McKinsey finally cuts Russian ties

McKinsey Pulls Back from Russia After Staff, Alumni Assailed Firm’s Stance

(Bloomberg) -- Consulting giant McKinsey & Co., like numerous other corporations, is withdrawing from Russia—but not before taking flak from current and former staff for moving too slowly to cut ties with the country after invading Ukraine.

By Matthew Boyle

Word Count: 1110
The counselor to chief executive officers and governments around the world said Thursday it would “immediately cease existing work with state-owned entities” in Russia and not undertake any new client work there. The new policy goes well beyond the stand McKinsey global managing partner Bob Sternfels took Sunday in a LinkedIn post, when he said only that work for government entities would cease, without mentioning companies that are fully or partially state owned.“After our remaining engagements in Russia conclude, all client service in the country will be suspended,” McKinsey spokesman Graham Ackerman said in an email. “Our office will remain open so that we may support our colleagues in the country.”  He couldn’t immediately say how long it will take to wrap up existing engagements.

In a memo to McKinsey alumni obtained by Bloomberg, Sternfels said the consulting firm suspended service to Russian regional and local governments on Saturday, having banned service to the central government “well before the war started.” He said McKinsey was “the first professional services firm to adjust our client service and condemn the invasion. This wasn’t without real risk to our Firm and our colleagues personally, but I do think it was in keeping with our values.”

Sternfels also wrote that the company had suspended service to all state-owned entities on Wednesday and, effective Thursday, “we are suspending all client work in Russia. For projects underway, we will complete existing engagements.”

The shift came after a slew of other big companies cut ties with Russia and after McKinsey staff and former consultants levied harsh criticism against the company for its initial position. These critics noted that Sternfels’ earlier statement left room for McKinsey to work for state-controlled companies like energy giants Rosneft Oil Co. and Gazprom PJSC, both of which have lost support and investment from Western partners this week. McKinsey has operated in Russia for nearly 30 years and does work for 21 of the country’s 30 biggest companies. It employs more than 700 people there, Sternfels said.

The critiques came from the head of McKinsey’s Ukrainian business, other staff and members of its 34,000-strong network of former consultants. Most prominent among them was Oleksandr Kravchenko, McKinsey’s managing partner for Ukraine, who earlier this week shared a LinkedIn post that called Russia’s government “criminal” and urged all companies to cut ties with any Russian business in which its government owns a stake. Kravchenko also said corporate staff should “start shutting the doors of your offices.”

While Kravchenko’s social-media post, a rare example of a McKinsey senior leader diverging from the firm’s official policy, earned more than 4,300 positive reactions, Sternfels’ Sunday statement received a much colder reception. One alumnus called it “fluffy,” another said it showed “cowardice,” while a third deemed it a “weak PR move.” Several called on Sternfels to close McKinsey’s Moscow office, which opened in 1993 and has grown by 60% in the last five years, according to a company website.

Ukraine native Taras Gorishnyy, a former McKinsey analytics manager now working at CVS Health Corp., according to his LinkedIn profile, said McKinsey’s initial reaction was “not enough.” Fellow McKinsey alum Arthur Tretyak, a native of Kyiv who now runs a credit company in Chicago, said the statement from Sternfels was “so vague that any first year associate would be shamed for putting something like that in front of a client.”

McKinsey’s rivals so far are also trying to thread the needle by condemning the invasion while declining to pull out of Russia. Bain & Co., whose clients include partially state-owned Russian companies, was “re-evaluating our work in Russia” to ensure it meets the firm’s standards and to adhere to international sanctions, worldwide managing partner Manny Maceda said in a social-media post. Christoph Schweizer, chief executive of Boston Consulting Group, said it was “thoroughly evaluating our entire portfolio of work” there.

Professional-services giant Accenture said Thursday that it was discontinuing its business in Russia, where it employs 2,300 people.

But McKinsey, as the pre-eminent adviser to corporate managers and heads-of-state, came in for special scrutiny. “When there is a war, you need to choose a side,” said Miguel Nigorra Esteban, a former McKinsey consultant in London who now invests in European companies. “McKinsey should choose the right one,” Esteban said before the policy shift.

The internal debate over its Russian presence could put another dent in the reputation of the world’s most prestigious consulting company. McKinsey has come under fire for helping Purdue Pharma LP increase the sale of opioids in the U.S. and for links to corruption allegations involving Eskom, the South African state power company, and Jacob Zuma, South Africa’s former president who is about to go on trial for corruption.

Last year, McKinsey’s managing partner in Russia initially told employees to stay away from and not comment on a demonstration supporting jailed activist Alexei Navalny, a leading critic of Russian president Vladimir Putin, but later amended his remarks to say the firm supported employees’ right to participate.

The invasion of Ukraine has prompted a mass exodus of companies from Russia, led by BP Plc, which said Sunday it would exit its 20% stake in Rosneft. Shell Plc ended its partnership with Gazprom the next day, and in recent days blue-chip companies like Ford Motor Co., Burberry Group Plc, Apple Inc., Nike Inc. and General Motors Co. have suspended or reined in their operations. Hollywood entertainment companies including Walt Disney Co. are also pausing new movie releases in Russia. Many corporations will have a difficult time supporting local operations after Russia was cut out of the SWIFT money messaging system.

“If the Firm takes its pledges seriously that it made after serving Purdue and Eskom, there is no other way but to stop serving any client that is connected to the Russian government, even in the slightest way, and freeze business in or with Russia to the maximum extent,” McKinsey alum Daniel Hartl, who previously worked for banking clients in Western Europe, said in an email before McKinsey updated its position.

Others were more blunt: “You should be ashamed,” former senior partner Andrei Caramitru wrote in a LinkedIn post, also prior to the policy shift. “You refuse to close the McKinsey office in Moscow. You know very very well with whom they work. You know their relationships with the Kremlin. Close it down! Now! It’s blood money, on your hands.”

To contact the author of this story:
Matthew Boyle in New York at [email protected]

© 2022 Bloomberg L.P.

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