Goldman at McKinsey: Been there, done that

Whoever succeeds Kevin Sneader at the helm of McKinsey should call Goldman Sachs boss David Solomon.

Although Goldman is a publicly traded bank and McKinsey a private consulting firm, they have a lot in common. Both have long enjoyed a great reputation – envied by their peers, sucked in by the smartest job-seeking graduates, and seen by many clients as providing a referral service. The banal “No one was fired for hiring. . . Is cited in reference to McKinsey and Goldman.

Both were also wrung out. McKinsey’s latest scandal emerged last month when the company agreed pay $ 574 million to settle lawsuits for his advice to companies behind an epidemic of opioid addiction. Within weeks, Sneader was ousted. The case comes after a steady stream of reputation success for McKinsey, most dramatically the 2014 imprisonment of former longtime chief Rajat Gupta for insider trading.

No Goldman boss has been jailed, but the bank’s name has been repeatedly dragged through the mud over the past decade and more. In October of last year he paid a record $ 2.9 billion in a global regulatory settlement over the 1MDB money laundering scandal.

Both institutions had suffered for some of the very reasons that had made them successful – pride in their excellence had turned into arrogance; success had spurred excessive growth and greed.

McKinsey’s expansion has been particularly extreme. Its workforce, now around 30,000, has multiplied by 30 in 30 years, lowering the bar for the quality of recruits and making it more difficult to respect ethics. McKinsey remained a partnership, while Goldman went public in 1999, but the two lost their old culture of secrecy and secrecy.

Lots of common ground, then, for a conversation between Salomon and McKinsey partners. to choose as their new chef: Bob Sternfels based in San Francisco or Sven Smit based in Amsterdam.

Men can also be comforted by their mutual ability to resist the type of crisis McKinsey is facing. At the base of a stubbornly strong franchise is a vast network of alumni that only Goldman can match.

These fabrics serve two functions. The first is to defend brands, in particular by disseminating counter-narratives to any dominant criticism. And more concretely, they can grow the business, either by cementing a relationship when a former student moves into a senior position with a client, or by generating business with the new employer.

Goldman has long extended its soft power through alumni with prominent roles in US government, finance, and business.

McKinsey’s 42,000 alumni are more organized. They are linked to the firm by a loyalty born out of collaborative teamwork (also a hallmark of the Goldman network), but effectively nurtured by a busy agenda of seminars and networking dinners with the business and political elite.

And they are everywhere: search By the Lex column of the FT, former McKinsey consultants were found on the boards or in the C-suites of more than 70 S&P 500 companies. Outside the United States, the company’s network is also particularly established in Germany, Japan, China and the United Kingdom. The City of London would be destroyed without them, given that they hold leadership positions in the Prudential Regulation Authority, Legal & General, Marks and Spencer, NatWest and many other organizations.

How useful are these connections in a crisis? As Solomon will reset Goldman’s strategy after the 2008 and 1MDB disasters, they will have been an important support. For example, David Schwimmer (who left Goldman in 2018 to run the London Stock Exchange) used the bank to give him advice on his Refinitiv acquisition.

Despite two global crises in 13 years, the bank is now at a high level, with a return on equity of 21 percent before 2008 at last count. The stock price is just off the record highs reached last week, outperforming all of its major rivals, both in the short term (since the settlement of 1MDB) and the long term (since its listing in 1999).

As a private partnership, McKinsey reveals limited financial information, but its revenue – which has doubled in a decade to $ 10 billion at the last point of disclosure in 2018 – is ahead of the competition. It will depend on whether Sternfels or Smit is able to impose Goldmanesque discipline on management and governance – and fully exploit those alumni.

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