HOW MCKINSEY DOES IT The world's most powerful consulting firm commands unrivale

d respect -- and prices -- but is being buffeted by a host of new challenges. He

re's the inside story.
(FORTUNE Magazine)
By John Huey REPORTER ASSOCIATES Joyce E. Davis and Jane Furth
November 1, 1993
(FORTUNE Magazine)
FOR ALL THAT has been said over the years about McKinsey & Co
. -- the most well-known, most secretive, most high-priced, most prestigious, mo
st consistently successful, most envied, most trusted, most disliked management
consulting firm on earth -- perhaps the only statement that would spark immediat
e agreement from all camps, friend or foe, is this: These fellows from McKinsey
sincerely do believe they are better than everybody else. Like several less purp
oseful organizations -- Mensa, Bohemian Grove, Skull and Bones, the Banquet of t
he Golden Plate -- McKinsey is elitist by design. So much so that on occasion, w
hen in the presence of a young McKinsey partner, ^ one gets the distinct impress
ion that if plied with a cocktail or two, he might well lean across the table an
d suggest something awkward, like comparing SAT scores. To say that ''testing we
ll'' is the sine qua non for membership in this outfit -- filled as it is with B
aker Scholars from the Harvard business school, Rhodes scholars, White House Fel
lows, nuclear physicists, and Ph.D.s in the hard sciences -- is to understate th
e premium placed within the McKinsey culture on analytic ability, or as its deni
zens say, on being ''bright.'' There is no denying it: These men from McKinsey - and they are mostly men, and mostly white -- are indeed bright. Even so, sever
al more prosaic questions still bear asking: Do they have a lick of sense? Are t
hey any better than the competition? Can you trust them? Can they really help yo
ur company? And finally, are they worth what they charge? Like most questions ab
out such institutions, the answers lie somewhere between McKinsey's self-image a
nd what its detractors want to believe. McKinsey, though damned good at what it
does, is not as good as it thinks. (Could any collection of mortals be?) Brain f
or brain, its consultants aren't any brighter than those at some close rivals, a
nd much of the work it performs can be done quite competently by a number of les
s pricey, less haughty consulting firms. At the same time, McKinsey's explosive
growth -- it has doubled in the past five years to become a firm with $1.2 billi
on in annual revenue and 58 offices worldwide -- hasn't eroded its formidable cu
lture nearly as much as competitors fantasize. It is that culture, unique to McK
insey and eccentric, which sets the firm apart from virtually any other business
organization and which often mystifies even those who engage the services of ''
The Firm,'' as its members have long called it. ''They're not a very open organi
zation,'' says Edwin Lupberger, chairman and CEO of Entergy Corp., one of the na
tion's largest utility holding companies and a constant and highly satisfied McK
insey client since 1986. ''Even from the client side, you just get to see the ti
p of the iceberg.'' Understanding McKinsey's enigmatic culture is the only way t
o answer the larger, more intriguing questions about The Firm, which are: How do
es McKinsey do what it does -- and can it keep on doing it? In a business whose
only constants seem to be upheaval, transience, faddism, and customer suspicion
of snake oil, how does McKinsey inspire such high-level trust? In a world seemin
gly overpopulated with consultants, can McKinsey endure as the ultimate worldwid
e brand name -- the Rolls-Royce of its industry? Extraordinarily tight-lipped, M
cKinsey shuns publicity. But lately it has found itself in an unwelcome spotligh
t, mostly because of the celebrity of such firm alumni as Lou Gerstner, Harvey G
olub, and Michael Jordan, former consultants who have assumed hot-seat CEO posts
at IBM, American Express, and Westinghouse. TCI boss John Malone, the so-called
King of Cable, is also a former McKinsey consultant. Throughout this recent flo
od of press attention, The Firm has said nothing. Until now. As with most cabals
, the real answers are best found on the inside. And that is where FORTUNE has b
een reporting for several months, wandering the halls of McKinsey & Co., poking
into the nooks and crannies. What follows, then, is a report from behind the rar
ely lifted veil of one of the world's best-known, least understood organizations
. To fully appreciate the inside view, it helps first to see how McKinsey looks
in the cross hairs of those who compete against it in an increasingly fragmented

, competitive marketplace. Founded in the 1930s, McKinsey isn't the oldest consu
lting firm; Arthur D. Little dates to the 1880s. Nor is it the biggest; Andersen
Consulting's annual revenues of $2.7 billion are more than double McKinsey's, t
hough Andersen specializes mostly in integrating information systems (FORTUNE, O
ctober 4). Among its general management consulting peers, however, McKinsey is f
ar and away the largest, with revenues almost double those of No. 2, Booz Allen
& Hamilton. What's more, McKinsey's 3,100 consultants and analysts haul in far m
ore annual revenue -- $387,000 each -- than any competitor's (the 780 profession
als at the Boston Consulting Group are second, at $359,000 a head), according to
Consultants News, a trade publication. Most of McKinsey's rivals insist that in
recent years it has become much more vulnerable to their inroads. Says Fred Ste
ingraber, chairman and CEO of A.T. Kearney, a fast-rising Chicago firm that was
long ago part of McKinsey: ''Last year we competed against them head to head in
35 situations and won every time.'' While McKinsey has consulted for many of the
current era's great successes -- Hewlett-Packard, Johnson & Johnson, PepsiCo, B
ritishAir, AT&T, GE -- it has also been a fixture at many of the big losers: Ame
rican Express, GM, IBM, Eastman Kodak, Digital Equipment, Sears, and the late Pa
n Am. Critics argue that McKinsey is starting to suffer from some of the same ai
lments that eventually brought these dinosaurs low. Claims a senior partner at B
ain & Co., a resurgent competitor: ''McKinsey sells consulting the way IBM used
to sell computers -- from the top down. Which makes you wonder: 'Are they the IB
M of the consulting business?' I think they have a bunch of the same cancers and
ten years from now won't be as strong as they are today.'' Of such chop-licking
competitors, Fred Gluck, 58, McKinsey's managing director, says simply, ''All I
know is that every consulting firm anybody talks to always says they're second
to McKinsey.'' He's right. ''The hardest thing about competing with them,'' admi
ts that same Bain partner, ''is that they have these deep relationships with sen
ior management that lead companies to return to McKinsey, unquestioned, time and
time again.'' Even Kearney's Steingraber grudgingly agrees: ''They are definite
ly the model many other consulting firms would like to emulate. It is difficult
for a CEO who hires McKinsey to be challenged either by his board or by the rank
and file. They have established themselves with a 'holy water' very much like t
he blue-chip investment banking firms.'' You can find McKinsey consultants sprin
kling that holy water around on a regular basis at half the companies in the FOR
TUNE Global 500. And after more than 30 years of aggressive overseas expansion,
McKinsey today is itself truly a global firm, with a non-American majority contr
olling its shareholder committee and the real possibility of electing a non-Amer
ican as managing director in the near future. The Firm derives 60% of its revenu
e -- and probably even more of its profit -- from outside the U.S. and expects f
uture growth to be fueled by such fledgling markets as Russia, Eastern Europe, C
hina, and India. Partly because of that global growth, McKinsey is now caught up
in a passionate internal debate over where it should go from here. The Firm, mo
st partners admit, has reached one of the watersheds in its history. ''We grew t
oo fast in the Eighties,'' says New York office manager Don Waite, a leading can
didate to take the helm next year. ''It strained the fabric of the place.'' As M
ichael Patsalos-Fox, a new-generation 40-year-old director in London, puts it, '
'There are some very sophisticated things that keep McKinsey together, and they
will be strained in the coming years.'' To Peter Foy, 53, a member of the old gu
ard in the same office, the big challenge is ''how to evolve without losing our
values in spite of the scale and complexity of the organization.'' Such debate a
lways heats up around election time, which is now approaching. Next spring, as t
hey do every three years, McKinsey's 151 senior partners -- known as directors - will cast an open-ballot vote to decide who among them will become managing di
rector, succeeding Gluck. He has overseen six years of spectacular growth, but f
irm bylaws prohibit him from standing for reelection because he would turn 60 du
ring his next term. McKinsey partners really don't know which of seven or eight
potential directors will be leading them into the 21st century. Whoever wins, go
vernance is ''the key issue'' this time round, says Ron Daniel, who was managing
director for 12 years and once described the job as ''like trying to herd cats.
'' Adds Daniel: ''We don't need a caretaker, and we don't need somebody on a pow

er trip.'' In fact, governance frequently comes up as an issue at McKinsey. Depe

nding on which partner you talk to, The Firm is either the exemplar organization
of the future -- a nonhierarchical, decentralized group of knowledge workers co
nnected by shared values and a multitude of informational axes -- or it's a once
intimate partnership grown way too large and diffuse with no real chain of comm
and. Peter Foy openly advocates change. ''I think we now have to evolve into a m
ore professionally managed institution,'' he says, ''with a more directive manag
ement approach than the laissez-faire freedom of an entrepreneurial partnership.
It's a price we're going to have to pay.'' But in Zurich, Lukas Muhlemann, who
at 43 is mentioned by some directors as a potential top guy, fears too much comm
and and control. ''I wouldn't like to have some real bossy managing director,''
he says. The Firm's culture has always accommodated this kind of broad diversity
of opinions, as well as a number of apparent paradoxes. McKinsey earns much of
its money showing other companies how to become more efficient yet in its own af
fairs scorns efficiency, choosing to run itself through a seemingly endless chai
n of committees. The Firm attracts high-performing achievers with egos large eno
ugh to block the sun, then requires those egos to subordinate themselves to the
collective. The Firm places itself above discussing money as a motivation, yet s
enior partners often earn as much, or more, than the CEOs they advise. Partners
talk about one another with a sense of personal affection and admiration usually
heard only at Hollywood roasts -- ''a bunch of guys committed to making a diffe
rence and having a hell of a time,'' says Gluck. Yet The Firm's Darwinian up-and
-out system culls partners from its ranks with the ruthlessness of a three-star
chef culling asparagus spears at a farmers' market. The resulting personality of
a McKinsey consultant, therefore, is an unusual blend of studied arrogance over
laying deep-seated insecurity. As Firm lore has it: ''McKinsey is a very kind pl
ace. McKinsey is a very cruel place.'' From a client's perspective, McKinsey is
basically a problem-solving place. Some of its work -- a repositioning strategy
for a client in the telecommunications industry or the retooling of a technology
company's new product development process, for example -- can be highly sophist
icated. But much of the time The Firm merely reorganizes sales forces or designs
by-the- numbers downsizing to reduce overhead. Either way, corporate chaos and
market mayhem are great for business, which goes a long way toward explaining Mc
Kinsey's recent hothouse growth. Say you're the management of Delta Air Lines -in fact, a new client -- and you're losing buckets of money on your recently ac
quired European operations. You're feeling shareholder heat. So you announce to
Wall Street: ''We have hired McKinsey.'' Such an announcement sends out several
messages: ''We know we have a problem. We're doing something about it. We hired
the most expensive help we could find. Give us some time, okay?'' More typically
, though, McKinsey enjoys a long-term -- but not continuously billable -- relati
onship with top management at a client company. (It has one, for example, with T
ime Inc., the Time Warner unit that publishes FORTUNE.) The Firm will already ha
ve worked for the client on various projects, perhaps identifying potential mark
et segments and then figuring out the cost structure required to beat the compet
ition. Now the CEO, or his COO, or even a division head at a very large company,
may have decided, say, that he can't move on effectively with the organizationa
l structure he has in place. Who better to talk it over with -- for free -- than
his old friends from McKinsey? Frequently, the partner who serves as your prima
ry contact is a generalist, linked to your company because your headquarters are
in his office's territory. If, however, he isn't well versed in the problem cur
rently weighing on you, your old friend will invite one or more new friends -- s
pecialist colleagues -- in to talk things over with you. They will likely come f
rom one of the two dimensions that complement McKinsey's geographic structure: f
unctional expertise (disciplines such as market research, corporate finance, and
au courant stuff like core-process redesign) or industry expertise (aerospace,
automotive, banking, whatever). At this point it's all very casual and cordial,
no meter running. Once the chatting ends and you hire The Firm, things formalize
quickly. The local partner assembles an engagement team of four to six people.
At least nominally, the expert he brought in to chat with you may be part of it.
To coordinate the effort, he assigns an ''engagement manager'' -- not a partner

but an associate with three or four years' McKinsey experience. This is typical
ly someone who has survived the sweatshop conditions endured by rookies and prov
ed he can travel constantly, sleep little, perform brilliantly, and inspire the
immediate confidence of much older clients who might otherwise wonder why they'r
e paying so much money to wind up with a 29-year-old greenhorn MBA in their face
-- but who is also still busting his hump because he has only two or three year
s left to make partner. The other team members usually include two or three juni
or associates: a ''quant jock,'' who may do calculus in his head; a ''business a
nalyst,'' possibly a 3.9 engineering graduate from Duke who knows computers and
is willing to work 18 hours a day; and probably someone with knowledge of either
your industry or your company. Most of these folks physically move onto your pr
emises, where you provide them with an office, a phone, a secretary, and some lo
ckable files. When it gets down to work, the team avoids touchy-feely stuff and
tries to limit its analysis to ''the proof or disproof of things that matter,''
says Jim Balloun, a senior director in Atlanta. The entire process, he adds, is
''hypothesis-driven.'' A hypothesis could be, for example, ''Our Japanese compet
itors are dumping their office machine product. They can't possibly be selling i
t at a profit.'' Or ''People who sell big orders make more money for the company
.'' Your engagement team will test such hypotheses before it moves on to recomme
nding solutions. The team may interview suppliers all over the world and discove
r that, in fact, the Japanese are buying the power supply for their machine from
your own supplier for $60 less because you are employing outdated , purchasing
procedures. Or it may discover that, in fact, some of your largest sales orders
are your least profitable. The secret, says Balloun, ''is in the rigor. These th
ings are proved and disproved with facts, not opinions.'' All the while, of cour
se, the clock is running, usually at a rate of between $200,000 and $300,000 a m
onth plus all expenses. At project's end, the team -- after preparing senior man
agement ahead of time to avoid undue embarrassment -- will present its findings
in a standard dog-and-pony overhead-projector show, then leave behind its recomm
endations, usually in a bound blue book of 100 pages or so. ''They don't dance a
round. They're very direct and outspoken,'' says Vic Pelson, an executive VP at
AT&T. Pelson, who has used all the major-consulting firms, maintains that ''none
has been more helpful than McKinsey.'' If that sounds like the flow of holy wat
er, it is. AT&T and Pelson fit the profile of a satisfied McKinsey client -- a b
ig blue-chip company, a long-term relationship, and all sorts of intersecting so
cial and philanthropic connections that help solidify the good feeling. The succ
essful McKinsey consultant must strive to be very much a part of the elite corpo
rate world inhabited by his client. Every McKinsey partner of any weight is expe
cted to involve himself heavily in pro bono activities that put him in constant
contact with the top leadership of his community. Consider Ron Daniel's outsidethe-firm resume. He is a member of the Harvard Corp. and treasurer of the univer
sity. He is on the board of the Brookings Institution, and he has been an advise
r to Yale, Duke, and Stanford, as well as Harvard. Gluck is on New York Hospital
's board of governors. In Amsterdam, office manager and director Mickey Huibregt
sen is chairman of the Netherlands Olympic Committee. In Britain, Peter Foy is e
ngaged in an effort to convert the old Oxford jail into a new college at Oxford
University. In Atlanta, Jim Balloun will soon become chairman of the Woodruff Ar
ts Center. In Stockholm, office manager Christian Caspar is a member of the Roya
l Swedish Academy of Engineering Sciences. In Tokyo, director Kenichi Ohmae, whi
le not busy reforming Japanese politics, plays clarinet. These activities are op
enly part of McKinsey's relationship-driven approach to marketing -- an activity
that partners claim, with an absolutely straight face, The Firm never engages i
n. In fact, while McKinsey may shun direct solicitation of clients or cold calls
as tacky and ineffective, it is a marketing juggernaut -- albeit a low-key, tas
teful juggernaut. Example: McKinsey for years philosophically avoided touting it
s partners' specific expertise, taking the high-ground stance that its only spec
ialty was problem solving. As the world changed, though, clients began to balk a
t paying consultants to educate themselves on their particular industries. So ab
out 15 years ago, McKinsey decided to incorporate what it calls systematic knowl
edge building into its institutional portfolio. And today McKinsey positions its

elf as the repository of all business information and theory worth knowing. A fa
vorite line repeated within The Firm is that ''we do more research on business i
ssues than the business schools at Harvard, Stanford, and Wharton combined.'' Gl
uck estimates that McKinsey's annual expenditures on knowledge building top $50
million, much of it spent on conferences, research projects, and intrafirm commu
nication. McKinsey also runs what amounts to its own business press, churning ou
t, in addition to its widely followed McKinsey Quarterly, hundreds of pamphlets,
magazines, papers, and articles a year. Partners last year individually publish
ed a dozen books, many of the authors no doubt hoping to duplicate the publishin
g careers launched in the Eighties by two famous now-ex-McKinseyites from the Sa
n Francisco office: Tom Peters and Robert Waterman, co-authors of the astronomic
ally successful In Search of Excellence. Though Peters and Waterman left McKinse
y -- in a dispute partly over whether profits from their book should have gone t
o them individually or into the McKinsey pot -- The Firm's culture does make roo
m for a few media superstars such as Tokyo's Ken Ohmae, whose identity is closel
y linked to McKinsey's image in the important Japanese market. The postscript to
one of Ohmae's recent books, The Borderless World, shows just how highly The Fi
rm can regard itself. Ohmae, a nuclear engineer by training, closes his book wit
h a manifesto calling for a new world economic order based on something called a
n interlinked economy. The statement is signed by himself, Gluck, and Herbert He
nzler, the major-domo of McKinsey's German practice, and carries an earnest foot
note, delivered without a hint of self-consciousness: ''This statement, the prod
uct of many dinner conversations and debates, is one we each embrace and believe
to be the best possible course for all countries and governments to follow.'' W
ell, world, what are we waiting for? Let's get right on it. ''I think The Firm t
akes itself a little too seriously,'' says Waterman, who spent 21 years as a McK
insey consultant. ''For what it does, it's probably the best in the world. But i
n the grand scheme of things, maybe what McKinsey does just isn't as important a
s it thinks.'' After leaving, Waterman says he realized some things about his ye
ars at The Firm. ''McKinsey thinks it sells grand strategies and big ideas,'' he
says, ''when really its role is to keep management from doing a lot of dumb thi
ngs. They do great analysis, but it won't get your company to the top.'' The gen
esis of In Search of Excellence, he says, came from his and Peters's frustrating
realization that, as McKinsey consultants, they weren't working with a lot of t
he truly great, innovative organizations. ''We had gotten bored working for big,
okay companies that would pay big money, accept our recommendations, and then d
o a half-assed job of implementing them.'' But doesn't the McKinsey culture enco
urage consultants to speak up to clients? ''Yes,'' says Waterman, ''but they don
't pay you to lose clients.'' Which raises another question: If McKinsey is so g
reat, why have so many of its long-term, mainstream clients gone down the shoote
r? Specifically, McKinsey has taken a lot of heat for its heavy involvement with
the disastrous restructuring of General Motors in the early Eighties. In her bo
ok Rude Awakening: The Rise, Fall and Struggle for Recovery of General Motors, W
all Street analyst Maryann Keller asserts that many GM employees believed McKins
ey was a ''fly in the ointment of the reorganization, rather than an enabler.''
Officially, McKinsey has nothing to say about GM. The two subjects it categorica
lly refused to discuss for this article were anything relating to specific clien
ts, and anything about how it charges for its services (for more on that, see bo
x). But privately, several senior directors shared some thoughts on McKinsey's r
ole at the auto giant. They claim the situation was so hopeless -- and GM's mana
gement so unresponsive -- that senior consultants recommended more than once tha
t McKinsey withdraw from the engagement. But for whatever reasons, The Firm stay
ed the course. ''We told them like it was. We weren't passive at all. We told th
em to take their medicine,'' says one senior director. ''It's like being a docto
r. You do the best you can, but if the patient won't quit smoking, he still dies
. This is a problem the world over. Corporate executives are not risk takers. Th
ey don't see trouble clearly until they're going down the drain.'' As North Amer
ica chairman of The Firm's client impact committee, Pete Walker, a New York dire
ctor, oversees the constant evaluation of how much difference McKinsey's work ac
tually makes. It's a definite black mark for a consultant to bring in a lot of r

evenue but be unable to demonstrate a big financial benefit for clients. Says Wa
lker, with typical McKinsey humility: ''It's almost never that we fail because w
e come up with the wrong answer. We fail because we don't properly bring along m
anagement. And if a company just doesn't have the horses, there are limits to wh
at we can do.'' Satisfied clients appreciate McKinsey's concern for impact. ''Th
ey are very strong on adding more value to the bottom line than they cost,'' say
s Entergy's Lupberger. ''If they get behind on that, you can sense they really f
eel pressure from home.'' In truth, a McKinsey consultant feels pressure from ho
me on everything. This particular issue -- whether you're adding value to the bo
ttom line -- would come before Walker's committee, which then passes its finding
s along to the committees that select new partners and new directors, as well as
to those that rank existing partners to determine their compensation. A senior
partner on one of these personnel committees may devote as much as six weeks a y
ear to flying around the world evaluating other partners. The criteria for evalu
ation are essentially firm impact, personal impact, and client impact. ''It's a
rigorous, constant microscope that we have everybody under,'' says New York mana
ger Waite. ''It's impossible to feel secure here.'' Which committee one sits on,
or more important, chairs, is a not-so-subtle indication of where one stands in
The Firm. It would be highly unlikely for someone to be elected managing direct
or who isn't already a powerful committee chairman or major office manager. And
all committee chairmen are chosen by the managing director, who, in turn, serves
at the pleasure of the directors. Other than the governing shareholders committ
ee, the various personnel committees are traditionally the most prestigious sinc
e they, in effect, preside over The Firm's up-or-out policy, which accounts for
an attrition rate of about 17% a year. One of five consultants who join The Firm
goes on to become a partner; one of ten makes it to director. Some leave becaus
e they don't like it; others go because they're asked. ''We have a process desig
ned to produce a certain kind of person,'' says Gluck. ''To do that, we hire ten
times the number we need.'' Beyond the obvious sin of losing valuable business
-- which McKinsey barely admits to as a criterion -- numerous so-called value tr
ansgressions can bring down the ax, including a persistent lack of helpfulness t
o other partners or a self-promotion seen as too relentless. ''They may get arro
gant,'' says Gluck, ''or they may just not be good enough. But the main cause is
obsolescence. They don't spend enough time renewing themselves.'' Or they may m
ake mistakes. Says Waite: ''Everybody makes mistakes, and we know that. But if y
ou string a bunch together, that's no road to success.'' Or they may just get ti
red. The consensus inside The Firm is that a McKinsey consultant peaks somewhere
around age 45, he gives up weighty committee responsibilities by his early 50s,
and he must sell back his shares and settle into a reduced role by 60. When a p
artner's time comes, says Gluck, ''we say: We love you. We want to be your frien
d. We'll help you any way we can, but your partners don't think you're cutting i
t anymore.'' Gluck also admits that in recent years five partners have been dism
issed for violating The Firm's strict code of ethics involving such issues as co
nflict of interest in investments -- the best evidence of all, he says, that you
can trust McKinsey. Not all is peace and love within The Firm's family. Five ye
ars ago, 16 consultants left McKinsey's then 60-person Milan office, mostly in s
olidarity with a partner who had been forced out. ''We had a bad egg, and we too
k too long to get rid of him,'' says Gluck, who complains that even after the pa
rtner left ''the factionalism lingered.'' So much so that this year, when The Fi
rm decided to rehire an ex-partner in Milan, some 15 more people left. Gluck has
also learned the hard way that McKinsey's culture doesn't mix well with outside
cultures. In 1989 he attempted a wholesale acquisition of talent in the informa
tion technology field by buying a small New York company, Information Consulting
Group. ''It was really a nonevent,'' says Gluck of the $10 million acquisition.
''But you never saw such an uproar in The Firm. The organism tried to reject th
e transplant.'' Many of the ICG people have since left, though some have become
partners, and Gluck argues that the attrition rate from the acquisition wasn't m
uch higher than that of McKinsey overall. One theory as to why the McKinsey cult
ure normally functions so well comes from a man who has worked for several other
major consulting outfits as well as The Firm. ''McKinsey preconditions its cult

ure to work through its hiring practices,'' he says. ''Basically they hire the s
ame people over and over. At other consulting firms there's a lot more diversity
.'' In fact, the vast majority of those who run the firm are men who graduated n
ear the top of their class from one of seven major business schools -- Chicago,
Harvard, Stanford, MIT's Sloan, Northwestern's Kellogg, Pennsylvania's Wharton,
and Insead in France. Out of 465 partners, only 21 are women and just two are bl
ack; out of 151 directors, three are women. To which Ron Daniel, the former mana
ging director who has done as much as anyone to shape the modern McKinsey, repli
es, in effect, so what? ''The real competition out there isn't for clients, it's
for people,'' he says. ''And we look to hire people who are, first, very smart;
second, insecure and thus driven by their insecurity; and third, competitive. P
ut together 3,000 of these egocentric, task-oriented, achievement-oriented peopl
e, and it produces an atmosphere of something less than humility. Yes, it's elit
ist. But don't you think there has to be room somewhere in this politically corr
ect world for something like this?'' (A point of view even more revealing when y
ou consider that Daniel is one of the few senior McKinsey directors who is actua
lly a visible Democrat residing on the Upper West Side of Manhattan.) Nowadays,
the younger directors at The Firm -- men like 37-year-old Larry Kanarek, who man
ages the Washington, D.C., office -- aren't shy about saying they want McKinsey
to commit more seriously to diversity. Says he: ''We have to accelerate our driv
e to make this place more attractive for women and minorities, not only because
it's the right thing to do but out of self- interest. What are we doing to our c
ompetitive advantage if we preclude ourselves from 50% of the talent out there?'
' Recently, according to one partner, The Firm approached presidential first pal
Vernon Jordan for help in formulating a strategy for expansion into South Afric
a. He was friendly enough until he asked the inevitable question: ''How many bla
ck partners do you have?'' After hearing the paltry answer, he is said to have r
eplied, ''I'll try to help you, but for God's sake, man, if you want to do busin
ess in Africa get yourself some black partners.'' Along with questions of gender
and racial diversity, some high-profile Firm directors are outspoken in their b
elief that, given the increasing demand for help in revolutionizing corporate cu
ltures, McKinsey continues to overemphasize the ''quantitative'' in its hiring.
In other words, ''Do you know how many service stations there are in Chicago?''
-- a traditional question somehow designed to demonstrate a candidate's problemsolving abilities -- may no longer be the most suitable query for potential hire
s. ''At McKinsey, hard guys are better,'' says longtime director Jon Katzenbach.
''Issues like organization and leadership are thought of as soft. Unfortunately
, that's where client demand is increasing. We have major corporations asking us
to help them change their culture; we need to make major changes in our own cul
ture.'' McKinsey's dilemma, says Katzenbach, ''is that we're really good at tapp
ing into intellectual smarts, as measured in quantitative and conceptual ways. B
ut in our search for bright guys, we throw out a lot of creative ones. We've got
to be less cookie-cutter in our hiring.'' A related dilemma: Traditionally, McK
insey has called itself a top- management consultant, steering away from what is
dubbed ''implementation,'' the actual putting into place of a consultant's reco
mmendations. This sort of work was viewed within The Firm as the proper venue fo
r more ''proletarian'' consultants such as Arthur Andersen or A.T. Kearney. No l
onger. Says director Chuck Farr: ''Our value added today has to be that we make
things happen.''
SENSIBLE ENOUGH, but a drastic departure for McKinsey. Says Steingraber of A.T.
Kearney: ''All of a sudden we see evidence McKinsey is holding itself out as wil
ling to work on implementation. But if you visit their clients, and go down a le
vel or two below the CEO, you'll find they get black marks in this area. They're
not good at achieving buy-in from the ranks. That arrogance they carry stirs up
a lot of resentment.'' The men from McKinsey may be arrogant, but they've been
badly whipped once before -- in the early Seventies -- and the senior directors
haven't forgotten the experience. In those days the upstart Boston Consulting Gr
oup began boldly marketing corporate strategy ''products'' with scintillating na
mes such as the growth-share matrix and the experience curve. McKinsey, which ph
ilosophically eschews ''flavor-of-the-month'' consulting ideas, stuck to its pos

ition of ^ merely marketing its allegedly superior intelligence. The Firm wound
up watching BCG eat not only its lunch but its breakfast and dinner as well. All
the partners still around from those days admit to feeling seriously threatened
by the loss of business. ''We didn't renew our intellectual capital, we came to
market with a dated product, and we got our ass handed to us,'' is an accurate
quote synthesized from the collective comments of every single survivor from tha
t era. ''Our young directors have never experienced anything humbling like that.
We hope they won't have to.'' Some within McKinsey, like Katzenbach, believe th
at to avoid such a fate it may be necessary to start marketing ''product'' and t
ry to sell the next big idea. ''My client is interested in a new flavor-of-the-m
onth concept on high- performance teams,'' he says. ''I can sell him. The issue
is: How do I sell my partners -- the classic skeptics?'' Mickey Huibregtsen of t
he Amsterdam office defends McKinsey's bias against such concepts: ''A lot of us
feel that if the only tool you have is a hammer, everything starts looking like
a nail. We are committed to knowledge building, but we reject the standard idea
.'' For some time to come -- both before and after next spring's election -- the
halls of McKinsey will be reverberating worldwide with debate on such issues. A
nd as choices are made, and the McKinsey of the next century begins to unfold, n
o one will be paying closer attention than the man who set it all in motion more
than half a century ago: Marvin Bower. Normally, the history of a hoary institu
tion like McKinsey resides in a body of mythology passed down by several generat
ions, carefully sculpted to invoke the spirit of some legendary founder. But in
McKinsey's case, a quick trip to a retirement community in sunny Boca Raton, Flo
rida, miraculously positions you face to face with the firm's fountainhead. At a
ge 90 -- and still very clear-minded -- firm patriarch Marvin Bower is the livin
g, primary history of McKinsey & Co. And much of what McKinsey is today harks ba
ck to the early 1930s, when Bower -- armed with both a law degree and an MBA fro
m Harvard -- signed on with a hard-selling lawyer/ CPA/University of Chicago man
agement professor named James Oscar McKinsey. On their office door, ''Mac'' McKi
nsey and his five partners -- one of whom was A.T. ''Tom'' Kearney -- called the
mselves ''consultants and engineers,'' but Bower remembers that in those days th
e firm mostly audited its clients' books. Mac McKinsey, however, was keen on the
emerging science of management, and -- only a few years after he hired Bower an
d adopted him as his protege -- McKinsey left the firm to accept a temporary pos
ition running and restructuring Marshall Field & Co. Marvin Bower stayed on and
ran the New York office of the promising little consultancy until 1937, when McK
insey surprised everyone by dying of pneumonia at 48. In the aftermath, Bower an
d A.T. Kearney disagreed over how to run the firm. In 1939 the two finally split
up, with Kearney keeping the Chicago office and eventually naming it for himsel
f -- A.T. Kearney & Co. -- and Bower naming the New York firm for his departed m
entor -- McKinsey & Co. Like everything that Bower does, the tribute also had a
practical purpose. ''I had seen the problems that having your name on the door c
aused Mac,'' Bower says. ''A client would come in and say, 'We assume Mr. McKins
ey will be working on this study personally.' I didn't want anybody dictating to
me how I was going to spend my time. So I had no interest in calling it Bower &
Co., or even McKinsey-Bower. I wanted my freedom.'' Bower's ''big idea'' -- lik
e most notions that create or transform entire industries -- was simple, one he
still articulates in a short sentence: ''My vision was to provide advice on mana
ging to top executives and to do it with the professional standards of a leading
law firm.'' At a time when the image of management consulting was just barely a
bove that of a racket, Bower, inspired by a brief stint at what is now the law f
irm of Jones Day Reavis & Pogue in his hometown of Cleveland, believed McKinsey
could elevate it. Not unlike other great business culture builders -- IBM founde
r Tom Watson or Wal-Mart's Sam Walton, to name two -- Bower laid down a short se
t of principles, which, when recited to outsiders, sound a bit like the Boy Scou
t Oath. But also like those other two titans, Bower pounded his principles home
so hard, so often, so repetitively, that they actually did finally define the in
stitution. It is from them that the holy water flows. In short, the rules are th
ese: A McKinsey consultant is supposed to put the interests of his client ahead
of increasing The Firm's revenues; he should keep his mouth shut about his clien

t's affairs; he should tell the truth and not be afraid to challenge a client's
opinion; and he should only agree to perform work that he feels is both necessar
y and something McKinsey can do well. Along with the professional code, Bower in
sisted on professional, as opposed to business, language, which is why McKinsey
is always The Firm, never the company; jobs are ''engagements''; and The Firm ha
s a ''practice,'' not a business. Just as IBM's Watson had a thing for white shi
rts, Bower had one for hats, insisting that every McKinsey consultant wear one - except in San Francisco, where executives didn't wear them. He also mandated t
hat everyone wear long socks because he thought it inappropriate to show ''raw f
lesh'' in business settings. ''Everyone kidded me about it,'' he says, ''but the
y did it.'' Incredibly, the hat rule lived until the mid-1960s, when the men fro
m McKinsey made a nod toward flower power and declared a permanent state of hatl
essness. They still wear long socks. Another fascinating Bowerism that has stuck
at McKinsey is the cultural attitude toward the public discussion of money. It
simply isn't done. Even though those who knew him when describe Bower as among '
'the most client- hungry consultants who ever lived,'' he vigorously maintained
-- and still does today -- that ''if we do the right work for the client, we'll
make more money if we don't think about it.''
WHILE SOME maintain that supersalesman Bower's anti-greed aphorisms always conta
ined a certain amount of hypocrisy, he did perform one act in the history of The
Firm that permanently set him -- and McKinsey -- apart from its competitors. In
an era when other consultants were taking themselves public, or selling out to
larger companies, McKinsey was basically Bower's to sell, which he could easily
have done at some huge multiple of earnings. Instead, around the time he turned
60, in 1963, Bower sold his shares back to The Firm for book value, setting an e
xample for his partners to follow. It was a defining moment in The Firm's cultur
e. Bower still has strong opinions on several major issues facing today's McKins
ey. He agrees with those who say The Firm overrates the analytical and underrate
s the intuitive in its hiring. And he comes down squarely on the side of those w
ho believe McKinsey must remain a self-governing partnership, going so far as to
add: ''Business should move in our direction. Command and control is out of dat
e because it doesn't involve people, and you can't run a business today unless a
ll the people are involved in thinking about serving the customer.'' Surprisingl
y, when asked to look back and describe which period in McKinsey's history has w
orried him most, Bower replies, ''Now.'' It is greed that he has on his mind. ''
Have we grown too fast?'' he asks. ''Have we begun to think too much about money
because we've got so much coming in?'' The danger, according to Bower, is this:
''People who make a lot of money get to thinking about having four homes to kee
p up, or maybe they want to buy a yacht. If an individual consultant has to make
a professional decision on the spot and he has too many obligations, I worry th
at he is likely to make a decision to attract a client who shouldn't be attracte
d.'' Greed has had other consequences, according to some former McKinsey partner
s who left The Firm disenchanted. The seeds of internal discontent were sown in
the early Eighties when, they say, McKinsey decided to make a big distinction be
tween partners and directors. ''The message came in the early 1980s, when the di
rectors all went off and partied with their wives, and the partners were sent st
ag to the Dutch coast for an all-training meeting,'' says one former partner. ''
They obviously decided that to keep that generation of directors around, they ha
d to pay them more to keep up with Wall Street and corporate America. Those were
the guys who built the firm that's there today, and they've done a great job. B
ut when they moved the carrot of director ahead a few years, a whole generation
of younger partners left. And the younger partners who stayed weren't necessaril
y the best.'' These issues are exacerbated, ex-McKinseyites say, because the rat
io of the highest paid to the lowest paid has risen from 20 to 1 in the past to
50 to 1 today. The top job -- Gluck's -- is believed by most in the industry to
pay around $3.5 million, with senior directors earning between $2 million to $2.
5 million. A junior director earns in the neighborhood of $800,000 a year, and a
junior partner around a quarter of a million. So far, McKinsey's very lucrative
economic engine has been driven by rapid growth. But competitors say The Firm h
as already realized that, with a revenue base now in excess of a billion dollars

, it can hardly expect to keep tripling in size every decade. Its only choice, g
oes the argument they use when recruiting against McKinsey at the top B-schools,
is to promote fewer partners and directors, thus making The Firm less attractiv
e for up-and-coming young consultants.
Such talk makes Gluck furious. ''Even if our economics stay exactly the ; same,
with no growth,'' he says, ''the economic opportunity for any young partner ente
ring The Firm today is better than it's ever been before.'' Jim Balloun, who is
scheduled to make a speech at the upcoming directors' conference on the future o
f The Firm, thinks the answer lies in hiring fewer associates to begin with. ''W
e already know our clients would like more contact with the partners. They've to
ld us that,'' he says. ''So why not reduce the ratio of associates to partner to
3 to 1 from 6 to 1?'' Says another observer, who worked at McKinsey and two oth
er consulting firms: ''I think the culture there is pretty fragile today. The qu
estion is whether the money is the mortar that holds the culture together, or vi
ce versa.''
BY ALL appearances, McKinsey's dilemma is just another classic management challe
nge, one that calls for rigorous analysis and has high stakes riding on the outc
ome. Rest assured of this: If the men from McKinsey can't solve it, it won't be
because they can't afford it, or because they haven't had enough experience, or
because they aren't smart enough. It will be, more likely, because of what Marvi
n Bower has feared ever since he got into the consulting racket: because greed r
ears its ugly head.