Snapshot of the Influence of Consulting Firms and Hedge Fund Managers in Governance
A September 30 news report from Radio-Canada informed that the Coalition Avenir Québec government had hired U.S. consulting firm McKinsey & Company "for strategies on managing the COVID-19 pandemic" at a cost of $6.6 million. The company is said to have conducted strategy meetings and advised the government on the purchase of personal protective equipment. Confronted with a request from the opposition parties in the Quebec National Assembly for the government to make public all documents related to McKinsey's role in managing the pandemic in Quebec, Premier François Legault replied that McKinsey had "helped to save lives." This explains nothing in terms of the magnitude of what is at stake when it comes to such so-called consulting firms.
An article in Harvard Business News in the early 1980s, entitled "Consulting Is More than Giving Advice," points out that there are various stages in the work of management consulting, besides providing information, making a diagnosis to solve the client's problem, and making recommendations. There is the step of assisting with the implementation of the recommended solutions. A concern was raised at the time that to put the recommendations into effect was in fact to take up the role of manager, which thus exceeds consulting's legitimate bounds. In the anti-social offensive which has ensued, consulting firms and hedge fund managers have evolved into powerful supranational oligopolies, taking over areas of governance where they act like lord and master without any accountability.
In France, for example, consulting firms have literally taken control and are taking decisions at all levels of government. The French administration has made public that at least 575 contracts with private consulting firms have been signed since October 2018, related to economic recovery, carbon neutrality and the pandemic.
France is not the only country to turn to the private sector to manage the affairs of the state. The UK, Spain, Germany and Switzerland have been contracting out for many years, if not for decades. In France, the process took off after Sarkozy's election in 2007, when he announced the elimination of one out of two jobs in the public service, pushing civil servants into early retirement, while secretly giving firms such as McKinsey, Deloitte, Cap Gemini and Accenture contracts worth 250 million euros during his term. Over time, these firms were even hired to work on drafting legislation. When Macron ran for president, his main supporters were two associates from the McKinsey office in Paris.
McKinsey has since had contracts to deal with the economic recovery, to encourage technological investments in France as well as contracts linked to defence. Recently, Roland Lescure, who was chief investment officer for seven years at the Caisse de dépôt et de placement du Québec (CDPQ), was named delegate in charge of industry in the Emmanuel Macron government. Lescure himself, a money manager from France, was recruited by a foreign "head-hunting" firm hired by the Quebec government at the time to find qualified people to be on the CDPQ board of directors.
In November 2021, the French Senate set up a commission of inquiry on the influence of private consulting firms on public policy and produced a report entitled, An All-Pervasive Phenomenon: the Growing Influence of Consulting Firms on Public Policy. The report pointed out that State expenditures of 1 billion euros towards these firms put into question "our vision of the State and of its sovereignty with regards to private firms." This was in light of the fact that entire areas of public policy were contracted out to private firms: the health care crisis, legal aid reform, roadside radar, evaluation of the national health strategy, etc. The report says that the influence of consulting boards of directors on public policy is clear. Consultants propose turnkey solutions to policy-makers, and public officials are called upon to apply them.
In Canada, many speak of a "shadow public service," one example being the role played by McKinsey in managing the pandemic in Quebec and Ontario. In March 2021, the federal government estimated that costs linked to consulting firms would reach $16 billion in 2022, and two months later, the actual figure was $17.7 billion. Governments throughout Canada hired these firms to deal with the impact of the pandemic on Canadian industry, biomanufacturing capacity and the managing of long-term care homes. The five biggest federal department spenders on contracting out are the Canada Revenue Agency; Employment and Social Development Canada; the Canada Border Services Agency; Immigration, Refugees and Citizenship Canada; and the Department of National Defence.
The Professional Institute of the Public Service of Canada (PIPSC) points to the outrageous example of the contracting out agreement with IBM IT consultants and their role in the Phoenix pay system debacle. The project, which began in 2011, was supposed to cost $309 million but wound up costing $2.2 billion. The project turned payday into an endless nightmare for tens of thousands of workers, and workers continue to face the consequences. Yet the government rewarded IBM, the very company responsible for Phoenix's disastrous implementation in the first place, with yet another contract to manage the system's day-to-day operations.
The problem was not the decision to digitalize a pay system but the fact the job was not given to the public service. The vast amounts of money paid to IBM were designed to enrich the few. The system was not ready and the public servants paid the price. The anti-human factor/anti-social consciousness prevailed.
The fact that vaccination contracts were handed to Deloitte clearly indicates that many of these firms are not only auditors but also technological firms which have increased their influence through their sheer size, the result of mergers and acquisitions. The PIPSC calls them a shadow public service which operates without supervision and accountability, since governments declare that the content of these contracts are subject to the discretionary power of Cabinet. McKinsey itself has a hedge fund, the McKinsey Investment Office, in an unprecedented arrangement where clients, present and former partners, and hedge funds overlap. The firm is notorious and has been involved in a number of lawsuits and court challenges.
As a worldwide power, McKinsey has 2,000 entities, and its clients include companies and governments, with former partners sitting on the boards of its client companies or in positions of power within governments. Its sheer power in terms of companies and governments shows how oligopolies work by forming cartels and coalitions to skew the law-making process and take over government police powers. Its financial services group includes clients such as Barclays, BlackRock, Deutsche Bank, Goldman Sachs, Citigroup, Credit Suisse, Wells Fargo and UBS, who are also the money managers of the McKinsey Investment Office.
In Quebec, contracting out to these firms has been going on since long before the pandemic. For example, in 2009, McKinsey, which itself played an important role in the 2008 financial crisis, was one of the firms called upon to work with the CDPQ following losses of up to $40 billion. In a debate of the Public Finances Commission in May 2010, a member of the Quebec National Assembly (Bonnardel) put several questions to Michael Sabia, who had been recently hired to head the CDPQ. Having not received the answers he was expecting, Bonnardel said: "Mr. Sabia, you seem to be telling us that McKinsey sets the rules, and according to these rules, you cannot tell us how much the contract cost, if it was a private agreement, or how many people from McKinsey were at the CDPQ in the past year," to which Sabia replied that the contracting out to McKinsey had been a board of directors' internal decision.
In fact, Sabia's explanation was consistent with various laws which had been passed in that decade, such as the Bill on the Caisse de dépôt et de placement du Québec (2004), the Bill on public administration (2000) and the Bill on the governance of state-owned enterprises (2006). These laws authorized the conversion of government practices in line with principles of managerial logic. They established enterprise-based rules of governance and promoted a new public management which makes the CDPQ independent of political power. This ended its initial mandate which was that part of the CDPQ's mission as a financial institution was to meet the social and political expectations of Quebec society. At the time in 1960, the Confederation of Trade Unions (CNTU) declared: "The CDPQ could in the upcoming years be the best tool for economic planning a collectivity could dream of."
Michael Sabia was the CEO of the CDPQ from 2009 to 2020. He is the federal Deputy Minister of Finance, appointed by Prime Minister Trudeau in December 2020. He became President of the Board of Directors of the Infrastructure Bank of Canada in April 2020 and is presently Director of the Munk School of Global Affairs and Public Policy. Before joining the CDPQ, he had been at the head of Bell Canada Enterprises and chief financial director of the Canadian National Railway Company. He was awarded the Order of Canada in 2017 for his exceptional contribution to rebuilding the CDPQ and in transforming it into a world class financial institution, a leader for investors who are working towards "fighting climate change" and strengthening urban infrastructures.
This article was published in
Volume 52 Number 10 - October 2022