McKinsey Boss’s Next Big Consulting Project: His Own Firm
After a turbulent few years, Bob Sternfels talks about revamping the company’s structure and employee development; ‘Not everyone gets an A’
Soon after Bob Sternfels took the top job at the consulting giant McKinsey a few years ago, he embarked on an around-the-world tour to meet with the lowest rung of managers at the firm.
The conversations largely took place outside; Sternfels is prone to walking meetings and finds that a jaunt out of an office can elicit more candid feedback than staring at someone across a conference table. What many of the young managers discovered, though, is that a walk with Sternfels, a former Stanford water-polo player, is more often akin to a light jog.
“Some end up a little sweatier than others at the end of these things,” he says.
It is with a similar level of intensity that the 54-year-old is approaching his next task: helping to “rewire” McKinsey. The firm, which advises many of the world’s biggest companies and governments, has weathered a bruising period marked by a downturn in demand, layoffs and legal challenges tied to its past work with opioid makers.
Sternfels sat down with The Wall Street Journal for a long-ranging, exclusive interview at a critical junction for the century-old partnership.
McKinsey said in 2021 it would pay $641 million in settlements for its work with OxyContin maker Purdue Pharma and other pharmaceutical companies. The Justice Department has opened a criminal probe. Congress has grilled Sternfels over the firm’s work on behalf of Saudi Arabia and in China.
An election for global managing partner earlier this year stretched to three rounds, laying bare dissatisfaction within the firm. Sternfels survived and kept his position, but the process highlighted an unusual structure that gives McKinsey’s 750 senior partners the power to choose their leader every three years.
As his new term begins next month, Sternfels and his colleagues are planning for much change. With clients, McKinsey is adjusting some of its fee structures, taking on more work in which it defers payment until companies reach agreed-upon results. Asutosh Padhi, McKinsey’s current head of North America, will work on such experiments, part of a broader leadership shake-up across the firm.
Rodney Zemmel, who faced off against Sternfels in the final round of the election and heads a growing practice called McKinsey Digital, will spend time on how McKinsey consultants should adapt their work in the era of artificial intelligence.
The firm is also rethinking how it runs itself. It launched a 30-person “partnership modernization” task force, which is debating issues tied to McKinsey’s governance, including the length of a term for the firm’s leader and how often it conducts elections.
“We’ll ask some questions of…when are elections helpful to a partnership, and when are they divisive?” Sternfels said, adding that he wants the group to wrap up by year-end.
One of the task force’s first moves, taking effect July 1, is to separate McKinsey’s senior management team from its board to better differentiate between those overseeing the firm and those running its operations. Board members will still include partners, including well-known leaders such as Liz Hilton Segel, McKinsey’s chief client officer.
3,000 partners
What has made running McKinsey challenging, those inside and outside the firm say, is that the company has grown significantly in recent years. McKinsey has roughly 45,000 employees around the globe and about 3,000 partners. While that is still a fraction of some of its broader consulting-industry peers—Accenture had about 740,000 employees at the end of February—it is still a steep increase from its past. As recently as 2021, McKinsey had about 30,000 employees.
Sternfels said he is spending time thinking about how to make the firm feel smaller, while maintaining its global structure. In addition to organizing groups geographically or in functional areas, such as private equity, McKinsey is debating how it might set up internal “communities” within the firm, pulling people from across divisions.
These communities, for example, might be devoted to infrastructure work, as companies from oil giants to semiconductor makers invest in big projects, requiring consultants with business expertise and experience navigating government policies and subsidies.
At a recent leadership retreat for partners in Copenhagen, Sternfels also emphasized that, no matter what shape McKinsey takes, he wants the organization to be a place where employees get “unrivaled development.” That goal means doubling down on feedback—and lots of it—for staffers.
Top leaders at McKinsey don’t anticipate additional layoffs following some cuts last year.
Up-or-out culture
McKinsey has long had an up-or-out culture, where consultants either ascend through the ranks or are shown the door and invited to join an active McKinsey alumni group. Earlier this year, the firm put about 3,000 employees on notice with unsatisfactory performance ratings. Some consultants feared they would be “CTL’d,” or counseled to leave, in McKinsey speak.
Sternfels said McKinsey is a meritocracy, and that its ratings are in line with its historical averages. “The great reveal is people have always been rated that way,” he said. “Guess what? Not everybody gets an A.”
He added: “It’s not just the feedback, sink or swim, but it’s done with a sponsor, so that you have somebody who’s going to be in your corner to help change the odds that you can actually do something about that feedback.”
McKinsey laid off some nonclient-facing staffers last year and elected a smaller new class of partners. It also deferred start dates for some new hires.
Sternfels and other senior partners said they don’t foresee additional layoffs. Some of the previous cuts came after a burst of hiring during the pandemic when demand for McKinsey’s services soared.
“We’re back in balance now,” Sternfels said. The company plans to hire 6,000 people this year, roughly the same as the year before, and Sternfels expects net employee growth at McKinsey in 2024.
AI advice
As McKinsey veterans talk about the future of the firm, and what it means to be a consultant, AI looms large.
When a summer intern recently asked Segel, McKinsey’s chief client officer, for tips on how to succeed at the firm, she didn’t hesitate. “My advice to her was to be an outstanding prompt engineer” on an internal McKinsey generative AI tool.
Consultants should know how to use such tools, streamlining their work, she said, so they can then focus on offering higher-value services, such as counseling clients to put new processes in place.
“I think the word ‘consulting’ is a misnomer. I have not figured out the new word,” Segel said. “What we do is we effect change: change in results, change in capabilities.”
McKinsey is best known for offering strategy ideas to companies—a proposition the firm increasingly views as table stakes in the AI era. “That part of the profession will get disrupted,” Sternfels said.
Instead, the firm wants McKinsey’s people delivering ideas while also helping clients through the often-difficult process of changing how they work, said Shelley Stewart, a senior partner on Sternfels’s new leadership team.
U.S. probe
Challenges remain. The Justice Department is conducting a criminal investigation into McKinsey’s work with opioid manufacturers, the Journal previously reported. A former senior partner also recently sued the firm and Sternfels, alleging that McKinsey made false statements when it fired him in 2021 for allegedly violating the firm’s document-retention policies.
Asked how he thought the Justice Department investigation would end, Sternfels said, “My sense is just with all the regulators that we’re talking to, we are on a path to come to a resolution.”
McKinsey’s work with Saudi Arabia’s sovereign-wealth fund has also come under scrutiny, including on its ambitions to be an international player in golf. McKinsey established an office in Saudi Arabia in 2010 that now has more than 400 employees. Sternfels testified its work in Saudi Arabia predated the launch of LIV Golf and a proposed merger with the PGA Tour.
U.S. lawmakers have criticized McKinsey for advising the U.S. government while also consulting for Chinese state-owned enterprises. Sternfels said the firm’s footprint is under “constant evaluation” and that it doesn’t work directly with the national or provincial governments in China. The vast majority of the firm’s work in China is with multinational corporations and other private-sector clients, he said.
McKinsey is debating how it might set up internal ‘communities,’ pulling people from across divisions within the firm.
Culture change
A 30-year McKinsey veteran, Sternfels studied economics at Stanford University and was a Rhodes scholar at Oxford. He rose through McKinsey’s ranks as an operations guru and is known for giving multipronged responses to questions, occasionally peppering his sentences with words like “orthogonal.”
During a recent conversation, dressed in a trim navy suit with a white shirt, he appeared as at ease discussing the nuances of the carbon-credit market as he was in highlighting the emerging alliances forming between Japanese chief executives and Indian companies—a takeaway from an early June trip to Tokyo.
Colleagues say Sternfels is known for a decisive, do-it-now attitude, an approach that also has brought criticism. He has tried to change McKinsey’s culture, in part, by focusing on humor, sometimes at his own expense, to make people feel more comfortable.
While visiting a McKinsey office, he played a game called “How hot can Bob go?” Sternfels would attempt to eat four curry dishes of escalating spice levels as employees asked him questions.
“By the third one, it was a wet towel on my head,” he said. At the fourth station, Sternfels gave in.
“What it did was the whole room got a laugh, and we had a great conversation after that,” he said.
These days, Sternfels splits his time equally between internal meetings and conversations with leaders of McKinsey clients. When chatting with a client CEO, Sternfels will often ask: What can McKinsey do differently?
Many CEOs respond that the firm should keep telling them what others don’t. Sternfels said he views this as a reminder that McKinsey must keep evolving and be distinctive. Then, summing up the challenge, he returns to a favorite word.
“How do we bring orthogonal ideas to the CEO?”