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How McKinsey Has Helped Raise the Stature of Authoritarian Governments

How McKinsey Has Helped Raise the Stature of Authoritarian Governments

The New York Time, 15 December 2018

By Walt Bogdanich & Michael Forsythe – This year’s McKinsey & Company retreat in China was one to remember.

Hundreds of the company’s consultants frolicked in the desert, riding camels over sand dunes and mingling in tents linked by red carpets. Meetings took place in a cavernous banquet hall that resembled a sultan’s ornate court, with a sign overhead to capture the mood.

“I can’t keep calm, I work at McKinsey & Company,” it said.

Especially remarkable was the location: Kashgar, the ancient Silk Road city in China’s far west that is experiencing a major humanitarian crisis.

About four miles from where the McKinsey consultants discussed their work, which includes advising some of China’s most important state-owned companies, a sprawling internment camp had sprung up to hold thousands of ethnic Uighurs — part of a vast archipelago of indoctrination camps where the Chinese government has locked up as many as one million people.

One week before the McKinsey event, a United Nations committee had denounced the mass detentions and urged China to stop.

But the political backdrop did not appear to bother the McKinsey consultants, who posted pictures on Instagram chronicling their Disney-like adventures. In fact, McKinsey’s involvement with the Chinese government goes much deeper than its odd choice to showcase its presence in the country.

Participants in the retreat chronicled activities like camel rides on Instagram.
An Instagram post of a bonfire gathering during the retreat.
The Instagram posts from the retreat were in stark contrast to the nearby humanitarian crisis.
For a quarter-century, the company has joined many American corporations in helping stoke China’s transition from an economic laggard to the world’s second-largest economy. But as China’s growth presents a muscular challenge to American dominance, Washington has become increasingly critical of some of Beijing’s signature policies, including the ones McKinsey has helped advance.

One of McKinsey’s state-owned clients has even helped build China’s artificial islands in the South China Sea, a major point of military tension with the United States.

It turns out that McKinsey’s role in China is just one example of its extensive — and sometimes contentious — work around the world, according to an investigation by The New York Times that included interviews with 40 current and former McKinsey employees, as well as dozens of their clients.

At a time when democracies and their basic values are increasingly under attack, the iconic American company has helped raise the stature of authoritarian and corrupt governments across the globe, sometimes in ways that counter American interests.

Its clients have included Saudi Arabia’s absolute monarchy, Turkey under the autocratic leadership of President Recep Tayyip Erdogan, and corruption-plagued governments in countries like South Africa.

In Ukraine, McKinsey and Paul Manafort — President Trump’s campaign chairman, later convicted of financial fraud — were paid by the same oligarch to help burnish the image of a disgraced presidential candidate, Viktor F. Yanukovych, recasting him as a reformer.

Once in office, Mr. Yanukovych rebuffed the West, sided with Russia and fled the country, accused of stealing hundreds of millions of dollars. The events set off years of chaos in Ukraine and an international standoff with the Kremlin.

Inside Russia itself, McKinsey has worked with Kremlin-linked companies that have been placed under sanctions by Western governments — companies that the firm helped build up over the years and, in some cases, continues to advise.

It has consulted in many sectors of the Russian economy, including mining, manufacturing, oil and gas, banking, transportation and agriculture. A McKinsey official sat on the Russian government’s energy board. Former McKinsey consultants have gone to work in the Russian companies they once advised.

In August, VEB Bank — which is wholly owned by the Russian state, intertwined with Russian intelligence and under United States sanctions — hired McKinsey to develop its business strategy.

There is no indication that McKinsey has violated American sanctions, which prohibit only certain transactions with targeted companies and individuals. But the larger question is whether the company, in pursuing legitimate business opportunities abroad, is helping to shore up President Vladimir V. Putin’s autocratic leadership.

Other consulting companies serve similar clients, but none have the stature to confer credibility quite like McKinsey, a confidant for 92 years to many of the world’s most admired companies.

In China, it has advised at least 22 of the 100 biggest state-owned companies — the ones carrying out some of the government’s most strategic and divisive initiatives, according to a review of Chinese-language material by The Times.

While it is not unusual for American corporations to work with China’s state-owned companies, McKinsey’s role has sometimes put it in the middle of deeply troubled deals. In Malaysia, the company laid out the case for one of Asia’s most corrupt leaders to pursue billions of dollars from China at a time when he was suspected of funneling vast sums of public money into his own pocket, drawing tens of thousands into the streets to protest against him.

McKinsey defends its work around the world, saying that it will not accept jobs at odds with the company’s values. It also gives the same reason that other companies cite for working in corrupt or authoritarian nations — that change is best achieved from the inside.

“Since 1926, McKinsey has sought to make a positive difference to the businesses and communities in which our people live and work,” the company said in a statement.

“Tens of thousands of jobs have been created, lives improved and education provided thanks to the work we have done with our clients,” it added.

“Like many other major corporations including our competitors, we seek to navigate a changing geopolitical environment,” the company said, “but we do not support or engage in political activities.”