McKinsey creates new ethics role after $956m opioid fallout Matthew Boyle and Irina Anghel
McKinsey is beefing up its ethics department after a series of high-profile controversies, including helping Purdue Pharma “turbocharge” opioid sales.
The management consulting giant is hiring for a newly created position with its global “ethics allegations management team”. The “specialist” will be responsible for “intake and triage of matters” that could present a risk to the firm.
McKinsey is also looking to replace its ethics director, a position that helps “ensure we uphold a distinctive culture of integrity and ethical [behaviour] across our firm,” according to the job description, with a salary that ranges from $US235,000 ($351,100) to $US314,000.
“We are continually improving these processes and capabilities, which includes these ethics roles,” said Neil Grace, a McKinsey spokesperson. The company has more than quintupled internal risk, legal, ethics and compliance staff over the last eight years, he said.
A lack of oversight at McKinsey has previously resulted in some well-publicised unsavoury entanglements. The consulting firm has paid out $US641 million to resolve ongoing lawsuits over its opioid work.
Its South African branch has been ensnared in a corruption scandal and the company received sharp criticism for moving too slowly to cut ties with Russia after its invasion of Ukraine.
In 2019, the firm adopted “more rigorous” client selection policies, which required analysing whether its work would hurt people, particularly vulnerable populations. The company says it has invested nearly $US700 million over five years to bolster its risk-management teams and processes.
When Nick Lovegrove worked at McKinsey as a managing partner about a decade ago, the ethics and compliance department “barely existed,” he said.
“Nowadays McKinsey gets a lot more allegations made against it,” he said. “That’s not necessarily because it’s doing more bad things, but because the recent highly-publicised cases have both raised its profile and made it seem more vulnerable.”
Professor Lovegrove now works at Georgetown University’s McDonough School of Business.
The ethics group, which reports up to chief compliance officer Daniel Trujillo, also handles conflict-of-interest cases. In 2019 McKinsey agreed to pay $US15 million to end a federal probe into whether it violated disclosure rules designed to prevent conflicts of interest in corporate bankruptcies. It is still facing a lawsuit from restructuring expert Jay Alix for allegedly concealing such conflicts.
The ethics specialist will team up with “investigators and subject-matter experts,” according to the job description, and present information “for key audiences.” The ethics director, meanwhile, will oversee internal probes of “any alleged violation” of policies or regulations.
Many companies have ethics and compliance tsars — McKinsey’s Mr Trujillo previously served in a similar role at Walmart. Most of them joined the C-suite in the wake of the 2000s-era scandals at Enron, WorldCom and Tyco, or following the 2010 Dodd-Frank Act. More recently, they have been tasked with evaluating the potential dangers of the boom in artificial intelligence.
Bloomberg
Josh Bornstein | How will the APS be held accountable for its role in the PwC scandal?
By Josh Bornstein Updated June 27 2023 -
Watch: Mark Dreyfus introduces national anti-corruption legislation Was it negligence, naivete or necessity? How to explain the disastrous decision of some of Australia's most senior public servants to retain PriceWaterhouseCoopers for a project designed to crack down on corporate tax avoidance? In an extraordinarily scathing report delivered last week, the Senate finance and public administration references committee found that PwC not only engaged in "calculated breach of trust" by breaching confidentiality obligations, it then engaged in a deliberate strategy over many years to cover up that breach and the plan by PwC personnel to monetise it.
While the partners of PwC are bearing the brunt of the fallout for their misuse of confidential information, there is a case to be made that those who hired the firm should also be held accountable. Instead of assisting in the fight against multinational corporate tax avoidance, PwC's involvement undermined that fight at great cost to us all.
Australia's public service is governed by a set of statutory "values" imposing obligations on all public servants to act ethically and with integrity in discharging their duties. Those values have been invoked to sack junior staff for anonymous tweets criticising government policy or to punish whistleblowers who embarrass senior bureaucrats. The Australian Public Service Commission states that "The Ethical Value provides for an APS that demonstrates leadership, is trustworthy, and acts with integrity in all it does". The PwC scandal squarely raises the legality and ethics of hiring a contractor operating a business that is notorious for being riddled with conflicts of interest. Finance committee member Greens senator Barbara Pocock. Picture by Karleen Minney Finance committee member Greens senator Barbara Pocock. Picture by Karleen Minney
That the big four consultancies have been "working on both sides of the street" for decades is not exactly a state secret. They have generated billions of dollars in fees in both consulting to governments and then using the information gleaned from doing so to sell even more expensive advice to big business - with a particular focus on avoiding corporate tax.
As academics Maria Mazzucatto and Rosie Collington have documented in their recent book, The Big Con, "when consultancies serve 'both sides of the street' ... there is also a risk that consultancies use government knowledge and information in ways that benefit business clients and undermine legislation." And so when decision-makers at the ATO retained PwC, did they act ethically and with integrity?
In 2013, the the British Parliament's public accounts committee began investigating the role of the big four in developing new tax rules for governments and then selling their knowledge to corporate clients to defeat those new rules. The British Treasury had seconded large numbers of staff from the big four to "provide tax technical input and commercial experience" about corporate profit shifting - also known as transfer pricing.
The public accounts committee began investigating the "way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax". The committee singled out KPMG staff who had returned from their secondments to KPMG and prepared marketing brochures for corporate clients disclosing their government work. The marketing brochures promoted advice on "defendable expense allocation" - otherwise known as tax avoidance strategy. The following year, a US Senate committee published a report that accused major manufacturer, Caterpillar Inc. of shifting US$8 billion in profits to Switzerland under a tax-avoidance strategy devised by PwC.
In February 2015, the UK parliamentary public accounts committee published its damning report entitled Tax avoidance: the role of large accountancy firms. That report stated: "We believe that PricewaterhouseCoopers's activities represent nothing short of the promotion of tax avoidance on an industrial scale ... Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme".
The committee also found that PwC provided misleading evidence to it when it asserted that "we are not in the business of selling schemes" and "we do not mass-market tax products, we do not produce tax products, we do not promote tax products".
All of this made no difference to Australian bureaucrats who continued to use PwC . In 2016 PWC partner, Peter Collins was appointed to the Board of Taxation, an advisory body charged with "contributing a business and broader community perspective to improving the design of taxation laws". In that same year, an International Consortium of Investigative Journalists published the Panama Papers detailing the scale of multinational corporate tax avoidance across the globe. That report and those that followed it have highlighted the role of the big four, who have have offices in most global tax havens, in assisting multinational corporations to avoid corporate tax.
We're sending a chilling message sent to future whistleblowers 'A calculated breach of trust': Senate report admonishes PwC over tax scandal A $2 billion spy bunker, a $22k coffee machine and a few fancy chairs The robodebt royal commission highlighted that senior public servants can be rewarded, notwithstanding their unethical and illegal conduct. Given the widespread use made by PwC and other big consulting companies by senior public servants, it is highly unlikely that disciplinary action will be taken. Where there is an entrenched culture of contravening legal obligations by those at the top, relevant laws and standards are not deployed.
There is also a practical issue. Retaining consultants to perform core government functions has become an enduring feature of public administration; so much so that the whole system now resembles one enormous public-private partnership. The evidence of the addiction is so overwhelming that it infects the institutions and agencies that should be working to remedy the current crisis. The ATO, the Treasury and the AFP have at various points seemed paralysed by the shock of having to pursue an organisation that is so integral to their own operations. Other arms of government including the Departments of Health and Defence have continued to hire PwC since news of the scandal broke.
If there is any upside to this scandal, it is the critical role played by two other institutions in unearthing the truth of the matter: the media and the Senate.
Josh Bornstein is an employment lawyer who has represented many federal and state public servants.
