"McKinsey, global consulting giant agrees to a $600-m settlement on opioids case"
"McKinsey, global consulting giant agrees to a $600-m settlement on opioids case"
In the first week of February, McKinsey, one of the most influential consulting firms in the world, announced that it had agreed to a $573.9-million settlement with 47 US states and the District of Columbia concerning its role in aiding drug companies, including Purdue Pharma LP, during the opioid addiction epidemic. The New York Times (NYT) and the British Broadcasting Company (BBC) reported that agreements with two other states bring the total settlement amount to about $600 million.
The Wall Street Journal (WSJ) reported that the McKinsey settlement marks the first nationwide agreement arising from the flood of opioid-related litigation that began in 2017. It also reported that a much larger $26-billion deal with three other drug distributors and Johnson and Johnson has been in the works for over a year but is still being negotiated.
This is not the consulting giant’s first misstep involving client work but it is probably its most public one. In reporting on the opioid settlement, the Washington Post recalls that the firm was a major force at Enron prior to Enron’s accounting scandal, one that would destroy not only Enron but also global accounting firm, Arthur Andersen. The Post also referenced the McKinsey designed expansion program that led to the Bankruptcy of Swissair in 2002.
The Opioid Settlement
NYT reported that the settlement comes after lawsuits uncovered “documents showing how McKinsey worked to drive sales of Purdue Pharma’s OxyContin painkiller amid an opioid crisis in the United States that has contributed to the deaths of more than 450,000 people over the past two decades.”
NYT also reported that McKinsey’s work with Purdue included advising it to focus on selling lucrative high-dose pills and that McKinsey continued to work with Purdue even after Purdue “pleaded guilty in 2007 to federal criminal charges that it had misled doctors and regulators about OxyContin’s risks.” Records showed that the consulting firm had told Purdue that it could “band together” with other opioid manufacturers to head off “strict treatment” by the Food and Drug Administration.
The Washington Post reported that the investigation unearthed evidence that, in 2018, senior executives of McKinsey had “discussed destroying documents relating to the firm’s opioid work.”
In an official statement posted on 5 December 2020 on its company website, McKinsey denies any wrongdoing in the opioid crisis. In the same statement, the company explains that it has a responsibility to consider the broader context and implications of their work and acknowledges that its “work for Purdue fell short of that standard.” The company stopped doing opioid work in 2019.
Similarly, under the terms of the settlement agreement, McKinsey admits no wrongdoing. However, in an official statement, Kevin Sneader, McKinsey Global Managing Partner, expressed regret: “We deeply regret that we did not adequately acknowledge the tragic consequences of the epidemic unfolding in our communities.”
WSJ reported that McKinsey was cooperating with government agencies on matters relating to its work with opioid manufacturers.
The NYT reported that in the multi-state agreement, McKinsey agrees to court-ordered restrictions on similar work. The firm will also put documents related to its opioid work on a publicly related database.
Aftermath
WSJ reported that the settlement averts civil lawsuits that could be brought by the attorneys general of the states involved. 47 states and the District of Columbia were part of the settlement. However, in some states, the agreement does not bar non-state local governments from suing.
But fines over the opioid cases may be the least of the firm’s worries.
NYT reported that a former Mckinsey partner “called the settlements hugely significant because it shatters the distance that McKinsey—which argues that it only makes recommendations—puts between its advice and its clients’ actions.” The former partner explained that this is the defense that the company has used in avoiding legal liability for its involvement in the high-profile failures of Enron and Swissair.
This defense has weakened as McKinsey’s work has expanded more and more towards actual implementation of its advice as opposed to simply providing advice.
In addition to potential legal liability from the effects of its advice, the company has also come under fire for other alleged breaches of ethical conduct.
On 19 February 2019, the New York Times published an article (Forsythe et al) exploring connections between the firm’s advisory work and its investment fund. The hedge fund, McKinsey Investment Office, or MIO Partners, invests for about 30,000 McKinsey partners and other employees. McKinsey’s advisory arm keeps the names of many of its clients hidden, and MIO similarly keeps information concerning its investments hidden. Hence, any intersection between clients and investments would be largely confidential, a situation which would shield any potential conflicts of interest. Forsythe et al go on to explain that while McKinsey’s officially states that the consulting and the fund are managed separately, 9 of the 11 board members of MIO are current or former McKinsey consultants.
It should come as no surprise to anyone that managing the global giants of business come with the critical challenge of balancing the pursuit of profit with the imperative of ethical behavior. McKinsey, clearly, is no exception.
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