Commentary: McKinsey’s hypocrisy over cheese prices

What is more natural than a consultancy firm recommending to a business client to maximize profitability by raising prices?

By ELI TSIPORI/GLOBES
June 29, 2011 06:42
4 minute read.
A bowl of cottage cheese

Cottage cheese 311. (photo credit: Fastily)

 
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At first glance, McKinsey & Company’s recommendation to Tnuva Food Industries Ltd. to raise cheese prices because demand is inelastic (as Globes revealed Sunday) seems natural and clear. What is more natural than a consultancy firm recommending to a business client to maximize profitability by raising prices? McKinsey was simply doing its job.

But when you read the words of McKinsey managing director Dominic Barton – his apparent empathy for employees and consumers, his apparent feelings for social gaps, and his apparent criticism of the pursuit of short-terms profits – you have to wonder about where all those commendable values went when McKinsey made its recommendation.

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They simply disappeared into thin air.

In October 2010, Barton told Israeli media outlets: “There is another area... Perhaps the most important: the rise in inequality – widening gaps between rich and poor and even between the rich and average income earners. This is a problem that everybody needs to devote attention to.

Businesses, government and the social sector... businesses cannot deal with unemployment, and neither can governments deal with it – they need to cooperate. I believe in the saying that tomorrow’s leaders must be triathlon specialists – they must be good in the private sector, in the public sector and in the social sector.”

He added: “There are two processes taking place at the same time: a tendency towards avarice, envy, greed Milton Friedman-style... I think the public’s perception is that businesses have become more selfish. I think that this began before the crisis began but subsequently worsened.

On the other hand, I think there is a perception emerging that that not everything should revolve around value to shareholders but around all stakeholders.”



“When you work with a company you think about all the interested parties – the community, employees, suppliers, taxpayers, consumers – and not just the shareholders,” Barton said. “Yes that’s what we do. It is impossible to separate between shareholder value and the value of the parties at interest. It is in fact the same thing. I believe that we need a more updated capitalism. We have become too focused on the short term and not on the long term. The issue is interested parties versus shareholders and governments too.”

McKinsey’s and Barton’s publicists can be well-pleased with this interview.

To mark 10 years of McKinsey activities in Israel, they got what they wanted: a relaxed interview, supportive and pigeonholing Barton with an image of social values and caring for the “interested parties.” McKinsey was even called “one of the world’s most important companies” in the interview.

McKinsey’s harsher critics say it is “the root of all capitalist evil.” Ex- Enron CEO Jeffrey Skilling came from the McKinsey school, and he was sent to prison for 24 years for defrauding investors. When McKinsey wrote about Enron a short time before its collapse, it said it had “built a reputation as one of the world’s innovative companies.”

And then there was Rajat Gupta, a former managing director at McKinsey and then a director at Goldman Sachs, who was accused of insider trading regarding the Galleon hedge fund. Those were the bad boys that McKinsey raised in the name of endless avarice and greed. But that does not disturb Barton from speaking critically about avarice and greed.

The interview with Barton is just one small example of the double, disproportionate moral standards and hypocrisy of the business sector and governments. In their support for image and media consultancy, they market themselves in fussy interviews as socially sensitive and concerned about growing social gaps. They preach a more sensitive, more contemporary and refined capitalism.

But behind closed doors, when the publicists study the terrain and cannot be seen by the public, then the terminology changes. The sensitivity disappears and makes way for predatory bullying. Raise the prices. Raise them up without taking anything into account, and forget about pretty slogans marketed in interviews about the same value given to shareholders and other stakeholders like consumers.

McKinsey didn’t care about the consumers or Barton’s preaching about one “of the world’s most important companies.” It simply understood that prices could be put up because of the structure of the dairy market. It understood that there is a cartel managed by winks and sign language and that Israel’s antitrust laws do not apply to agricultural produce. It understood that it was possible to exploit those other stakeholders.

The cottage cheese crisis has lifted the mask. The public does not believe Zehavit Cohen or Ofra Strauss or Prime Minister Benjamin Netanyahu or the ministers of finance, agriculture and industry, trade and labor.

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