Applying Ethical Frameworks at McKinsey & Company
The Price of Doing Good: Consequences of Ethical Decision Making
Consider the following two scenarios:
Scenario 1:
James works in the accounting department of a large firm. While going over the books for the past
several months, James notices that someone has altered the figures to increase earnings by several
thousands of dollars. He suspects that the errors, which are in the company�s favor, are too consistent
to have been honest mistakes. He knows that he should report his findings through the company�s
ethics hotline. However, he worries that doing so will jeopardize his security and reputation with the
company.
Scenario 2:
Mary owns a small toy manufacturing company. One of her employees has noticed that one of the pieces
on the most popular toy can detach from the toy. This could pose a potential choking hazard to young
children who play with the toy. No customers have yet reported problems with the toy. Mary wonders if
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she should report the potential hazard before anyone gets hurt. However, the recall would cost her
company money and result in loss of sales during the busy Christmas season.
As the scenarios illustrate, making ethical decisions often requires a trade-off for an organization or
individual. After a scandal results from ethical wrongdoing, the proper course of action seems clear. Even
so, organizations continue to struggle with making ethical decisions on a day-to-day basis as they weigh
the cost of making such decisions.
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Applying Ethical Frameworks at McKinsey & Company
Introduction
McKinsey is a global consulting firm that was founded about 87 years ago and has
enjoyed a growing reputation for high ethical standards based on its culture of trust and values
that advocate for client confidences, and always having the best interests of the clients at heart.
However, the company faced a public scandal involving some of its most senior directors that
rocked the organization, including all its 18,500 employees and over 1,400 partners across the
globe who wondered what could have gone wrong at the firm (Raghavan, 2014). The first
scandal involved Mr. Anil Kumar one of McKinsey’s Directors who pleaded guilty to charges of
insider trading in 2010 after which he also confessed to Giving secrets he accessed while doing
his job to Raj Rajaratnam of the Galleon Group hedge. The next scandal involved Rajat Gupta a
former managing director at McKinsey who also gave secrets to Mr. Rajaratnam, although at the
time he was a board member at Goldman Sachs (Raghavan, 2014). These two scandals were
extremely public and significantly damaged the good reputation of McKinsey in the eyes of the
public and most importantly its clients. Once Mr. Dominic Barton was appointed as the global
managing director of McKinsey & Company, he made it a personal mission to transform the
organization’s culture so as to prevent any such future scandals. The strategy he undertook is
critically analyzed below.
Recognizing the Ethical Issue
The very first step that McKinsey took under the leadership of Mr. Barton was to
recognize that an ethical issue did exist. Instead of blaming others or the individual responsible
for the ethical breaches, the company shouldered the blame and took action to prevent future
breaches (Kotalik, et al. 2014). When Dominic took over the global company, everyone at the
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firm was in a state of shock as the older members asked themselves how such a thing could
happen to the company they knew, worked for, and were dedicated to. On the other hand, the
younger members were wondering what mess they had gotten themselves into by deciding to
build their careers at McKinsey, yet all signs were indicating that there was a major problem at
the firm (Raghavan, 2014). However, with a cool head and a mission to transform the culture if
the organization and restore the integrity that the firm was known for, Mr. Barton knew that he
would have to take drastic measures to create change. Barton clearly saw that the organizations
values were not the problem and that the problem lay in the enforcement of the ethics code that
had guided the firm for decades (Raghavan, 2014). Once he had identified the problem, he set
out to implement strategies that would eliminate the problem now and in future.
Putting Safeguards in Place
After identifying the key ethical issues that caused the two scandals, Barton realized that
there was a weakness in the implementation of the ethics code that had guided the company since
its inception, and he decided to put safeguards in place to protect the company (Jackson, Wood,
& Zboja, 2013). One of the first safeguards he implemented was a personal investment policy
that restricted the firm’s employees and members of their families from trading in the securities
of any of its clients. The next safeguard was a rule that required all company consultants to fill
an online questionnaire about crucial topics such as investments and ethics, which are vital to the
operations of the company. These two initiatives were met with significant resistance from the
company’s European partners who had never been restricted from trading in the stocks of any
client so long as they did not deal with the client directly (Raghavan, 2014). However, the new
policies were received gladly by the company’s American investors who had witnessed the arrest
of Mr. Kumar in horror, and they agreed that changes were necessary to avoid any such things
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happening in future. He also created a department of professional standards that would be
responsible for ensuring that all employees adhere to the honor-system and values-based ethics
code that was the foundation of the company.
Building a robust self-sustaining ethics infrastructure
In order for an organization to have a robust ethics system, it is not enough that the
company has a written code of ethics, but just as important is that the company appoints a
committee of independent non-executive directors who are not part of its board. The committee
will be responsible for ensuring that the code of ethics is adhered to throughout the organization
and that every employee is in compliance with the ethics code (Morales-Sánchez & Cabello-
Medina, 2013). Barton understood this, crucial ethics principles applied it as part of his reform
strategy by getting the approval of the Shareholders Council, which acts as the company’s board
to implement the new policies he had created. He took a further step by redefining the role of the
company’s disciplinary panel and making its activities very public, which caused quite a stir
within the organization as employees were openly shamed and punished while others were even
dismissed (Raghavan, 2014). All these policies are self-sustaining and as long as they remain in
place and are consistently implemented, McKinsey can look forward to better days without
drastic ethical scandals. However, for the self-sustaining ethics system to survive and thrive it
has to be supported by the top management as well as all the staff so that it can become part of
their everyday culture to nip any ethics violations in the bud long before they become toxic to the
organization.
Talking with Employees at all Levels often
In the 1980s, a researcher named Tom Peters championed the idea of managing
employees by walking around, which could not be more relevant in modern organizations today,
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just as it was in those years. By walking and around and talking to employees managers and
supervisors can communicate to employees what is expected of them and how they are doing in
terms of achieving the expectations (Craft, 2013). These informal interactions are crucial as they
provide an opportunity for managers to interact with employees in an informal setting where the
employee is comfortable and can freely air their views and concerns about ethics and other work
issues (Craft, 2013). In the case of McKinsey, such an approach might prove quite difficult to
implement given that they have a global workforce distributed across the whole world, but the
firm has found innovative ways to implement this strategy. One such strategy was the
introduction of the Survey of Leadership initiative, which was launched in 2011 that allows
subordinates to anonymously submit their appraisals of the behaviors of their leaders, who are
the senior partners (Raghavan, 2014). This initiative was criticized by many senior partners who
thought that their subordinates would use it to report frivolous issues that would tarnish the
names of some partners, such as incidents at the staff cafeteria. However, the system was
implemented and majority of the reviews are actually positive with only eight percent being
negative.
Choosing to Live the Corporate Values and Opening Communication Channels
It is crucial that every organization realizes that no ethics or compliance manual can
completely cover all the ethical dilemmas that employees face on a daily basis, which makes it
crucial for organizations to equip their employees with corporate values that shall guide them in
times of uncertainty (Thiel, Bagdasarov, Harkrider, Johnson & Mumford, 2012). By ensuring
that all employees understand the driving values of the organization that live through every
decision made at all levels of the organization, the leaders can have the peace of mind that comes
with knowing that even when one is not there to provide specific guidance regarding tricky
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decisions, employees will still make the right decisions based on those values. Barton has taken
the same approach at McKinsey by inspiring the organizations values in all employees through
various methods such as the orientation process where employees are tested on their
understanding of the firm’s code of ethics using hypothetical situation. Another indicator of how
Barton impacts McKinsey’s values on employees is through his talks to newly recruited
employees where he shows them how important the company’s values are in their daily
operations (Raghavan, 2014). When speaking to new consultants Barton makes it his goal to
stress the importance of looking at ethics broadly not just in form of specific examples, but more
importantly he shows them how they should always use values in making all their decisions.
Conclusion
In conclusion, McKinsey is an appropriate example of how an organization can recover
from ethical scandals and implement strategies to protect the organization from any future ethical
debacles, while enhancing the ethics culture within the entire organization. The strategies
implemented by McKinsey under the leadership of Dominic Barton were appropriate for the
company, especially in the consulting industry where ethics is vital for success. However, it is
important that all firms that have not yet implemented effective ethics infrastructure do so
immediately given the crucial role that ethics plays in the corporate culture of most
organizations. As much as all the strategies analyzed above are crucial to all organization, I
believe that the most important of all of them is that ethics should be a part of an organization’s
culture and should be reflected in all its values.
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References
Craft, J. (2013). A Review of the Empirical Ethical Decision-Making Literature: 2004-2011.
Journal Of Business Ethics, 117(2), 221-259.
Jackson, R., Wood, C., & Zboja, J. (2013). The Dissolution of Ethical Decision-Making in
Organizations: A Comprehensive Review and Model. Journal Of Business Ethics,
116(2), 233-250.
Kotalik, J., et al. (2014). Framework for Ethical Decision-Making Based on Mission, Vision and
Values of the Institution. HEC Forum, 26(2), 125-133.
Morales-Sánchez, R., & Cabello-Medina, C. (2013). The Role of Four Universal Moral
Competencies in Ethical Decision-Making. Journal Of Business Ethics, 116(4), 717-734.
Raghavan, A. (2014, January 11). In scandal’s wake, McKinsey seeks culture shift.
