December 18 2019, 5:01 a.m.
THE POWERFUL GLOBAL consulting firm McKinsey is facing scrutiny over its work for a wide range of shady governments and companies. This week on Intercepted: Former senior health insurance executive-turned-whistleblower Wendell Potter explains McKinsey’s role in our insurance nightmare and how Democratic presidential candidate Pete Buttigieg is using industry talking points to attack Medicare for All. Potter also discusses his career working for insurance giants, soaring medical costs in the U.S., and his role in killing Hillary Clinton’s health care initiative in the 1990s. ProPublica reporter Ian MacDougall discusses McKinsey’s relationship with the Saudi regime, its work for Rikers Island, and how it helped push opioids to doctors and patients. MacDougall also lays out his reporting on how McKinsey’s work for Immigration and Customs Enforcement in detaining and deporting immigrants disturbed career immigration officials.
Also, the Justice Department’s
inspector general blasted the FBI over its lies and omissions in obtaining a
secret Foreign Intelligence Surveillance Act warrant to spy on Trump
campaign operative Carter Page. Intercept co-founder Glenn Greenwald discusses
how the report vindicates civil liberties activists and serves as a striking
rebuke of the bipartisan love affair with law enforcement and intelligence
agencies.
Narrator: How the Grinch
Stole Christmas by Dr. Seuss. The Grinch hated Christmas, the whole Christmas
season.
Donald J. Trump: The
impeachment is a hoax. It’s a sham. It’s impeachment, the whole impeachment
thing.
Narrator: That’s one
thing he hated.
DJT: The impeachment
thing is a total hoax. And people behind my back are trying to do a subversion
of government, think of that.
Narrator: Which was
something that Grinch couldn’t stand in the least.
DJT: These people are
sick. They’re sick.
Narrator: The more the
Grinch thought I must stop this whole thing.
DJT: To use the power of
impeachment on this nonsense is an embarrassment to this country.
Narrator: But you know,
that old Grinch was so smart and so slick. He thought up a lie and he thought
it up quick.
DJT: I like transparency
here and I’m the most transparent president in history, the most transparent
president. God bless you. God bless Israel. And God bless the United States.
Thank you very much.
[Music interlude.]
Jeremy Scahill: This is
Intercepted.
[Music interlude.]
JS: I’m Jeremy Scahill,
coming to you from the offices of The Intercept in New York City. And this is
episode 111 of Intercepted.
Amy Goodman: McKinsey
proposed cuts to spending on food, medical care and supervision of people in immigration
jails.
Ryan Hampton: You know,
Purdue and we learned this last week, hired McKinsey, the PR firm to figure out
a strategy to combat the message of, the messages of these parents who had lost
their children and their grief.
Steve Inskeep: McKinsey
and Company was paid millions for a new anti-violence strategy and a ProPublica
investigation finds that strategy failed which McKinsey obscured with bogus
numbers.
JS: The powerful global
consulting firm, McKinsey and Company, has found itself in the news quite a bit
this year. The company has been around for nearly a century and it has been a
significant player in reorganizing the way both governments and corporations
operate. McKinsey’s central goal is increasing profits and eliminating what it
perceives to be impediments to securing that bottom line and the interests of
the shareholders and executives. In essence, they are capitalism experts. But
when it comes to corporations or government agencies that can directly impact
the health, safety and very livelihood of human beings, the stakes are
incredibly high and McKinsey’s work for health insurance companies, drug
manufacturers, prisons, immigration authorities and repressive governments
around the world is finally receiving some of the scrutiny that it has long
deserved.
CNBC: Its alumni control
some of the largest and most powerful companies in the world, and have also
been involved in some of corporate America’s most sensational scandals.
JS: McKinsey was a major
player in the drive toward privatizing U.S. government services at the height
of the Cold War. It now works for governments across the world, including the
antidemocratic and murderous Saudi regime.
After the execution of
Washington Post columnist Jamal Khashoggi on October 2, 2018, The New York
Times published a report on some of McKinsey’s work for the kingdom.
Specifically, a report that identified Saudi social media accounts that were
attacking the kingdom’s economic austerity measures. In its report, McKinsey
highlighted three critics whose commentary was gaining traction on Twitter. One
of these people was later arrested, while a second Twitter user said that two
of his brothers were arrested in Saudi Arabia. Twitter apparently shut down the
account of the third person that was identified by McKinsey.
Christine Burke: Now the
report went on to identify specific individuals that were driving the
conversations on Twitter and the New York Times has reported that that report
fell into the hands of the Saudi Arabian government and was used to then punish
those specific individuals.
JS: Now McKinsey
subsequently claimed that the report was an internal company document and that
it wasn’t used by the Saudis. But what we do know is that the murder of
Khashoggi did not deter McKinsey from continuing to work for Saudi Arabia or
Mohammed bin Salman. Coming up on the show, we are going to take an in-depth
look at what McKinsey does and who they do it for, including helping to push
opioids on doctors and patients. But first, we are going to focus in on how
McKinsey has made its way into the Democratic presidential primaries.
McKinsey has been in the news
recently because Democratic presidential candidate Pete Buttigieg, the mayor of
South Bend, Indiana, worked at McKinsey from 2007 to 2010. And among the clients
he worked for was the health insurance company Blue Cross/Blue Shield. Now,
Buttigieg has tried to downplay his role at McKinsey and has suggested that
there is nothing in his time at the firm that should reflect negatively on his
presidential run.
Pete Buttigieg: This is
my first job out of school. It’s not like I was the CEO. I was making a lot of
spreadsheets and powerpoints but people ought to know from somebody who
proposes to be the president of the United States: What’s in your past?
JS: At the same time he
is saying all of this, Pete Buttigieg is running as a corporate Democrat and he
has emerged as a major attack dog against the popular movement for Medicare for
all.
PB: Medicare for all who
want it — trusting you to make the right decision for your health care and for
your family and it can be delivered…
Marc Lacey: Thank you,
mayor. Senator, your response?
Elizabeth Warren: So,
let’s be clear, whenever someone hears the term Medicare for all who want it,
understand what that really means. It’s Medicare for all who can afford it.
JS: Mayor Buttigieg has
tried to distance himself from the layoffs of 1,000 people that occurred at
Blue Cross Blue Shield after his time at McKinsey, saying he had nothing to do
with it. But at a forum back in 2011, Buttigieg appeared to suggest that he
actually did. In fact, he said, “One of the things I did for a living was just
that.”
PB: One of the things I
did for a living was just that. I remember one client organization that was a
large insurance firm that had grown in such a way that there was a great deal
of duplication. Some people didn’t even know what the people working for them
were doing.
Former McKinsey and Health
Insurance Industry Insider, Wendell Potter, on How the Industry is Killing
Health Care and Why the fight for Medicare For All Matters
JS: As the revelations
about Pete Buttigieg’s work for McKinsey have begun to come to public light, a
former senior health insurance executive has emerged as one of the presidential
candidate’s major critics. Wendell Potter worked more than two decades in the
health insurance industry, first at Humana and then at the $70 billion health
insurance giant Cigna. Wendell Potter helped crush Hillary Clinton’s health
care initiative in the early 1990s. He was serving as head of corporate
communications for Cigna when he left after what he called a “crisis of
conscience” in 2008.
Wendell Potter: When I
got to the fairground, I saw something that just changed my life entirely. I
saw people who were standing in long lines, soaking wet because it had rained
that morning and I noticed that a lot of those lines lead to barns and animal
stalls on this fairground site.
JS: Wendell Potter is the
author of “Deadly Spin: An Insurance Company Insider Speaks Out on How
Corporate PR Is Killing Health Care and Deceiving Americans,” as well as
“Nation on the Take: How Big Money Corrupts Our Democracy And What We Can Do
About It.” He is the president of Businesses for Medicare for All and the
founder of Tarbell, an investigative journalism nonprofit that aims to “put the
power back in the hands of citizens.” And Wendell Potter joins me now. Wendell,
welcome to Intercepted.
WP: My pleasure, Jeremy.
Thank you.
JS: So recently, you had
a Twitter thread that dealt with Pete Buttigieg, health care, and McKinsey.
WP: I wanted people to
understand what McKinsey does for health insurance companies and for
corporations generally. The sketchy information that he had put out initially
was just that he had done some work for a nonprofit health insurance company in
Michigan and it sounded relatively benign, but I know there aren’t a lot of
nonprofit health insurance companies in Michigan. I started just poking around
making really the assumption it probably was the very big and dominant health
insurance company in Michigan, Blue Cross Blue Shield of Michigan. And I found
that not long after his work, the company laid about 1,000 workers off and
hiked premiums for its members, significantly, double-digit rate increases for
its health insurance members. I thought it was an opportunity one, to highlight
the work that McKinsey does which is almost invariably aimed at in one way or
another boosting profits or the bottom line, and also just how the health
insurance industry really operates. Regardless of tax status, that they often
routinely, year after year, raise rates on their customers to the point that
many people drop out — they can’t afford insurance anymore — also routinely lay
people off. He’s talked about the jobs in the insurance industry. I’ve
witnessed it and was a part of it in my old days in the industry of having to
lay people off because of the work that McKinsey had recommended to executive
management.
JS: Pete Buttigieg, of
course, when you, in part, he was responding to you and he appeared on Rachel
Maddow.
PB: Well, I was assigned
to a team that was doing analysis on the overhead costs that they had. Nothing
to do with claims or what they do with patients, but kind of as an organization
— buildings, rent, utilities, travel, that kind of thing. I certainly saw how
big and complicated an insurance company could be. Now, it was my very first
study. So honestly, most of the time, I was just figuring it out how to do my
job and perfecting my powerpoint skills, but it at least gave me a sense of
what that world is like, and it’s one of the reasons—
JS: What’s your response?
WP: He still hasn’t been
very forthcoming about the work that his team did. Maybe it was, as he says his
first job and his first assignment at McKinsey, but I would find it very hard
to believe that he was not aware of what the client hired McKinsey to do, and
what the work he was doing, how it contributed to the objectives of the
assignment.
JS: Let’s separate the
minutiae of what Pete Buttigieg is talking about in terms of his time at
McKinsey, and talk in the bigger sense about what McKinsey and consulting firms
like McKinsey do for large health care corporations.
WP: They’re paid a lot of
money, first of all. One of the companies that I worked for I know that the
chief financial officer had McKinsey and Company on retainer to the tune of
about $50,000 a month and that’s just to be on retainer. Much of what McKinsey
does results in downsizing of organizations and it’s also very prevalent in the
insurance business, health insurance business, not only to lay jobs off but to
ship them overseas. But that’s basically you know, what the company does it is
to in one way or another figure out ways for the company to boost the bottom
line and more often than not, they work for for-profit corporations. And the
ultimate objective is to enhance shareholder value, to improve the
profitability, improve the chances that the company can meet Wall Street’s
financial earnings per share estimate as an example. It’s all about the money.
Rachel Maddow: Was your
work part of what led to those lay-offs?
PB: I doubt it. I don’t
know what happened in the time after I left that was in 2007 when they decided
to shrink in 2009. Now, what I do know is that there are some voices in the
Democratic primary right now who are calling for a policy that would eliminate
the job of every single American working at every single insurance company in
the country.
JS: Specifically, this
notion that Buttigieg has floated that eliminating these private insurance
companies all together would be a great job killer.
WP: And that’s straight
out of the health insurance industry’s playbook. The cards that my former
colleagues play consistently whenever there is reform that’s proposed they
don’t like is to play the tax card and the jobs card. And they want people to
believe that any kind of reform that’s being proposed that they don’t like will
result in job eliminations, people losing their jobs. And there’s no doubt
because of the way our health care system has developed, we have hundreds of
thousands of people who are involved in work one way or another. More often
than not, within the insurance industry, there are barriers to care. The reason
that we spend $3.6 trillion on health care in this country is because so much
of that is eaten up by administrative costs caused by our multi-payer system.
Hospitals and doctors have to hire people who don’t deliver care but day in and
day out are on the phone or on their computers dealing with insurance company
bureaucrats trying to make sure that they’re being paid adequately, and that
the patients they’re treating are hopefully going to get the care that they
need. So, that’s one thing.
The other is he’s floating an
idea that is just fallacious. There is even if you remove the private insurance
industry from our health care system and the role that they’re playing now,
those companies will not dry up and blow away. Over the years, those companies
have diversified significantly to the point that a lot of their profit centers
now have nothing to do with providing patient care or providing insurance. The
other thing that he is not saying which I think is deceptive is that in both of
Sanders bill and the bill in the House, the lead sponsor of whom is
Congresswoman Pramila Jayapal, there is a provision that would set aside a lot
of money to retrain people whose jobs would be eliminated. A lot of the people
who work for these insurance companies are caregivers, or at least they were in
their original careers, who do paperwork, who are in many cases, carrying the
title of denial nurse that means that their primary responsibility is to check
someone’s eligibility for benefits and make a determination as to whether or
not someone’s going to get the care that the doctor recommends.
JS: How much of Pete
Buttigieg’s language on health care is lifted straight from the insurance
lobby’s playbook?
WP: I recognize a lot of
it and sometimes specific words. I mean, just what we were talking about, the
suggestion that every single job in the insurance industry would disappear. I
mean, that’s what the industry wants someone to say, someone who has a national
platform like he does to scare people and all these are precisely what
Buttigieg is doing. And one part of that, one part of the playbook is to get
candidates and elected officials to carry your water for you, to recite your
talking points. It’s hard to get at least Democrats to sing the praises of health
insurance companies, but you can get them to talk about taxes and jobs in ways
that bolstering are the insurance industry’s agenda.
JS: Now, I know that you
haven’t endorsed any candidate, and you say that you don’t plan to. So, with
that independent spirit in mind, let’s talk about some of the health care plans
being floated by Democratic presidential candidates. In your estimation, when
it comes to health care, whose ideas or stated policy positions do you see as
most dangerous to the average American when it comes to health care?
WP: Well, I think
anything quite frankly, that leaves the basic structure in place is dangerous
to every American regardless of whether they have insurance now or what kind of
insurance policy they might have. And I will add to that that those who are now
saying that let’s open up the Medicare program for all who want it, which is
one of Buttigieg’s platform elements, would not serve the American public well.
Now, 10 years ago, I was among those who was saying that the Affordable Care
Act as it was working its way through Congress, that it should have contained
the provision that would have created a public option. Back then, it was the
best option that we could have gotten. There was no real debate at that time.
It was actually shut down. There were no real hearings in Congress on the idea
of moving to a single-payer or Medicare for all type of system back then.
So, that was the best we could
do. The Democrats decided to go along with the lobbyists for the insurance
industry and the hospital industry and the drug industry to create that bill in
ways that would enhance profitability of all those sectors of health care. Ten
years later, I certainly do not think that having a public option is the way to
go because the problem is the basic structure of our health care system. We
have a system that really is driven by and controlled by health insurance
companies. They are the entities that are the barriers to care or the
gatekeepers, if you will, and they figured out ways to profit handsomely from
the status quo. And they also do not control health care costs. Nor do they
really have any incentive to do that because as health care costs go up on the
delivery side, because they’re the only game in town, they can increase
premiums just as much as they want to. Costs keep going up, more and more
people are being shifted into high deductible plans, they can’t get the care
that they need even if they have insurance. Increasingly, thousands if not
millions of Americans are in the category of the underinsured. They have coverage,
but they have such high deductibles, they can’t use their coverage. So they’re
resorting to Go Fund Me to raise money to pay for the care that they need, but
they don’t have the money to pay for.
JS: One statistic that
you cited regarding the Affordable Care Act, Obamacare, that I think is just so
important for people to understand is that when the ACA was passed, we were
spending about $2.5 trillion on health care in this country. Now, it’s $3.5 trillion.
And it may, since you said that, it may have even gone up. So, what you’re
saying is that the Affordable Care Act has increased how much consumers have to
spend to get basic health care in addition to what the federal government is
spending?
WP: That’s exactly right.
What we have been seeing is that over the course of those years, not only have
people been having to pay higher premiums — even if they get their coverage
through their workplace and their employers subsidize it — workers are having
to pay a higher percentage or higher amount of money every paycheck to pay for
health insurance. That money is money that otherwise could go into their
paychecks in forms of a raise or a bonus, but instead, it’s being sent to
insurance companies. The formal name is the Patient Protection and Affordable
Care Act, but it is not the Affordable Care Act and we’ve got now 10 years of
evidence to show that it has not control health care costs. The reason is that
Democrats back then — and that includes the Obama administration — knew that we
had problems both of cost and access. We had at the time that the bill was
passed about 50 million people who did not have insurance. So, they just said,
well, let’s tackle the access issue. Let’s try to get more people insured without
doing very much of anything to control health care costs. They cut deals with
drug companies, and the hospital association and insurance companies to make
sure that they would continue to get their big piece of the pie and do no
damage to their bottom line. So, that’s what we’ve seen. And as a consequence,
these health care prices keep going up and the people who are paying for them
are average Americans.
JS: I recently had a
personal experience with this. A member of my family had a very frightening accident
happen that required a little under two weeks in the hospital, and it was you
know, fairly routine stuff, scary to the individual family. But in terms of the
issues that were raised, it was pretty run of the mill, basic health emergency.
But what I’m in the middle of right now, Wendell is dealing with getting
ping-ponged between the hospital, the doctors, and the insurance company over
erroneous bills, double bills, surcharges, mistakenly categorized procedures or
personnel as out-of-network. It’s like a full-time job. If you have a loved one
who ends up in a medical emergency, and they go to the hospital. First of all,
you have to fight in the hospital to not be neglected. And then secondly, you
are constantly on the phone or sitting in waiting rooms to argue with a billing
department that couldn’t care less about what’s going on in your life that you
have to now spend all this time arguing about your bill. And then you’re
introduced to the world of co-insurance, co-payments, deductibles. Oh, you didn’t
hit your out-of-pocket max yet. Well, it was hit for this person but not that
person. I don’t remember this being the case 10 or 15 years ago at the level
that we’re seeing it right now. But it seems like they find every way to take a
pound of flesh out of already suffering people and force you into a bureaucracy
that grinds you totally into the ground.
WP: And that’s by intent.
Our health care system has grown so confusing and complex, and that plays right
into the hands of the industry because they know that people are just really
incapable in many cases of fighting back. And just imagine if you’re a patient
and you don’t have anyone in your family who can do that for you, and you’re
sick, you’re trying to recover. It’s almost an impossible undertaking. And we
get these EOBs — the explanation of benefits statements — from our
insurance companies and they’re indecipherable. It takes a lot of effort and
time. You’re right, almost like having a full-time job, just to try to sort
through it and to figure out: Was this service actually provided? The health
insurers will often point the finger of blame at hospitals and drug companies
for rising health care costs. They actually work very cooperatively behind the
scenes to push back against any reform they don’t like because the system with
this complexity, benefits all of them. And all the rest of us are greatly
disadvantaged, and in many cases winding up in bankruptcy, even if we have
insurance because of all that we are now having to pay out of our own pockets for
care that, you know, at one point, used to be covered by insurance companies.
But since the advent of high deductible plans, more and more of us can’t even,
we don’t have enough money in our bank account to cover our deductibles.
JS: Just describe your background
in the health care industry and how you ended up being a former executive who
now is talking to me on this show.
WP: I’ve spent about 25
years in health care. I was vice president of Corporate Communications for
Cigna. My job responsibilities included handling financial communications to
the media for the company. My name was on every earnings release. And I also
worked with my peers across the industry in Washington at our trade association
and coalitions or front groups that we would set up to craft communication
strategies to push back against reform. My team was responsible for equipping
our lobbyists with talking points. My team handled the political action
committee giving so I know how these companies dole out campaign cash to
candidates on both sides of the political aisle. And because of that job that I
had handling financial communications, I had to know how these companies make
money, where it comes from and where it goes. So, I know what motivates these
companies and these executives because I was a part of it for over two decades.
JS: Describe your role in
trying to crush the Clinton health care reform in 1993.
WP: The industry
initially thought that the Clintons, you know, they might create a health care
plan that the industry would like but they ultimately decided — and it wasn’t
just the insurance industry, it was the drug companies and the hospitals — that
altogether the Clinton plan would change the health care system in ways that
might threaten profits. As often happens, the insurance companies, the big
hospital companies, and drug companies, and medical device manufacturers began
to pool their resources to throw money at a central place. And at that time, it
was through an organization called the Healthcare Leadership Council. We operated
a war room. We churned out press releases that back then were sent to media and
staff on Capitol Hill via fax. It was just churning out propaganda day in and
day out. Again, once again based on the principles of fear, uncertainty, and
doubt to get to the public and policymakers in the media to believe that what
the Clintons were proposing would not be good for the country.
Bill Clinton: Our work
has just begun. Many Americans still haven’t felt the impact of what we’ve
done.
Announcer: There will be
rationing. Waiting lines will develop. You will have to settle for one of the
low budget health plans selected by the government. Selecting the hospital you
think best will be even harder. A giant social experiment, the Clinton health
plan, everything good about your health care is at risk.
JS: Who were Harry and
Louise?
WP: Harry and Louise were
a fictional couple. They started showing up on our TV screens during the
Clinton years in ’93 and ’94.
Harry: I don’t get it.
Congress isn’t passing the health care reform America wants.
Louise: The problem is
they don’t get it.
Harry: We’ve been clear
about the reforms we want.
Louise: Private health
insurance we can all have even if we’ve been sick. Coverage we can keep even if
we change or lose our jobs. Coverage we can afford.
Harry: Why can’t Congress
write a law like that?
WP: They were created by
an advertising firm called Goddard Claussen at the time that was hired by the
Health Insurance Association of America, paid a lot of money. And Harry and
Louise would be seen sitting around their kitchen table worrying about what the
Clinton plan might do.
Harry: Well, I’m glad the
President’s doing something about health care reform.
Louise: He’s right. We
need it.
Harry: Some of these
details.
Louise: Like a national
limit on health care?
Harry: Really?
Louise: The government
caps how much the country can spend on health care and says, that’s it.
Harry: So what if our
health plan runs out of money?
WP: And it was all based
on misleading information and the whole effort was to scare people to think
that the Clinton plan was something that would not be good for them or for the
country.
Harry: Well, government
should police the plans. Keep everyone honest, but I’m not comfortable with
government-run health care.
Louise: That’s not the
reform we want and Congress needs to get that message. What can we do?
WP: And it worked. People
bought into the propaganda. They really weren’t paying a lot of attention as to
who was behind it. But every penny of it came from the insurance industry.
JS: Describe the moment
where a crisis of conscience hit you and your departure from that industry and
your entry into now fighting the fight that you are engaged in today.
WP: I flew back home to
visit family and this was in July of actually 2007 and I read in my local
newspaper while I was down there about something called a health care
expedition that was being held a few miles away at a county fairground. People
were expected to drive from hundreds of miles away to get care in a small
little Appalachian town. I decided to borrow my dad’s car and drive up there to
just check it out. I was at the time writing a white paper for the industry to
try to make people think that the problem of the uninsured was not such a big
deal, to try to make people think that people who were uninsured were that way
by choice.
When I got to the fairground,
I saw something that just changed my life entirely. I saw people who were
standing in long lines soaking wet because it had rain that morning. And I
noticed that a lot of those lines lead to barns and animal stalls on this
fairground site. And it just was stunning to me. I knew immediately it was, I
never imagined I would have anything that I would ever refer to as an epiphany.
But I woke up that day and I realized that when I was doing for a living
contributed to people having to get care that way. And I knew that what I was
writing for that white paper was just misleading to the point that one of the
things I was obviously supposed to obscure in that white paper was the fact
that many thousands if not millions of people were uninsured because insurance
companies refused to sell them coverage because of a pre-existing condition.
JS: How could we change
this current system? I mean, is it realistic that we could get to a system that
takes profit entirely out of the administering of health care in this country?
WP: It’s a matter of when
not if, Jeremy, that we get to a Medicare for all type of system because
businesses, and doctors, and hospital administrators, and many others, as well
as regular folks are seeing that the system is built on a foundation that is
crumbling. The employer-based system is crumbling. More and more people who get
coverage through the workplace are not taking their employers up on the offer
because they can’t afford even their share of the premiums. And I think more
and more policymakers are going to be waking up to that as well too, but it’s
going to take money. But the thing is, they have more money than we’ll ever
raise, but we’ve got people. You will see a real groundswell of support at the
grassroots level for change that we’ve never seen before.
JS: We’re going to leave
it there, Wendell. Thank you so much for joining us on Intercepted.
WP: Thank you, Jeremy.
JS: Wendell Potter worked
more than two decades in the health insurance industry, first at Humana and
then at Cigna. He’s the author of “Deadly Spin: An Insurance Company Insider
Speaks Out on How Corporate PR Is Killing Health Care and Deceiving Americans.”
He’s also the president of Businesses for Medicare for All.
[Music interlude.]
Reporter Ian MacDougall on the
Far-Reaches of McKinsey & Company’s Influence on the Public and Private
Sector, From the U.S. to Saudi Arabia
Kevin Sneader: One of the
great strengths of our firm in the past was its sense of mystery. In fact, I
remember one of the first articles that covered us when I joined the firm was
the McKinsey Mystique.
JS: That mystique Kevin
Sneader, McKinsey’s global managing partner, is referring to has helped make
them one of the most powerful and influential management consulting firms in
the world. Operating in some 65 countries and more than 130 cities, McKinsey
sells its ideas without taking credit. As Duff McDonald, the author of “The
Firm,” a book about the company’s influence on American business, puts it:
Duff McDonald: They take
no credit. They take no blame.
JS: But the
90-plus-year-old company has had a hand in shaping business trends in that
time, promoting the wonders of efficiency in the 1920s and the privatization of
programs like NASA in the 1950s and ’60s. Legitimizing mass lay-offs and the
widening CEO-to-worker pay gap can also be traced in part back to McKinsey.
Today that ratio stands at about 278 to 1.
McKinsey alumni include people
like Facebook COO Sheryl Sandberg, former Boeing CEO James McNerney, Chelsea
Clinton, and, as we just discussed, Pete Buttigieg. Questions regarding
Buttigieg’s time at McKinsey have thrust the company back into the spotlight
and directly at its ethical track record. McKinsey has been involved in some
major business scandals including Enron and Purdue Pharma.
Andrew Ross Sorkin: McKinsey
has faced a slew of negative press over the past year from troubles in South
Africa, potentially profiting on the outcome of Puerto Rico’s debt crisis,
taking heat for its work with Saudi Arabia, at one point the firm was called
the new Facebook and it was likely not intended as a compliment.
JS: To discuss how
McKinsey operates around the world in both public and private sectors as well
as its influence, I’m joined now by lawyer and journalist Ian MacDougall. For
ProPublica, he has reported on McKinsey and its work with the Trump
administration to detain and deport immigrants, its work at Rikers Island, and
its ongoing relationship with some repressive regimes. Ian MacDougall, welcome
to Intercepted.
Ian MacDougall: Thank you
for having me.
JS: So, let’s start from
the biggest possible picture, explain what McKinsey and Company is.
IM: It’s a global
management consulting company that’s been around for nearly 100 years. It began
and still is chiefly devoted to the kind of work you’d expect management
consultants to do. So, working with U.S. Steel or other, you know, big kind of
traditional companies to do things like cut costs, streamline supply chains,
that sort of thing.
KS: At McKinsey, we’ve
always been guided by our mission. In fact, it keeps us focused on the reasons
we exist of which there are two: to help our clients create change that really
matters, and to develop a place for exceptional people.
IM: Increasingly
recently, they’ve moved not only into doing more work for governments at home
and abroad, but also all kinds of other work that’s quite different from what
they traditionally do.
JS: In researching this,
doing some reading about their time during the Cold War, and when the arms race
started, and the case of McKinsey’s work with NASA, for instance, was really
interesting. If you go back and look at some of the proposals, they were really
pushing a privatization agenda early on for government services, military
services, etc.
IM: They were very much
as you’re saying involved in setting up the contractor-industrial state, but
advising NASA and then increasingly other parts of the government to rely
heavily on contractors rather than developing internal competence. They then
ended up leaving the public sector in the U.S. almost altogether in the early
70s after this scandal actually involving the New York City government, and
have only begun to come back into it really, in the last 10 to 20 years. It
more or less began with Bob Mueller when he was the head of the FBI asking to
help the FBI reorganize as its priorities changed after 9/11.
JS: You wrote that “As
the Cold War’s end opened new markets worldwide, McKinsey reoriented its
priorities toward aggressive expansion between 1989 and 2019. The firm vastly
enlarged its global footprint from offices in 44 cities across 23 countries to
offices in more than 130 cities spread across 66 countries today.” McKinsey
reported $10 billion in revenues last year. Talk about some of the countries
and projects that McKinsey currently works on.
IM: A big one is their
work in the Saudi government. Others have reported that I think it went from
one project in 2010 to something in the hundreds a few years later, and they’re
still there. It’s a major source of revenue for them. They’re working hand in
glove with lots of parts of the government dealing with economic issues, trying
to sort of overhaul aspects of the economy there.
Fahd Al Rasheed: The
government of Saudi Arabia is thinking about what does government look like in
the 21st century in terms of delivery to citizens of the private sector, and
they’ve implemented that.
IM: Evidently, the
planning ministry is referred to as the Ministry of McKinsey there because of
how suffused with McKinsey consultants it is. And it’s gotten them to raise
some real questions about whether they ought to be doing work there and other
places like that, that have authoritarian regimes in place. In this case, MBS —
Mohammed bin Salman — who effectively runs the country is you know, quite close
as I understand it with them. And then obviously, after the murder of Jamal
Khashoggi raised a lot of even more questions, put it that way.
JS: Soon after that
killing happened, The New York Times did a pretty significant story that I’m
sure shook the power structure at McKinsey. As best as we can tell from that
reporting, it had to do with McKinsey doing work on profiles for Saudi Arabia
of externally important individuals or issues. In a statement that McKinsey put
out after this happened, the company said that the Saudi state had not
commissioned it to create a report that identified critics and this is the
McKinsey quote, “In our work with governments McKinsey has not and never would
engage in any work that seeks to target individuals based on their views. The
document in question was a brief overview of publicly available information
looking at social media usage.”
ARS: When you find out
that your client is a murder you do what?
KS: You walk.
ARS: You walk?
KS: If your client is a
murderer, and that’s why when we think about where —
ARS: OK, so let’s talk
about Saudi Arabia, then.
KS: Sure.
ARS: What happened?
KS: Well, what we’re
doing and what we’ve been very thoughtful about is the kind of work that we
take.
What was your sense of how
that played out, the New York Times report and then the way McKinsey responded
to it?
IM: I’ve seen the
document and in fairness to McKinsey, it does look like an internal document.
When McKinsey does work for their clients — this is in part to preserve
their secrecy or plausible deniability, or whatever you want to call it — the
client’s name is usually the only one that shows up on those slides. So,
McKinsey’s name often won’t be on it at all. This one says McKinsey and Company
on every page. It looks like these internal knowledge documents. It’s an
analysis of the reaction and sentiment among Saudis to austerity measures. And
so it names these three individuals as three of the most prominent critics of
the austerity measures.
JS: The recent piece that
you did “How McKinsey Helped the Trump Administration Detain and Deport
Immigrants,” explain first of all, how McKinsey ended up working for ICE. This
didn’t start under Trump. It started under Obama, and what exactly they did and
why ICE was even concerned about the pace that McKinsey was recommending.
IM: They began the work
under the Obama administration in March 2016 really, as kind of analyze where
they’re inefficiencies? After the Trump administration came into office, the
president signed these two executive orders, which were meant to put into
motion his promised crackdown on illegal immigration.
DJT: We are going to get
the bad ones out, the criminals and the drug deals, and gangs, and gang members
and cartel leaders. The day is over where they can stay in our country and
wreak havoc.
IM: McKinsey was already
there working on efficiency issues and procurement for detention centers
principally. And so in that sense, when McKinsey says nothing changed at that
highest level. I guess that’s true. But both documents and interviews with
people who worked on it from the ICE side and from the McKinsey side say it
changed dramatically to be really focused just on figuring out how to, on one
hand, hire the 10,000 new immigration officers that one of these executive
orders directed ICE to hire. The other part of it was how to handle what they
expected to be a large influx of detainees, how to keep costs down at detention
centers.
The parts that really
troubled, I should say some people at ICE, not everybody, because on some
level, they were channeling a certain level of kind of thinking within but the
recommendations that really troubled folks at ICE were things like cutting, you
know, essentially pennies on food costs, medical care, maintenance at quite
decrepit facilities.
JS: You write McKinsey,
the firm’s presentation show pursued “detention savings opportunities in blunt
ways. The consultants encouraged ICE to adopt a longer-term strategy with
operational decisions to fill low-cost beds before expensive beds. In practice,
that meant shunting detainees to less expensive and sometimes less safe
facilities often rural county jails.”
IM: Those kinds of things
left a lot of these ICE staffers quite wary that you know, a couple of them
independently of one another said that it felt like McKinsey was approaching
this issue as if it was dealing with how to best price widgets. There was a
detachment from the humanity of what they were looking at.
JS: Let’s talk about your
work on Rikers. You also wrote about how McKinsey consultants worked with
Rikers’ jail officials to skew the outcomes of report on violence prevention
strategy that it implemented at the notorious jail. Why was the report
misleading?
IM: The report itself
said that there was a reduction in violence in these pilot units where they
were piloting the reforms by 50 percent. What had happened was very early when
they were starting that pilot project in a small subset of cellblocks they had
decided to keep out folks who jail officials who corrections officers knew to
be unruly or troublemaking or might cause violence numbers to go up. In part,
because they were trying to fine-tune their process and they didn’t want
someone stabbing someone on the first day. But what ended up happening is they
presented the outcome of those cellblocks — where violence went down
dramatically and stayed quite low — publicly into oversight boards as if it was
a cross-section, representative cross-section of the population. And when they
handed that process off to jail officials using this new algorithm they’d
created to assign housing units to detainees, the jail officials said hey,
look, before we were keeping these guys out, numbers were staying down, city
hall was staying off our back. Let’s keep doing it. And they did.
The idea that those pilot
projects, the reforms caused 50 percent or 70 percent, the number reported in
different ways, different places, reductions in violence. As one person said to
me, maybe that was from the reforms but how can you say when cherry-picking who
was in there?
JS: Wasn’t there evidence
to suggest that the violence actually increased after McKinsey started working
on it?
IM: It absolutely has.
There was a recent report in October, just as the city council voted to close
Rikers that said, essentially the use of force issues — and this is from a
federal monitor as part of a civil rights settlement — that said the use of
force there has gotten worse and worse and worse, and we just don’t see things
getting any better and that was part of what McKinsey was supposed to help deal
with.
JS: McKinsey also worked
with Purdue Pharma. Your colleague David Armstrong wrote that “From 2009 until
at least 2014, McKinsey helped Purdue shape its message for selling OxyContin
and overcoming concerns about addiction and overdoses… The consultant told Purdue
in a slide presentation that it could increase prescriptions by convincing
doctors that opioids provide ‘freedom’ and ‘peace of mind’ and give patients
‘the best possible chance to live a full and active life.” Is this telling, or
an example that’s helpful to look at when you’re wondering like how McKinsey
operates as a corporation?
IM: Yes, this is a good
example of where a partnership like any frankly for-profit partnership or
corporation exists to make the partners money or the shareholders money. That’s
really why that exists and they may say otherwise. But you know, when they say
we’re doing good in the world — it comes up to a point where it’s like it was
gonna cut into the bottom line, they become less enthusiastic for that. This is
the kind of stuff that’s happening behind that facade of being a, you know,
benevolent steward of capital or whatever you want to call themselves. They’re
working now on trying to, you know, reduce opioid addiction, find strategies
for states to basically undo what they helped do in the first place.
JS: The journalist and
author of the book “The Firm: The Story of McKinsey, and Its Secret Influence
on American Business,” Duff McDonald has said the following about McKinsey: “I
think, by the very nature of the business, they are mercenaries. They will work
for anyone.” He then went on to say, “I don’t mean they’ll work for a murderer,
but they’re for hire.” In all of these pretty damning cases, covering the way
that the company has worked with businesses or government agencies or foreign
governments has McKinsey ever faced any actual accountability?
IM: The closest they’ve
had recently is in South Africa, which The Times has written about it at some
length, where there have been quite serious investigations by various
authorities into the work they did for an energy company or energy utility
there that they worked alongside this local company that had ties to the Gupta
family which is involved in this big corruption scandal with the former
president of South Africa. And there they’ve, you know, had to appear before
legislative committees and reveal the work that they did there and both
publicly and to authorities with power to do something about if there was
criminality. They haven’t been charged. So there hasn’t been anything like
that, that’s happened.
KS: Illegality or
unethical behavior in any guise has no home in McKinsey. I welcome everything
that has been done by public leaders and the authorities to piece together and
halt state capture. We will continue to cooperate with all relevant authorities
or investigations.
IM: But beyond that
they’ve been pretty lucky. They were deeply embedded in Enron. When it
collapsed, Jeffrey Skilling, the CEO was a McKinsey partner before he went over
there, and they sort of skated away from that one. No one’s ever found evidence
that they were involved in the illegal stuff that happened at Enron. But they
were certainly everywhere in a company that was, you know, heading towards
collapse long before it actually collapsed.
JS: I mean, stepping back
from the specifics of what you’ve reported, and I’m just asking you as a reporter
who’s now spent some time digging pretty deeply into McKinsey. What is the
overall impact that McKinsey and firms like it have on the way that government
entities function in this country, and businesses interact with the government?
IM: I think a big part of
it is to focus almost all of the attention on things like efficiency and
agility and things like that which are I suppose neutral in some way and could
be quite good, depending on how it’s applied, but the way in which it has been
deployed, especially when it comes to government misses some of the points
that, you know, government despite what some people say isn’t a business and it
doesn’t look like one generally and it’s not supposed to. And so sometimes a
lot of the things that are not susceptible to certain kinds of technocratic
solutions that would be used within corporations, you know, they’ve certainly
helped get those applied more broadly in government often to the detriment of
people the government [is] meant to serve.
JS: All right, well Ian,
I want to thank you very much for joining us.
IM: Thank you for having
me.
JS: Ian MacDougall’s a
journalist at ProPublica. He has written about crime, criminal justice and
legal affairs for Harper’s, The Atlantic, Slate, and The Guardian. You can find
him on Twitter @i_m_m.
[…]
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