The making of the firm

An extract from Duff McDonald's book on McKinsey & Co titled The Firm

Published 8 years ago on Nov 14, 2015 5 minutes Read

If James McKinsey invented the idea of strategic planning, his successor, Marvin Bower, perfected it by turning the idea into a profession. Bower was obsessed about making sure he and his peers would not be dismissed as corporate parasites and would enjoy a respect similar to other early twentieth-century professionals like doctors, lawyers, engineers, and ministers. But for that to happen, he needed to come up with the rules, protocols, language, and codes of behavior-the whole culture-of the American consultant. As it happens, this was exactly what Bower was born to do. He had the focus, discipline, and fastidiousness that made it possible for him to give birth to the unique and enduring institution that McKinsey remains today. The military has the Marines; the Catholic Church has the Jesuits. Consulting, thanks to Bower, has McKinsey.

The main reason for his success is a quality often overlooked in the corporate world: a willingness to repeat himself. He spent fifty years of his life saying the same things over and over again. “He never deviated from his message,” said Lou Gerstner, a former McKinsey consultant who went on to acclaim at RJR Nabisco and IBM. “Being a great leader is often less a matter of eloquence and more a matter of repetition and consistency.” Asked about that very trait in 2011, James Gorman, a former McKinsey consultant and current CEO of Morgan Stanley, was blunt. “What a great quality. I wish I had more of it.”

First, Bower had to invent the McKinsey persona: The McKinsey consultant would be selfless, be prepared to sacrifice money and personal glory for the sake of building a stronger firm, never look for public credit, and always be confident and discreet. British foreign secretary William Hague, a former McKinsey consultant, put it this way:  “You are encouraged to believe that you belong to a special club of elite people.”

When it came to sacrifice, Bower himself set the example. When the firm opened a San Francisco office in 1944 in partnership with Kearney’s Chicago contingent, it was Bower and his wife, Helen, who moved to Palo Alto for the summer of 1945 to stand the office on its feet. But it wasn’t until 1963 that Bower made a decision that, journalist John Huey correctly concluded, “permanently set — him and McKinsey — apart from its competitors.”

Bower and his partners could have sold their firm at market value at the end of their careers as a way of cashing out, thereby personally reaping the rewards of their efforts. After all, at any successful firm, market value exceeds book value by a significant margin. Their contemporaries did it — the founders of George Fry & Associates and Barrington Associates both cashed out in the 1950s. McKinsey’s competitor Cresap, McCormick and Paget actually managed to sell itself twice in twelve years — first to Citicorp in 1970, and then to Towers Perrin in 1982 after having bought the firm back from Citi in 1977.

Instead, Bower sold his shares back to the firm at book value. In doing so, he demonstrated precisely the kind of allegiance to the cause he expected of anyone wishing to be successful at McKinsey: He forsook considerable riches for the good of the institution, in the process giving young consultants the ability to buy their way into the partnership without mortgaging their houses to do so.  His McKinsey would be self-perpetuating, and he gave up a fortune to make it so. But he also sent the message that working for McKinsey was like joining a special order of men willing to put the higher cause of the firm ahead of self-interest.

Bower’s decision came as a surprise to many, including his own family. “Let me just say there was shock on people’s faces when he told us that he was selling his shares back to McKinsey at book value,” said his son Dick Bower. “It felt unbelievable, to tell you the truth. But that was Marvin for you.”

Before Bower came along, any huckster could call himself a consultant, and many did. So Bower came up with a version of the job that drew from other real twentieth-century professions: The consultant would comport himself as a lawyer, with discretion and integrity; he would bring scientific, face-based rigour and precision to the task, like an engineer or accountant. Like a doctor, he would dispense advice to unhealthy companies on how to get better and to healthy companies on how to stay that way. And, like a priest, he would serve his clients.

Because Bower had a background in law, his desire to be just like a law firm was perhaps the most explicit of all. Historian Christopher McKenna wrote of a 1940 brochure in which the firm explained: “We serve business concerns on management problems in much the same way that the larger law firms serve them on legal problems.” Another way of looking at it: It’s hard to get any business done in the United States without hiring a lawyer. If Bower could achieve a similar result for McKinsey, the firm could entrench itself in the economy.

What’s more, Bower was already trying to move away from the idea of consultants as “business doctors” and to position the firm as a resource used by the best companies more than by the worst. “Those who use us the most need us the least,” he told Fortune in 1954.

In his 1997 book The Will to Lead, Bower outlined the five primary responsibilities of the professional consultant; some of them overlap, but as we know, Bower was prone to repeating himself. First, the consultant must put his client’s interests ahead of the firm’s interests — a waste of money, or a misguided investigation — he must tell the client so. Second, he must adhere to the highest standards of truthfulness, integrity, and trustworthiness. Third, he must keep to himself the client’s private and proprietary information. Fourth, he must maintain an independent position and tell the client the truth as he sees it. And fifth, he must provide only services that have real value.

On the surface, there seems nothing controversial about this set of rules. Do your best for your clients, they say, and try not to screw them over in any way. But Bower’s idea of the professional was more nuanced than that. Part of the reason for his split in 1947 with Tom Kearney, he wrote, was that his partner was satisfied with “ethical standards instead of “professional” ones. To act ethically means acting within the bounds of morality, which any honest person should be able to do. To act professionally means to take on a whole additional set of responsibilities. If that seems like an impossibly fine distinction, well, it was clear as day to Bower. To him, the purpose of the enterprise was to serve clients; profits were a byproduct.