McKinsey Partners Vote Out Leader in Wake of Opioid Settlement, Other Crises

Sneader, a 54-year-old Scotsman and McKinsey veteran for more than three decades, has spent much of his management trying to move the company’s previous controversies around McKinsey’s previous work with clients, including this month’s $ 573 million deal with states about their work by advising the manufacturer of OxyContin Purdue Pharma LP and other drug manufacturers to aggressively market opioid analgesics.

The company was also scrutinized for its work with electronic cigarette maker Juul, as well as with some autocratic foreign governments, including Saudi Arabia. In December, an agreement was reached with Justice Department guards on how the company reveals potential conflicts of interest. In both opioid and disclosure agreements, McKinsey has admitted no wrongdoing.

Much of Sneader’s response to these crises meant shifting McKinsey from a culture that relied on judgments from individual partners to one based on systems, rules and processes, fueling disagreement among its top echelons, people familiar with the matter say. Its partners have historically enjoyed wide latitude about their work and customers. McKinsey declined to make Sneader available for an interview.

Historically, McKinsey’s business model has depended on “hiring the best people to do the most important work for a premium price,” says a person who has spent years at the company. If a potential customer was not considered important enough or did not contribute to a greater good, the company would be rejected. “It is essential for your ethos to refuse work,” said the person.

But in the years before Sneader’s rise, McKinsey undertook a rapid expansion. The company looked for new ways to grow and, with a decentralized management structure, there were few protections to prevent an ambitious partner from hiring profitable, though problematic, customers, the person said.

Under Sneader, the company’s main partners had to approve controversial new clients, and McKinsey said it would not serve defense, intelligence, justice or policing institutions in undemocratic countries. This made it potentially more difficult for non-American partners to take over some customers and was seen as a centralization of power away from partners, according to people familiar with the operations. In an interview with the Financial Times published this week, Sneader said the company’s customer service risk committee, which evaluates any new work that might raise flags, analyzed more than 2,000 projects in 2020.

“He certainly introduced high-risk protocols; higher levels of due diligence; red lines about serving the public sector in some countries, “said the person who spent years at the company, adding that partners in the Sneader camp believed that” it was not feasible to go back to an era where you can just do what you want or you can’t needs to be governed by a compliance regime. “

The company’s recent opioid deal also drew opposition from some non-American partners who were more willing to fight, people familiar with the matter said. Mr. Sneader’s letter to employees about the deal was blunt in criticizing the company’s behavior, saying that McKinsey fell short of its standards and “did not adequately acknowledge the epidemic that was unfolding in our communities or the terrible impact of misuse and opioid addiction, and so I feel deeply. “

Some partners thought the language was too strong and that McKinsey’s advice to customers was legal and given in good faith, people familiar with the matter said.

The shift in power highlights the complexity of running a global partnership company. As a global managing partner, Mr. Sneader was more first among equals than the chief executive, and his reforms were approved by senior partners. But when he ran for re-election for another three-year term, there were enough dissidents to keep him out of the final vote.

Failing to reach the second and final round of voting leaves two other senior partners in the race to succeed Sneader: Bob Sternfels and Sven Smit, senior partners at McKinsey’s San Francisco and Amsterdam offices, respectively.

McKinsey’s senior partners will decide whether Sternfels or Smit will replace Sneader in a final voting round, due in March, people close to the matter said. Mr. Sternfels is seen as a protégé of Dominic Barton, who ran McKinsey from 2009 to 2018 and was credited with accelerating his growth.

As part of the process, senior members nominate several candidates and vote in the first round. The two candidates receiving the most votes move on to the final round.

Among the latent issues Sneader dealt with was McKinsey’s work with electronic cigarette maker Juul. In 2019, a former Juul employee said in a lawsuit that although the company said it was withdrawing flavored products from the market, McKinsey advised it to sell mint flavored nicotine capsules. The New York Times and ProPublica reported that year that McKinsey also helped the US Department of Immigration and Customs with changes, including cutting food and medical expenses for detainees and accelerating deportations. In addition to the Saudi government, McKinsey worked for the Chinese government and held a retreat four miles from a camp where Uighurs, members of a Muslim minority, were interned, the Times reported.

McKinsey also played a central role in the rise of Saudi Crown Prince Mohammed bin Salman. In 2015, Prince Mohammed, son of the newly crowned king, did not have a direct route to the throne. His father, King Salman, commissioned the prince for economic reforms, and McKinsey was involved in devising a strategy to divert the kingdom’s economy from its dependence on oil.

In late 2015, the company’s research arm, the McKinsey Global Institute, released a public report called “Saudi Arabia Beyond Oil” that said “we see a real opportunity for the Kingdom to inject new dynamism into the economy through productivity and investment – led transformation. ”

The report gave McKinsey the endorsement of the strategy that Prince Mohammed was pursuing at a time when he sought approval from foreign political and business leaders to help legitimize his claim for a greater role in the administration of the kingdom. His father, the king, gave him additional responsibilities and, in 2017, the prince arrested his cousin, who was then the crown prince, and assumed the title himself. Since then, the Crown Prince, known as MBS, has been the daily ruler of the kingdom. He presided over economic reforms, as well as a brutal bombing campaign in Yemen that led to a humanitarian crisis, arrests of many of his critics and a team of men who murdered the dissident writer Jamal Khashoggi in 2018.

A major project the company recently worked on was the prince’s plan for a city built from scratch called Neom on the remote west coast of Saudi Arabia. The prince envisioned a technology-driven metropolis, populated by the world’s elites, full of flying robot taxis and an automated police force. McKinsey and other consulting firms were hired to help with the plan. In thousands of pages of internal planning reports reviewed by the Journal, McKinsey detailed using a “13-pillar habitability framework” and big data to quantify how pleasant it would be to live in Neom. The Saudi government started to remove the local population from the land to build the city.

Corrections and amplifications
Bob Sternfels and Sven Smit are senior partners at McKinsey’s San Francisco and Amsterdam offices, respectively. An earlier version of this article incorrectly stated that they were the heads of these offices. (Corrected on February 24)

Write to Justin Scheck at [email protected] and Vanessa Fuhrmans at [email protected]