Only the most unflappable CEO or government executive can resist the siren call of a management consultant during a crisis. For about a century now, consulting firms have dangled a tantalising proposition in the face of the wretched and the weary of public and private administration: we’ll solve all your problems, make all your dreams come true, and then we’ll vanish, cradling our newfound, formerly confidential knowledge of your industry.
It’s a tempting bargain. So tempting that management consulting is now America’s biggest business-to-business service industry, with roughly $385 billion in annual revenue. But as appealing as the industry may be to business leaders, it is all the more attractive for the public sector, where managers need to achieve high levels of flexibility while confronting limited resources and medieval hiring processes. The beauty of bringing in management consultants is that you don’t have to hire or train new employees, or repurpose or lay them off when the project’s done. Consultants swoop in at the right moment with the right expertise, and then disappear.
In the US, consultants work with all levels of government. At the federal level, they play a central role in creating the intellectual capital that powers our government, earning $23.5 billion on almost 30,000 separate federal contracts in 2022. At the nucleus of this booming business is a small group of firms, which are far more significant for the consequence and sensitivity of the work they do than the number of dollars they make. These include Deloitte, Booz Allen Hamilton, and of course, McKinsey and Company.
Over the past 10 years, McKinsey has completed around $1 billion worth of contract work for the federal government, more than half of which was contracted by the Department of Defense. As a report from the Quincy Institute found: “This work has ranged from advising senior officials on developing technology for the Air Force and Space Force to evaluating the management of the F-35 program.” In the same report, we learn that McKinsey has for several years considered the Defense Department one of its top clients, and that one of President Trump’s leading assistant secretaries of defence worked for McKinsey both before and after his federal tour of duty.
The consequences of this line-blurring between public and private would be complicated enough if leading consultancies confined their work to the US. But they do not. While management consulting grew throughout the latter half of the 20th century to saturate the American private and public sectors, it was also spreading internationally on the promise of selling “American management knowhow” abroad. “Whether reorganising the Bank of England, Royal Dutch Shell, the Government of Tanzania, or even the World Bank,” writes business historian Christopher McKenna, “management consultants disseminated American management techniques throughout the world.” While management consulting had originated in the West, it came to be a valuable resource to business, organisations and governments everywhere — in East and West, market and command economies, democratic and authoritarian states.
As the consulting hydra has grown ever more colossal, with consultants embedded in most large organisations, consulting firms’ webs of allegiances have become ever more complex. Frequently, this leads to conflicts as fraught as those in George Orwell’s 1984, in which a single entity is advising both sides in an adversarial system. These conflicts are legally challengeable when a consultant shares one company’s proprietary information with another — a problem firms can avoid by assigning different teams to competing client companies. But the legal system cannot solve the broader conflict, whereby the same consulting firm stands to benefit if either team wins. It has no answer to what happens when one consulting firm advises both a regulating agency and a regulated company — to cite a recent example, McKinsey advising both the U.S. Food and Drug Administration and Purdue Pharma. Or when the same firm consults two competing companies, or two governments that are geopolitical rivals or even enemies.
One such conflict arrived in the halls of Congress a month ago, when US Senators Marco Rubio and Josh Hawley challenged McKinsey and Co. for its work with the Urban China Initiative, a think-tank based in Beijing. The Initiative published a report in 2015 entitled “The Trend and Impact of World Technological Revolution and Industrial Transformation”, a litany of recommendations for Chinese government officials and business leaders to aid in the implementation of the Chinese Communist Party’s (CCP’s) “Made in China 2025” industrial initiative. Rubio and Hawley, who obtained a copy of the report, noted that it aimed to support the CCP’s goals of “dominating other countries in cutting-edge fields”, ranging from cloud computing and big data to artificial intelligence, renewable energy and human genomic technology.
In response to the senators’ criticisms, McKinsey attempted a Clintonian dodge. “[T]he Urban China Initiative,” read an official statement, “is not McKinsey, and it did not perform work on McKinsey’s behalf” — using the technical meaning of the word “behalf” to distract from the two organisations’ deep connection. As Rubio and Hawley go on to highlight, McKinsey co-founded the Urban China Initiative with Columbia and Tsinghua Universities, and the think tank was based at the same address as McKinsey’s Beijing office. McKinsey’s top China hand, Lola Woetzel, wrote the foreword to the report — acknowledging the role her company played in the research — and then hand-delivered it to China’s second-highest-ranking official at the time, Premier Li Keqiang.
As the Financial Times and New York Times reported, the Urban China Initiative is only one product of a fruitful decades-long collaboration between McKinsey and the CCP. In 2019, the company’s China website touted a series of Chinese government projects: “McKinsey’s impact in China goes well beyond our work in the corporate sector. In the past decade alone, we’ve served over 20 different central, provincial and municipal government agencies on a wide range of economic planning, urban redevelopment and social sector issues.”
Over the 2010s, McKinsey was also retained by 22 of China’s 100 largest state-owned enterprises (SOEs). One of these companies aided the Chinese government in the construction of an archipelago of artificial islands in the South China Sea — a vital tool in China’s quest for naval domination in Asia. On the topic of Chinese military aggression, it should not escape our notice that even McKinsey’s current “Greater China” website, sanitised in response to recent scrutiny, includes the firm’s Taiwan office. While diplomatic realities have forced the US government into its farcical “One China Policy” that refuses to acknowledge Taiwan as an independent nation, McKinsey is under no obligation to make the same declaration. It is one indication among many that American international businesses fear offending the Chinese government more than their own.
In part, this is because democracies tend to be more sympathetic than autocracies to the idea that businesses must sometimes make decisions that don’t benefit “the home team”. But it also evinces a deeper truth: that given the blurry distinction between Chinese government authority and all Chinese businesses (not just officially state-owned ones), it is difficult for a consulting company to trust that if they run afoul of the CCP, any of their Chinese business will be left unscathed. As Curtis Milhaupt and Wentong Zheng have convincingly argued in the Georgetown Law Journal, China is “a state in which no firm — irrespective of ownership — is truly autonomous from the government”.
Admittedly, it is virtually impossible in a globalised world to ensure that no American resources — economic, human, or intellectual — are harnessed for the benefit of our geopolitical adversaries. We are a democracy after all, and projecting a totally unified front to the world isn’t one of democracy’s strong suits. But that doesn’t mean that there isn’t any low-hanging fruit for us to address — management consulting being within particularly easy reach.
As US-China geopolitical competition has heated up, a group of legislators has begun to take notice. In May, the Senate Homeland Security and Government Affairs Committee passed the Time to Choose Act of 2024 by a 10-1 bipartisan vote, referring the bill to the broader Senate. The Act, which calls out both McKinsey and Deloitte by name, would prevent the US government from doing business with consulting firms that also work for the governments of China, Russia, identified state sponsors of terrorism, or SOEs in those countries, among certain other entities.
It’s a good start, but far from a complete solution. It fails to account for the fact that outside the West, the boundary between public and private is often murky, if not downright illusory. In China, for example, the government has the right to requisition data or information from any company or citizen in the name of national security. For that reason, no law that targets only governments and SOEs can ever be entirely airtight when it comes to keeping valuable American data or ideas out of the hands of our adversaries. For that reason, the law should be passed as written, but only if bolstered by two other initiatives.
The first would be a “patriotic consulting” policy stating that all US government agencies must offer preferential consideration to firms that do not consult for the governments of countries that lack a mutual defence treaty with the US, or for private companies in China, Russia, Iran or other geopolitical adversaries of the US. This would decrease the financial desirability for consulting firms of doing business abroad that conflicts with US interests. It would also push federal money and talent toward smaller firms that cater more to the Americas and our allies in Europe and East Asia.
But even this would be insufficient. Many of the biggest consulting firms will continue to invest in China because the money is simply too good. For that reason, in the interests of national security and competitiveness, we must in the long run decrease the federal government’s reliance on consulting. The best way to do this might be to form an all-of-government internal consulting department, which would draw top talent from the private consulting industry, pay similar salaries to private firms, and replace private consultants throughout government.
As our adversaries work relentlessly to erode the boundary between public and private, our best policy is to reinforce that boundary. While private businesses should be allowed to spend as much as they like on the expertise of management consultants, who must in turn remain free to pursue profit however they see fit, US interests demand that our government, in the fullness of time, put its days of hiring management consultants behind it.
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Source: UnHerd Read the original article here: https://unherd.com/