Newspaper article International New York Times

McKinsey's Management Advice to Itself ; Firm's Trust-Based Culture Gives Way to Formal Rules after Trading Scandals

Newspaper article International New York Times

McKinsey's Management Advice to Itself ; Firm's Trust-Based Culture Gives Way to Formal Rules after Trading Scandals

Article excerpt

Insider-trading scandals inspired the firm's chief executive to impose formal guidelines on ethics, a move away from the company's trust-based culture.

Dominic Barton is 51 years old, 6 feet 4, and despite his silvery hair has the countenance of a choirboy. Born in Uganda, he is the son of a missionary and a nurse, both Canadians. But it could be said that the society to which he really belongs is that of McKinsey & Company.

For a quarter of a century, except for a brief stint as a currency analyst at Rothschild, Mr. Barton has worked at McKinsey, the consulting firm with more than 1,400 partners and 18,500 employees around the world. And that is why he is facing the most daunting task of his career: as McKinsey's global managing director, based in London, he is changing the culture of the firm that shaped him.

There are two reasons that Mr. Barton is on this mission: Anil Kumar and Rajat K. Gupta.

Mr. Kumar was a McKinsey director who, in 2010, pleaded guilty to insider-trading charges and publicly acknowledged giving corporate secrets gleaned on the job to Raj Rajaratnam, a founder of the Galleon Group hedge fund, in return for cash. Never in the history of the firm had a partner been charged with violating securities laws.

A year after the Kumar scandal, the United States Securities and Exchange Commission filed a civil complaint accusing Mr. Gupta, a Goldman Sachs board member and former McKinsey managing director, of telling Mr. Rajaratnam about a $5 billion investment in Goldman by Warren E. Buffett's Berkshire Hathaway at the height of the financial crisis. Mr. Gupta, a revered former partner who had been elected managing director three times in a row, serving at the McKinsey helm for a decade, was ultimately sanctioned for violating civil and criminal laws by leaking boardroom business.

Mr. Barton has been trying to prevent another disgrace: a "third man," as some have put it. McKinsey is known for what it calls its culture based on values and trust -- a culture that was created and nurtured by Marvin Bower, its longtime managing director. The values that Mr. Bower instilled included putting the clients' interests above the firm's, providing independent advice and keeping confidences. These ideas were imparted from one generation to the next, mentor to apprentice.

But after Mr. Kumar's arrest in late 2009, Mr. Barton, who had been elected to head the firm just months earlier, decided that the honor-driven, values-based system was not enough. What the firm needed was some rules.

"We needed more safety moats around the castle," he says. "We have this values/trust culture. I get that. Now we have a little more edge."

Mr. Barton's rule-making has not gone over well with everyone in the firm; he has been criticized as imposing American standards that don't work globally and accused of operating a "nanny state." Nonetheless, he has gained the support of most of the firm and, just as important, of the powerful network of alumni, many of whom now populate the Fortune 1,000 companies that McKinsey serves.

"There were a lot of people who were mad about what happened and that it happened at the highest echelons of the firm," says Partha Bose, a former partner at McKinsey. "Dominic didn't push the problems under the carpet. Instead, he dealt with it in an open, collegial way, from the youngest partner who asked, 'What have I gotten myself into?' to the senior-most partner who said, 'I can't believe this is happening."'

One morning last fall, Mr. Barton sat in his London office overlooking Piccadilly Circus and discussed the efforts he had made to bring the firm to account. He sat across an ebony table -- actually an antique Chinese door -- and was surrounded by photographs of his family and Asian dignitaries. Mr. Barton spent a dozen years working in South Korea and China. His wife, Sheila Labatt, of the Labatt brewing family, is a glass artist who studied her craft in China. …

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