partners turned down Kevin Sneader’s bid for a second three-year term as the firm’s lead partner. The rejection marked the first time in 40 years the storied consulting firm has opted not to offer its leader a second term. The vote came as McKinsey struggles to reconcile its lucrative business model with a series of ethical lapses that have been widely reported in the press, litigated in the courts, and questioned by some of the firm’s next generation of leaders.
McKinsey’s management structure
McKinsey & Company is a management consulting firm. The firm provides strategy and management consulting services, such as providing advice on an acquisition, developing a plan to restructure a sales force, creating a new business strategy, or providing advice on downsizing. The firm offers these services to industries such as electronic, aerospace, automotive, chemical, financial, oil and gas, public sector, and healthcare. McKinsey serves clients worldwide.
McKinsey was originally organized as a partnership before being legally restructured as a private corporation with shares owned by its partners in 1956. It mimics the structure of a partnership. The firm is also managed by a series of committees that each has its own area of responsibility.
McKinsey has been described as having a de-centralized structure, whereby different offices operate similarly, but independently. The firm’s budgeting is centralized, but individual consultants are given a large degree of autonomy.
Kevin Sneader’s failed bid for reelection
Since the 1960s, McKinsey’s Managing Partner has been elected by a vote of senior partners to serve up to three, three-year terms or until reaching the mandatory retirement age of 60. Last month, 650 of McKinsey’s senior partners voted on whether to give Kevin Sneader, the firm’s managing partner, a second three-year term. Sneader lost the vote, making him the first managing partner in decades to serve just one term. The decision was largely due to Sneader’s desire to make the firm more transparent, more selective with clients, and more structured.
During Sneader’s tenure, McKinsey faced major corruption scandals in South Africa, criticism over contracts with current or former authoritarian governments in China, Turkey, Saudi Arabia, and Ukraine, and lawsuits challenging the firm’s role in encouraging client Perdue Pharma to aggressively promote OxyContin, thereby fueling the opioid crisis.
Perdue Pharma controversy
At the same time the senior partners were considering whether to grant Sneader a second term, McKinsey announced a $574 million settlement of lawsuits relating to Perdue Pharma that alleged that McKinsey urged Perdue’s directors to “turbocharge the sales engine” for OxyContin, an addictive opioid painkiller overprescribed by many physicians. According to these suits, McKinsey counseled Perdue to focus its marketing efforts on doctors who already were prescribing large doses of opioids to vulnerable patients. McKinsey consultants urged the manufacturer to characterize these drugs as giving “the best possible chance to live a full and active life.”
After the settlement was announced, Sneader explained that McKinsey decided to resolve these cases to avoid lengthy, expensive litigation. He said that McKinsey fell short of its standards and “did not adequately acknowledge the epidemic unfolding in our communities or the terrible impact of opioid misuse and addiction, and for that I am deeply sorry.” Some of the firm’s senior partners, especially those outside the United States, reportedly thought that his acknowledgement went too far, and they were upset about the size of the settlement.
Sneader’s other attempts to right the ship
Sneader’s other moves to prevent the firm from getting involved with potentially controversial clients or working in businesses that could be seen as unethical also created tension. Under Sneader’s leadership, the firm drew bright-line rules around the kinds of clients the firm would no longer take, including work for political parties, political-advocacy groups, legislatures or individual legislators’ offices. McKinsey also said it would no longer serve clients in defense, intelligence, justice or policing institutions in nondemocratic countries, apart from a few exceptions for international aid and humanitarian support.
Unfortunately for Sneader, these efforts along with his decisions with respect to the Perdue Pharma controversy did not sit well with senior partners. They showed their dissatisfaction by deciding to move forward with a new leader.
Takeaways for other firms that use a similar management structure
Sneader’s failure to be elected for a second term reveals how difficult it can be to manage a firm of McKinsey’s size and stature while utilizing its flat hierarchy management approach.
Under McKinsey’s structure, senior partners operate with a great deal of freedom. They each manage their own book of business and select which clients to work with and which projects to take on. In essence, firms like McKinsey consist of many solo practitioners operating their own business under a common brand. This structure makes it difficult to implement policies that tell senior partners how to run their practice.
McKinsey calls itself the world’s largest private partnership, with revenue of roughly $10 billion and about 30,000 employees. It is a model that a number of other former partnerships have abandoned or retreated from in recent years both to tap into more investor capital and help shield partners from liability when things go bad. It remains to be seen whether Sneader’s tenure will lead McKinsey to employ a different management structure.