Lessons from McKinsey on the importance of being seen to be ethical

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McKinsey’s reputation has been heavily impacted by its work in South Africa. Could the same happen in Saudi? (image credit: Ingram Pinn)

McKinsey is a household name, at least in Saudi and South Africa. And not for the right reasons either.

The firm, which consults for governments and businesses the world over, hasn’t had a good time of it lately in these two markets. In South Africa, McKinsey has been embroiled in the Gupta family scandals through its work with the state energy firm Eskom and Trillian, a local company linked to the Gupta family.

In Saudi, McKinsey has been working with the government for years. The company hasn’t always been popular, and has often been blamed by the Saudi public for the austerity measures the Kingdom has enacted. Recent events have shone even more light on McKinsey. An article in the Wall Street Journal looked at the consultancy’s habit of hiring from the elites. To quote:

“The consulting company has employed, among others, at least two children of the man who serves as the Saudi energy minister and head of the state oil company, a son of the finance minister and a son of the CEO of government-controlled Saudi Arabian Mining Co.”

The Wall Street Journal piece describes in detail McKinsey’s company’s hiring practices in the Kingdom, and also notes that there is no allegation of wrongdoing by the firm.

The issue that McKinsey faces isn’t dissimilar to tens of thousands of other firms. It’s the choice between reputation and profit. However, few other firms are as prominent as the consultancy, partly owing to its clients (primarily government in emerging markets) and the quality of McKinsey’s people. To quote the response to the Wall Street Journal article, a McKinsey spokesperson explained that:

“McKinsey is a meritocracy. We hire exceptional people and are confident in the robust policies and practices that underpin our recruiting and development both globally and locally.”

How many exceptional people would it take to understand that working with the Gupta family in South Africa wouldn’t be good for business. Five minutes of due diligence would have thrown up the links between Eskom, Trillian and the Gupta family.

Last year I wrote about Caroline Sapriel’s masterclass on crisis communications. There’s one chart I want to re-share, which should be a guide for all of us.

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CS&A’s crisis management culture ladder maps out where organizations are in terms of their ability to manage and learn from a crisis. At the bottom are organizations who essentially don’t care as long as they’re not caught; at the top are organizations who thrive on and grow with every crisis they encounter. Where are you at?

The question that I have for McKinsey (and every other business leader) is what price would you put on reputation? Even if the firm did work in a legally appropriate fashion, which McKinsey has claimed it did in South Africa, the spirit and the letter of the law are two different things. This question could also be asked of KPMG and SAP, who have also found themselves in the thick of it in South Africa.

If you’re unsure as to where you are on the culture ladder, here’s a stress test you can use to understand how your firm fares. Can your executives answer the following questions relating to any business engagement?

  1. Have they done a due diligence test, including listening to the communications team on possible reputational risks and stakeholder reactions?
  2. Are the executives able to clearly explain their actions? Is their reasoning believable and authentic?
  3. When viewed from the outside, would an action seem to be ethically dubious at best, or illegal at worst?
  4. What are you doing in general when it comes to corporate social responsibility? How do you engage others in conversation?
Writing in the Financial Times in September of this year, John Gapper shared his thoughts on McKinsey’s activities in South Africa:
The firm has a brisk defence to accusations from South African politicians and Corruption Watch that it facilitated state capture by helping Trillian to gain money from Eskom. It says that its own inquiry into its behaviour has not uncovered wrongdoing, nor anything that would require it to report itself to the US authorities under anti-corruption laws. This seems to be setting the reputational bar rather low.
Being willing to charge an entrenched institution in a fractured country so much money looks awfully like rent seeking, especially when payments of up to $700m were to be split with what it should have known was a dubious consulting partner. McKinsey is full of superior intellects but sometimes you only need to open your eyes. None of this occurred in a vacuum.
The group Business Unity South Africa this month bemoaned the “scourge of corruption that is stifling the country” and called for an end to a “culture of immunity”. Each time that a consultant or accountant fails to take a decisive stand, the scourge worsens. KPMG has recognised it but McKinsey is still learning. It could start by confessing that it was wrong and promising not to repeat its failure.
The firm still maintains that it behaved correctly and is walking the tightrope of self-justification. I am intrigued to see how long it will take to fall off.
I wonder if the same will be said of McKinsey’s activities in Saudi Arabia. What price is McKinsey willing to put on its reputation? You tell me.

VMA Insights: CEOs and what they’re looking for in today’s chief communications officer

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I’ve been doing some late night reading of a rather interesting piece of research. Commissioned by the recruitment firm, the VMA Group, the study reached out to business leaders across Europe to ask a simple question: What do CEOs expect of today’s chief communications officer?

The research looked at a number of key areas, and I’ll outline the key findings below.

  • The Value of Communications
  1. Although the value of communications as a central business operation is implicitly accepted by CEOs, many communications directors still need to make a more convincing ROI case for the impact of their own work.
  2. CEOs are still uncertain that the company’s social media activity is driven by either a strategic purpose or a clear sense of the desired returns.
  3. Reputations are more fragile than ever. CEOs frequently see this as the key value point provided by the communications director.

“We see a corporate communications director as the builder of the brand value proposition, the custodian of the corporate reputation – not in a reactive way but proactively. In order to sell our products and services, increasingly we first have to sell the company. Whether it’s government giving you incentives, or it is customers buying because they trust you. Unless you’ve got a meaningful brand proposition you can’t get off first base.

A strategic communications director understands that and understands that’s their role, and it really ought to have as much value on the balance sheet as other assets of the business because any strategic move will create stress points in the brand proposition that need to be managed.” David Lockwood, CEO, Laird PLC

  • Strategy: Is Communications Trusted
  1. Communications directors are frequently involved in strategy creation; almost always at least with some input.
  2. The Majority of CEOs actively involve the communications director when there is a demonstrably ‘communications-centric’ issue.
  3. Three core strategic viewpoints that communications directors bring to the discussion: how to translate the strategy into content and channels; and the reputational rewards and risks of strategic decisions.
  4. CEOs from multinationals see communications’ input more broadly and progressively – as a vital strategic voice in all business decisions, especially from the perspective of reputation and brand.

“I think it’s obvious that a communications professional needs to be closely linked to the strategy because what they work on – formulating the communications and regulatory environment – is of strategic importance. So communications and public affairs needs not just to be ‘part’ of the company strategy but actually linked to the strategy – wired into the board and well resourced. If it’s an afterthought you might as well save yourself the money and not do it.” Wim Mijs, CEO, European Banking Federation

  • All Change – The New Communications Culture
  1. The digital revolution has brought arguably even more significant changes to the approach and culture of communications than to the core skills of the job.
  2. The ‘message control’ model is over. Key challenge: communications professionals must somehow now find a new way to create alignment among audiences without ever dictating to them.
  3. Authenticity and transparency are the essential tonal cues today – otherwise your communications will be dismissed out of hand.
  4. Audiences expect evidence of a new type of business model – socially responsible, publicly responsive, democratically inclusive.

“We’ve noticed a big and increasing demand for transparency. Our consumers and stakeholders at Arla want to know where their food is coming from. They want transparency in the supply chain. And I would say that the balance between a ‘communications’ approach to stakeholder engagement and a ‘marketing’ approach is shifting in favor of communications. In my business, that’s manifested by an increasing preference for having very honest, authentic, transparent conversations, and moving away from grand claims, mass advertising and so on.” Tomas Pietrangeli, MD, Arla Foods

  • The Challenge of Filtering in an Age of Noise
  1. Discernment and filtering have become core skills – the ability to select from a vast and noisy information flow what is of actual value to the business.
  2. Communications professionals need to rise above the manias and mass panics the online world can create, providing a cool head in a crisis.
  3. A key, proactive part of filtering is to anticipate major disruptive events coming down the pipeline and to have a plan of action for how to deal with them.

“I don’t think anyone’s figured out quite how corporate communications works in a world where social media is on the scene before you are. Trying to control the message is really tough in that environment, of course. But it’s the speed with which other people out there react – with real-time messaging before you’ve even had a chance to get your messages out and establish the facts.” Mark Tanzer, CEO, ABTA

  • The Need for True Leadership
  1. Core technical skills are still important; they must now be supplemented by more core business skills.
  2. CEOs want more than support, counsel or executive ‘translation’ services. Businesses now need true leadership from communications directors.
  3. Proactive endeavour is the critical element – delivering new business growth, rooting out commercial opportunities, driving change internally.

“I find that communications people should be closer to the business. They should be able to understand the company figures properly – to understand the business, but also where it’s heading and what issues it’s going to face. In general, if communications people have sufficient insights in the business, I truly believe they are able to generate more value.” Paul de Krom, CEO, TNO

  • The Future: A Profession in Revolutionary Change

There’s no key findings here (I’ve highlighted the capabilities required by CEOs today in the image at the beginning of the article). However, I do want to pull up one last quote, as it’s particularly apt to the Middle East, where we have an issue with speaking truth to power and instead focusing on political maneuvering inside the organization.

Before that, I’d like to say thank you to the VMA Group for this thought-provoking report, especially the International Association of Business Communicators EMENA board member Willem de Ruijter, for handing the report out to IABC EMENA and pushing this onto the agenda.

“The communications director works in the same room in the building as the secretary of the board – in fact we are all now on one floor, we do not have separate rooms anymore. S/he has full access to everything, no restrictions. S/he is actively involved and is asked to stimulate and to give feedback. Her/his message should be frank when required… and provocative too. S/he needs to be able to tell a senior leader who has worked at KPMG for 25 years that he or she does not possess the correct KPMG vision. That takes a certain character.” Albert Röell, CEO, KPMG NL

For your own copy of the report please reach out to the VMA Group via this link.