A blockbuster exposé on federal immigration policy and consultants at McKinsey & Company has suddenly bumped the giant consultancy industry onto America’s political center stage.
The New York Times and Pro Publica earlier this week revealed that the Trump administration’s Immigration and Customs Enforcement agency — the notorious ICE — has shelled out many multiple millions to McKinsey for help on implementing the White House border offensive.
McKinsey has pushed, the news reports indicate, recommendations that risk “jeopardizing the health and safety” of detainees, and agency staffers who’ve objected to these proposed cuts in food and medical care have found McKinsey complaining to ICE management about them.
These revelations on McKinsey’s immigration role have, in turn, raised more questions about the McKinsey consulting that White House hopeful “Mayor Pete” Buttigieg performed back a decade ago. Buttigieg, a New York Times editorial maintains, now “needs to explain what he did at McKinsey.”
We all ought to be welcoming this new attention on the world of big-time consulting. The furor just might end up demystifying how high-flying consultants actually operate: They make their fortunes, as economist Matt Stoller quips, getting major institutions “to pay a large amount of money for fairly pedestrian advice.”
How large? One major McKinsey competitor, Stoller points out, charges the government over $33,000 a week for the time of recent college grads working as consulting contractors. McKinsey charges over $56,000, the equivalent of nearly $3 million a year.
Newly minted consultants at McKinsey don’t, of course, see anything close to this $3 million in their paychecks. But they do make what most of us ordinary mortals would consider big money all the same. Starting salaries for MBAs at top-tier consultancies like McKinsey and Deloitte currently average $149,000, with a $25,000 signing bonus and annual performance bonuses that average $37,000.
The really big bucks go to consultancy senior partners. These fortunate souls routinely grab base salaries that hover between $500,000 and $650,000 and collect up to nearly $5 million more in bonus.
Top consultancy execs are now lording over an industry that’s taking in some $240 billion a year. The obvious question: Why are government agencies, big nonprofits, and major corporations spending so freely to keep McKinsey and friends so flush?
One answer: The consultancies have a simple story to tell. We have, they tell prospective clients, special gifts that make us indispensable. We hire only the best and brightest. We’ve spent decades developing specific strategies for confronting intractable problems. We can see solutions others can’t. We can make you successful.
Consultancies certainly do have some valuable expertise to offer. But the ICE scandal once again illustrates that the consultancy industry may excel best at telling their executive clients what they want to hear, even if what those executives want to hear might endanger society at large — or even their enterprise’s own long-term interests.
We can see this dynamic most vividly at play within Corporate America, where “invoking the name McKinsey as a rubber stamp for self-serving corner-office decision-making,” as business journalist Duff McDonald puts it, has become “a long corporate tradition.”
This tradition has proven incredibly lucrative for both top execs in consulting and top execs in Corporate America. And that reality brings us to a fascinating contradiction: The rationale for the spectacular growth in the highly compensated work consultancies perform directly undercuts the rationale for the spectacular growth in overall U.S. corporate executive compensation.
How so? Let’s look at the numbers.
Before the 1980s, the consultancy industry operated at the margins. None of today’s most widely celebrated consultancies — outfits like McKinsey, Bain, and the Boston Consulting Group — pulled in even a couple hundred million in revenue. By the early years of the 21st century, these firms had all passed the billion-dollar revenue bar. This year, McKinsey will harvest nearly $9 billion from its consulting, the Boston Consulting Group over $6 billion, and Bain just shy of $4 billion.
The same trend line shows up in Corporate America’s CEO compensation. Since the 1970s, the Economic Policy Institute details, major CEO pay has multiplied over 15-fold. The gap between CEO and average worker pay has widened from a 20:1 to a 300:1 ratio.
The rationale for these new-found CEO fortunes? Running major corporations takes incredible intelligence and skills, cheerleaders for top execs assure us, and individuals who have those talents don’t grow on trees. So corporations will naturally pay whatever the market demands for execs who can take on — and triumph over — the toughest challenges that may come their way.
The rationale for the massive rise in consultancy industry revenues? Left to their own devices, corporations and other major institutions don’t have a clue on how to solve the most difficult challenges they confront. They desperately need the intelligence and moxie that only the high-powered experts in consultant land have the capacity to provide.
Either of these two rationales could conceivably be true. But both cannot.
If consultancies fully deserve awesomely big bucks for the services they provide, then top execs cannot possibly deserve awesomely big bucks for the services they provide. Why should big-time execs get massive millions, after all, for hiring consultants to tell them what to do?
And vice-versa. Why would corporations be spending big bucks on consultants if their highly paid CEOs actually brought into corporate executive suites all the amazingly rare talents that the apologists for contemporary CEO compensation insist these execs do bring in?
In fact, neither big-time consultancies nor big-time corporate execs deserve their staggeringly excessive rewards. They’re both scamming the rest of us. One day we’ll wise up. And we won’t need any consultant help to do the wising.
Sam Pizzigati co-edits Inequality.org. His recent books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.