How McKinsey & Co.'s "turbocharge" strategy fueled the opioid crisis, leading to a $650 million settlement and the first criminal charges against a consulting firm for unethical advice.
Digital Worldwide News
December 14, 2024
McKinsey’s headquarters, a symbol of influence now marred by a $650 million settlement for its role in the opioid crisis.
McKinsey & Co., one of the world’s leading consulting firms, has agreed to pay $650 million to resolve charges over its advice to Purdue Pharma on “turbocharging” sales of OxyContin, the U.S. Department of Justice (DOJ) announced on Friday. This settlement marks a historic moment, as it is the first time a management consulting firm has been held criminally responsible for advice resulting in a client’s criminal conduct. The deferred prosecution agreement filed in federal court in Virginia holds McKinsey accountable for its role in fueling the opioid epidemic, which has claimed nearly 727,000 lives in the U.S. from 1999 to 2022, according to the Centers for Disease Control and Prevention (CDC). This agreement follows years of litigation and public outrage surrounding corporate contributions to the opioid crisis, further cementing McKinsey’s controversial legacy.
Black Money: McKinsey’s Role in the Opioid Epidemic
The DOJ’s charges against McKinsey stem from its work with Purdue Pharma, the maker of OxyContin. After OxyContin sales plummeted due to public backlash and regulatory scrutiny, Purdue turned to McKinsey in 2013 for guidance on revitalizing its flagship product. McKinsey devised a strategy to “turbocharge” OxyContin sales by identifying and targeting “high-value” prescribers, including those who were known to prescribe opioids for illegitimate purposes. According to prosecutors, McKinsey’s advice resulted in unsafe and medically unnecessary prescriptions, significantly exacerbating the opioid crisis.
Notably, McKinsey continued advising Purdue even after widespread evidence of OxyContin’s devastating impact became public. The firm’s strategies included recommending financial incentives for sales representatives to push higher dosages of the drug and creating marketing plans that downplayed the risks of addiction. This calculated approach contributed to a surge in opioid-related overdoses and fatalities, sparking nationwide outrage.
History of Dark Dealings
McKinsey’s involvement in the opioid epidemic is not an isolated case of questionable ethics. The firm has a long history of controversial practices, raising concerns about the unchecked influence of management consultants in shaping corporate and public policy. For instance:
1. South African Corruption Scandal
In 2017, McKinsey was implicated in a corruption scandal involving South Africa’s state-owned power company, Eskom. The firm’s $1 billion contract with Eskom was linked to fraudulent payments and collusion with the Gupta family, a wealthy business dynasty accused of state capture.
2. Saudi Arabia’s Surveillance
McKinsey faced backlash for its work with the Saudi Arabian government, including a report that identified critics of the regime on social media. Some of these individuals were subsequently arrested, raising questions about McKinsey’s role in enabling authoritarian practices.
3. Immigration and Customs Enforcement (ICE)
McKinsey’s consulting work for ICE under the Trump administration drew criticism for recommending cost-cutting measures that compromised detainee welfare, including reductions in food and medical care for immigrants held in detention centers.
4. Vaping Industry
McKinsey advised Juul Labs, the e-cigarette manufacturer, on how to increase sales among young adults. Critics argue that these strategies contributed to a youth vaping epidemic, further tarnishing the firm’s reputation.
5. Environmental Impact
McKinsey has also been criticized for advising major polluters, such as coal companies, on strategies to maintain profitability despite growing concerns about climate change.
Consultancy Malpractice Historical Cases
The McKinsey opioid scandal is not the first time consultancy malpractice has led to catastrophic outcomes. Below are five other notable cases:
1. Enron and Arthur Andersen
In the early 2000s, Arthur Andersen, one of the “Big Five” accounting firms, was implicated in the Enron scandal. Andersen’s auditors knowingly approved fraudulent financial statements, contributing to Enron’s collapse. The scandal led to criminal charges against Andersen and the firm’s eventual dissolution.
2. Lehman Brothers and Ernst & Young
Ernst & Young faced criticism for its role as Lehman Brothers’ auditor during the 2008 financial crisis. The firm allegedly approved “Repo 105” transactions, a deceptive accounting practice that hid Lehman’s mounting debt, ultimately leading to its bankruptcy.
3. Bain & Company in South Africa
Bain’s role in the restructuring of South Africa’s revenue service (SARS) under former president Jacob Zuma resulted in significant operational failures and revenue losses. The firm’s actions were later deemed part of a broader state capture scheme.
4. Boston Consulting Group (BCG) and Yemen
BCG faced backlash for advising Saudi Arabia on economic reforms while the country was engaged in a devastating war in Yemen. Critics argued that BCG’s work ignored the humanitarian crisis fueled by Saudi policies.
5. Deloitte and Malaysia’s 1MDB Scandal
Deloitte was accused of failing to identify and report irregularities in the accounts of Malaysia’s 1MDB fund, a sovereign wealth fund embroiled in one of the world’s largest corruption scandals. The scandal implicated high-profile officials and caused significant financial losses.
In each of these cases, public outrage and legal consequences followed revelations of malpractice. However, the impact on the firms involved has varied. While Arthur Andersen was effectively dissolved, other firms like Ernst & Young and Bain managed to weather the storms, often paying hefty fines but retaining their market dominance. These outcomes highlight the limitations of regulatory frameworks in holding consulting firms fully accountable for their actions.
The McKinsey scandal has far-reaching implications for the consulting industry and corporate governance. As public trust in institutions continues to erode, companies must recognize the reputational risks associated with unethical consulting practices. For McKinsey, the $650 million settlement and deferred prosecution agreement mark a turning point in its history, forcing the firm to reckon with the consequences of its actions.
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