McKinsey Is Realizing That An Honor System Isn't Enough To Prevent Scandals

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McKinsey

Reuters/Mike Segar

Dominic Barton, managing director at McKinsey & Company

McKinsey is the largest and most prestigious consultancy in the world. But the company's reputation has suffered after director Amil Kumar pled guilty to insider trading charges in 2010, and its revered former leader Rajat Gupta was convicted of the same crime in 2012.

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Before these incidents, a McKinsey partner had never been charged with violating security laws.

That's why McKinsey managing director Dominic Barton started a crusade in 2010 to transition the company from an honor-driven culture based on values and tradition to a stricter, rules-based organization, according to an article in The New York Times.

Since Marvin Bower led the company in the 1950s, the company's mantras have included putting the firm above individual interests, always being independent, and keeping client's confidences. Those values weren't explicitly enforced by rules, but based on trust and passed on through the generations. Dissent was always public, rather than privately reported.

The move to a more rigid system includes a much stricter personal investment policy forbidding employees and members of their households from trading in securities of the firm's clients, as well as mandatory online tutorials and tests on subjects like investing. Employees who don't take those tests get locked out of their email accounts. Additionally, discipline over ethical issues such as expense misconduct is now more public, and there's a confidential avenue to report on the behavior of senior partners.

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While many employees support the changes, others, particularly those outside the United States, accuse Barton of creating a "nanny state" based on American rules. One partner reportedly called the rules "childish" and said that the initiatives reminded him of the Stasi in East Germany.

"We needed more safety moats around the castle," Barton told The Times' Anita Raghavan. "We have this values/trust culture. I get that. Now we have a little more edge."

The overhaul of the culture is something McKinsey would undertake for a client. Now it's taking steps beyond what's common or required for consultancies, which are less regulated than banks. It's well ahead of its peers in the industry, which don't have personal investment rules as strict as McKinsey's.

As much as companies might like to be able to rely on meritocracy, trust, and tradition, there are far too many gray areas. Though it's a blow to employee's egos to be reminded repeatedly of what's acceptable and what isn't, the risk of another scandal without change is too steep.