Value For Money. But For Whom?

McKinsey & Company, the world’s premier consulting firm, will pay nearly $600 million to settle claims by U.S. states relating to McKinsey’s work for opioid manufacturers and distributors. This seems like a lot. It may represent value for money. But for whom?

McKinsey’s Seizes First-Mover Advantage

First Nationwide Settlement

McKinsey’s settlement comprises 47 states, four U.S. territories, and the District of Columbia. McKinsey separately settled with two other states. Nevada remains the lone hold-out, with Vegas bookies laying favorable odds on it settling, too.

States have been negotiating opioid-related claims against various parties since 2019. McKinsey’s nationwide settlement marks a first. McKinsey has also begun cooperating with government agencies suing companies up and down the opioid supply chain.

McKinsey’s settlement and cooperation have upped the pressure on four drug makers and distributors to settle claims in the range of $26 billion.

By settling first and giving states’ attorneys general leverage against other parties, McKinsey might have swung a better deal for itself.

Favorable Non-Monetary Terms and Treatment

The settlement spares McKinsey from civil suits from the states — without requiring McKinsey to admit wrongdoing.

Kevin Sneader, McKinsey’s global managing partner, issued the kind of mea non-culpa that readers might recall from Arthur Andersen’s pre-Enron days: “While our past work with opioid manufacturers was lawful and never intended to do harm, we have always held ourselves to a higher bar.”

Other terms, such as turning over opioid-related documentation and refraining from future opioid-related consulting, may have represented relatively cheap giveaways. Much of such documentation would have come to light in third-party lawsuits against McKinsey clients. So, immediate release earns McKinsey brownie points for cooperating, while matching Machiavelli’s maxim that bad news should be released all at once.

Similarly, abjuring further opioid work resembles an ex-spouse from a disastrous marriage vowing never again to date his/her ex-spouse.

At the end of the day, McKinsey got what it most wanted and needed: absolution. In a memorandum to staff and alumni, Sneader noted in particular: “the State Attorneys General importantly acknowledged our ‘“good faith and responsible corporate citizenship.’”

This message does not equate to spiking the ball in the end zone; but, it suggests that from a public-relations standpoint, McKinsey has largely put the opioid issue behind it.

Value for Money? For Whom?

From McKinsey’s Perspective

Of course, $573 million still represents a lot of money. Compare this to the $750 million Arthur Andersen offered to settle felony charges relating to Enron.

Like Andersen, McKinsey is a global partnership. So, partner-managers will personally pay the price. Contrast this situation to any number of corporate scandals which leave the shareholders paying for the misdeeds of inept or corrupt directors and officers.

McKinsey has annual revenues of approximately $10.5 billion, and a gross margin before partner draw of approximately 40-50%. By these numbers, a $600 million settlement equates to 10-15% of annual partner draw.

That’s a sizable bite for actions that were “lawful and never intended to do harm.” But, in light of litigation risks and potential reputational damage, the settlement looks like value for money.

From The States’ Attorneys General Perspective

Various state attorneys general trumpeted their success in wringing millions of dollars from McKinsey. Ostensibily, the money will alleviate some of the costs and suffering arising from over-prescription of opioids.

The states attorneys general seem happy. They credit themselves directly for the settlement, indirectly credit themselves for the benefits settlement payments will produce, and train their sights on bigger and even-deeper-pocketed game.

From The Injured’s Perspective

Mention of costs and suffering calls to mind a third perspective, that of the injured. These include the dead and addicted, their families and communities, and the taxpayers who foot the bill.

In their eyes, how do the settlement numbers stack up?

For a comparable situation, look at the Boeing 737 MAX. Boeing paid only $243.6 million in fines for criminal behavior. At the same time, however, Boeing also paid $1.7 billion to airlines whose 737 MAXes were grounded, as well as $500 million to a fund for the families of crash victims.

This $500 million fund covers 346 fatalities from two 737 MAX crashes. Opioid-overdose deaths since 1999, by contrast, number approximately 500,000.

Obviously, responsibility — legal and/or moral — for these deaths, does not lie solely with McKinsey. What we have, though, is the flipside of the typical scandal. Here, the payor is owner-managed, while representatives (attorneys general) act on behalf of the injured (deceased/addicts, families/communities, and taxpayers).

As with any typical corporate scandal, how certain are we that the representatives have done right by the people they represent?

McKinsey seems to have come out OK.

The states’ attorneys general seem to have come out OK.

But did the injured get value for money?

One wonders…

#therightwaytowin