Vault Employer Profiles – Mckinsey & Company

Table of contents

Overview

In the industry and among its employees, McKinsey & Company is known simply as “The Firm” – need we say more? With 82 offices and around 7,000 consultants worldwide, McKinsey serves more than two thirds of the Fortune 1000, or 85 of the world’s top 100 companies. McKinsey’s founder, James O. McKinsey, pioneered the idea of management consulting when he launched the firm in 1926.

But it’s Marvin Bower, with McKinsey since 1933, who is credited with shaping the firm’s values, including a relentless drive for excellence, a mandate of putting the clients’ needs before the firm’s, and an insistence on discretion in financial matters. Indeed, the notoriously tight–lipped company rarely publishes the names of its clients, which include huge global companies, innovative startups, wealthy commercial banks, leading venture capital firms and vast technology companies. McKinsey also provides pro bono assistance to educational, social, environmental and cultural organizations.

McKinsey emerged from the Internet gold rush days relatively unscathed compared to competitors, though it suffered its own PR challenges as it found its name linked with scandal–plagued companies like Enron and Global Crossing. In recent years, the firm has turned its attention toward the IT sector and outsourcing, in an attempt to respond to the shifting trend in the consulting market toward more “tangible” services, such as systems integration. On the pure strategy side, McKinsey also has faced a competitive threat from rivals like Bain and Boston Consulting Group.

The Scoop

Shaping management theory In 1926, lawyer, CPA and University of Chicago management professor James Oscar “Mac” McKinsey founded the firm that still bears his name. In those early days of consulting, McKinsey was fascinated by the emerging science of management, and sought to give both management and financial advice to high–ranking personnel at accounting and other corporations. McKinsey envisioned bringing “management engineers” to not only rescue faltering companies, but also to help thriving companies do even better. His five partners included A. T. Kearney and protege Marvin Bower, who would go on to shape the McKinsey firm we know today. A few years after setting up shop, McKinsey accepted a temporary offer to run and restructure the Chicago department store Marshall Field’s. Bower ran the consulting partnership until McKinsey’s death in 1937. A quarrel over leadership between Bower and Kearney led to a split, and the two went their separate ways in 1939, with Kearney retaining the Chicago office and naming it after himself, and Bower naming the New York branch McKinsey & Company. , in honor of his mentor.

As for the other partner, Kearney, his name is now associated with another strategy consulting firm, A. T. Kearney, still numbered among McKinsey’s competitors. Learning the rules “The Firm” derives much of its mysterious prestige from its powerful five–part code of conduct, instituted by Bower and still followed today. Bower directed McKinsey employees to put client interests ahead of firm interests, serve the client in a superior manner, adhere to high ethical standards, preserve the confidence of clients, and be ready to differ with client managers and tell them the truth, however painful.

Over time, Bower also began directing his recruiting efforts toward graduate students the firm could mold into broad–based consultants, instead of experts who had built up years of experience in a single industry. McKinsey & Company thus became the first consulting firm to hire directly from business schools. Another tradition set by Bower was a reticence to discuss financial matters openly, which persists to this day. Maintaining that the firm would make more money if it didn’t concern itself with profits, Bower never charged clients performance–based or results–based fees.

Ensuring that this decorum regarding all things financial would stick for the long haul, Bower declined Visit the Vault Consulting Career Channel at www. vault. com/Consulting — with insider firm profiles, message boards, the Finance Job Board and more. The Scoop to take the company public (at what would have been an enormous profit) when he retired in 1963, instead selling his shares back to the firm for book value. Future partners have continued this practice. Bower shaped McKinsey culture in other, more subtle ways.

All executives were required to wear hats and long socks (to avoid displaying “raw flesh”) – though there may be more bare heads and bare skin on display these days, many McKinseyites still prefer long socks. Like many of its peers, McKinsey really took off during the postwar period, when companies turned their attention to expanding profits. The 1950s saw McKinsey adding an expanding number of bluechip companies to its clientele, as well as adding engagements with major government and military organizations, defense contractors.

In 1959, the firm went international with an office in London, and opened offices in Melbourne, Amsterdam, Dusseldorf, Paris, Zurich and Milan shortly thereafter. The lure of the new The firm started to face fiercer competition – and lose market share – in the 1970s, a time of corporate buzzwords, such as the Boston Consulting Group’s “growth–share matrix. ” Rejecting trendy marketing theories on principle, McKinsey lost business to BCG and other upstarts. These less–stodgy firms soon began luring away top b–school grads, the engine driving much of McKinsey’s success.

But the firm created another tradition of its own when, in 1986, it began an MBA summer internship program in response to the extravagant signing bonuses competitors like Bain and BCG were using to woo top candidates like Harvard’s Baker Scholars. The program was soon to become a norm across the industry, as well as among others like investment banks. In 1989, the firm’s acquisition of the Information Consulting Group proved somewhat awkward when a culture clash between the companies caused many former ICG employees to jump ship.

The firm righted itself later in the 1980s as the global economy began booming again, and the 1990s were a success story. To date, the revenue has more than doubled since 1993, and the firm doubled its professional staff and opened a total of 20 offices in the 1990s. In fact, McKinsey has been described by managing partner Ian Davis, in a June 2004 interview with the Financial Times of London, as “a truly global firm. Its consultants are citizens of 95 countries. McKinsey’s governing shareholder committee is controlled by a non–American majority, and about 60 percent of revenues come from overseas, with further growth expected from new markets in Russia, Eastern Europe and China. The firm has solidified its Asian presence in recent years, conducting more than 500 engagements in China over the last decade. In October 2003, the firm established its Asia–Pacific regional headquarters in Shanghai, and the office has worked with some of that nation’s most prominent clients, including Singapore Airlines and the chewing–gum–averse national government.

In March 2000, McKinsey opened a new office in Tel Aviv, from which it has offered assistance to Israeli corporations, startups and government entities such as the Ministry of Communications and the Postal Authority. The newest office on McKinsey’s list is in Zagreb, Croatia, opened in early 2003. It’s in India India is also big on the firm’s radar, especially as the trend toward offshoring (a term Davis argues is misleading) continues.

In February 2000, McKinsey enhanced its presence in India with the launch of India Venture 2000, which was created to help Indian entrepreneurs establish and grow new IT or e–commerce businesses. The firm’s office in New Delhi is one of its fastest growing sites, and in India, the firm helped the State Bank of India reengineer its business processes in May 2003; advised liquor company Shaw Wallace on opening new breweries in September 2003; consulted with engineering and construction firm Larsen & Toubro on strategy matters; and advised Prime Minister Atal Behari Vajpayee on foreign investment issues.

McKinsey maintains one office in Delhi staffed 24/7 with 300 workers who provide the firm with support for visual presentations and graphics, and another near Delhi employing 12 highly–educated staffers who perform statistical research for McKinsey consultants. But, as Davis argued to the Financial Times, “From McKinsey’s point of view, offshoring doesn’t mean anything for us. Offshore from were to where? ” He added, “We have 40 different nationalities working in the London office.

So offshoring to India wouldn’t mean anything because you could argue we are as much Indian as anything else. ” And it isn’t all about outsourcing, offshoring, or whatever else you might call it. In fact, McKinsey has approximately 130 consultants on the subcontinent Visit the Vault Consulting Career Channel at www. vault. com/Consulting — with insider firm profiles, message boards, the Finance Job Board and more. 5 McKinsey & Company The Scoop as of 2004, and the firm’s efforts in India have established it as one of that nation’s most prestigious employers.

Many Indian consultants have graduated McKinsey to lead major corporations and projects of their own (ex–director Ashok Alexander went on to head the Bill and Melinda Gates Foundation in India, and fellow alumnus Pulak Prasad is a leader at Warburg Pincus, to name just a couple). “We are a breeding ground for leaders and we start working on people from Day One,” Pramath Sinha, an India–based McKinsey principal, told The Economic Times of India. Along with its consulting peers, McKinsey took a hit from the dot–com bubble and the effects of September 11.

The dot–com boom was good to the firm for a while, and it took on more than 1,000 web–related engagements during 1999 and 2000, reaping record revenues of $3. 4 billion in 2000. The firm was somewhat shielded when the bubble burst as it had limited the practice of accepting equity stakes from clients in lieu of start–up fees, a common practice among competitors. But McKinsey still suffered when it was stuck with some of these worthless shares, and income from many previously high–flying e–commerce clients quickly dried up.

Jumping ship

The firm’s Internet troubles actually started before the bubble burst, as many of McKinsey’s best consultants jumped ship to latch on to alluring web–related ventures. In 1999, the firm’s San Francisco office saw a third (150 members) of its staff walk out the door. One year later, though, McKinsey had more employees than it knew what to do with. Out of the 3,100 MBAs who were extended offers in 2000, McKinsey expected 2,000 acceptances, but the firm received more than 2,700. “We honored every offer and didn’t push people out,” then–managing partner Rajat Gupta told BusinessWeek in July 2002, “and we had no professional layoffs other han our traditional up–or–out stuff. ” This “stuff” was reportedly on the rise as of 2001, when 9 percent of all analysts and associates were shown the way out, compared with just 3 percent a year earlier, the New York Times reported. The post–September 11 recession led to some belt tightening among non–consulting McKinseyites; in November 2001, the firm announced that it would cut 5 to 7 percent of its 3,000 support staff in the United States and Canada. Other cost–trimming measures, the Times reported, include cutbacks on travel, training retreats, and “even the Reese’s Peanut Butter Cups at the firm’s New York reception desk. Bankruptcy blues McKinsey rarely publicizes the names of its clients, but its association with some troubled companies has put the firm in the headlines. In recent years, McKinsey’s association with bankrupt entities including Enron, Swissair, Global Crossing and Kmart occasioned some grumbling among outside observers about the value of the high–priced advice it provides. In May 2003, McKinsey’s services were called into question during bankruptcy hearings for client United Airlines.

Bankruptcy lawyers charged that the firm’s restructuring–advice fees, which included a $1 million–a–month flat fee for McKinsey, were unwarranted for a company that couldn’t manage to pay its debts. UAL dismissed the concerns and retained McKinsey. McKinsey was also caught up in a client’s bad luck when it made headlines for failing to predict an $800 million takeover bid of client Ocean Spray by rival Northland Cranberries Inc. in early 2003. McKinsey had advised Ocean Spray since late 2002 and, against the wishes of the company’s struggling growers, had advised the cooperative’s management to avoid selling any of its businesses.

The collective rejected Northland’s overture in February 2003, but the pro–sale growers won a vote to replace Ocean Spray’s board of governors with a new, smaller panel, and the company cut 58 of its executives the following month. The sinking “E” But Enron provided the firm’s biggest PR headache in recent years, especially since disgraced CEO Jeff Skilling joined the doomed enterprise from McKinsey, where he’d worked with the fledgling company to develop a transaction– and services–based, minimal asset approach to corporate operations.

To make matters worse, the firm touted the Enron model as a success story after Skilling left to head the corporation. As it transpired, the transactions and services on which Enron grew its numbers were largely illusory, the result of exchanges between Enron subsidiaries. When the model could no longer sustain itself and the word got out, Enron collapsed, taking much of the stock market with it. McKinsey consultants working out of Enron’s Houston offices had racked up millions in fees – topping out at more than $10 million during one year – for dispensing strategy advice.

Aside from its association with troubled clients in a turbulent economy, McKinsey’s struggles in recent years have come from internal growing pains, as well. The firm’s obsession with excellence reflects the company mantra, “100 percent to the third power,” meaning that the firm seeks to bring 100 percent of firm capabilities to bear on 100 percent of McKinsey clients, 100 percent of the time. However, an internal report from 2001, quoted in a May 2002 Wall Street Journal article, shows this thorough approach to be a possible weakness.

The article, “Growth at McKinsey Hindered Use of Data,” cites an internal study, referred to as Project Coolkat, which concluded that rapid expansion had hindered the firm’s ability to keep track of its own information, leading to poor client performance. “It takes much too long to find the right knowledge,” the report states, “and in many cases, the best existing knowledge is not identified and brought to the client. ” Furthermore, the report calls the work satisfaction and professional development of McKinsey research staff “unsatisfactory … Moving forward, this is not acceptable. The firm notes that “most of our most important knowledge is in the heads of our most senior people, exchanged primarily through conversations – not through knowledge workers or electronically. At no point over the last decade has McKinsey ever been anything but the best consulting firm in delivering business knowledge to clients. ” Shortly thereafter, the firm launched a new initiative to improve researcher training and a major budget increase for McKinsey’s “knowledge–management” processes and systems, $35. 8 million in 2002 versus just $8. 3 million in 1999.

But a senior partner quoted in the WSJ article was quick to point out that there was “no demonstrable link – in fact there’s no link whatsoever – between our decision to invest in upgrading our knowledge–management systems and any specific client. ” Where the elite meet There’s no doubt that McKinsey’s obsession with excellence and client privacy have given the firm a sheen of prestige and even elitism. McKinsey, which rarely reveals the names of clients and issues few press releases detailing its activities, is sometimes characterized as a “secret society. But McKinsey takes issue with this: “Only after many years have passed and if our clients themselves publicly refer to our involvement, do we acknowledge that we have served a company,” the firm contends. “This policy is not the result of some cultivated secrecy or mystique. It is what we believe is professional behavior and the appropriate posture given our conviction that we supplement our clients’ leadership, but never replace it. “

Its staff roster of PhDs and Rhodes scholars is also closely guarded, though some personalities are too well–known to keep under wraps. In February 2003, news was leaked that former First Daughter Chelsea Clinton got a $100,000 offer to join McKinsey as an analyst in the London office. But Clinton, a graduate of the Oxford international relations master’s program, held out for an assignment in New York in order to be closer to her parents. She got the $120,000–a–year job in March 2003, and has reportedly been pulling 80–hour weeks as she works on projects dealing with health care.

McKinsey’s intelligence arsenal is bolstered by a global network of more than 900 knowledge professionals, most of whom are aligned to specific industry, functional or geographic knowledge domains. These professionals do research on topics related to specific client engagements, allowing consultants to focus on the client proprietary dimensions of a study. In addition to business research, this group also plays a lead role in the creation, codification, organization and dissemination of McKinsey’s vast knowledge base and spearheads the design, development and deployment of all knowledge related technologies.

Recent enhancements include new search technology applied across its vast document collection and a unique expertise location approach that enables consultants to identify colleagues from around the world who might be able to help them with a specific problem. Indeed, this group may be tapped at any point during their careers, even after leaving the firm. Like the Hotel California, McKinsey is a place from which alumni can check out any time they like, but they can never leave.

The firm publishes a volume listing every living person who has ever worked for the firm, where they live, and their current occupation. Its cover cautions: “This directory is to be used exclusively by alumni of the firm. ” There are approximately 10,000 McKinsey alumni all over the world, and each year they’re invited to a party where they can mingle with current consultants. This alumni network is likely to become ever more far reaching–the firm currently employs 6,000 consultants from 90 countries.

McKinsey alumni, as previously noted, have often left the firm to take on more visibly prestigious roles – in addition to the infamous Jeff Skilling, more successful careers have been forged by alumni such as Bruce Henderson, a former McKinseyite who was named CEO of Imation Corp. in May 2004, and J. D. Hickey, a 33–year–old McKinsey alum who was appointed to lead Tennessee’s health care program, TennCare, after having advised the program with the firm for three years. The complex web of current and former McKinseyites forms a unique decentralized structure for such a large corporation.

McKinsey’s managing director is elected every three years by these directors, in a process some compare to the election of a new pope. In March 2003, Ian Davis, who headed the firm’s British office for eight years, was tapped to replace Rajat Gupta, who served the company’s maximum of three three–year terms. Davis, a holder of undergraduate degrees in policy, philosophy and economics from Oxford University, has been with McKinsey since 1979. The Davis era Davis’ election was seen as heralding changes for the firm. Gupta, who presided over McKinsey during its – and the economy’s – period of dizzyingly apid expansion, became associated with that aggressive growth strategy. But observers say Davis, who publicly emphasizes McKinsey’s “core mission and values,” such as a client–centered, meritocratic approach, may usher in a calmer era at the consultancy. Consultants say that he is putting the recommitment to McKinsey’s core values in action. In June 2004, the company held a special day of workshops to discuss the core values of the firm and commitments to serving clients. In July 2004, Davis told the Financial Times of London that the heady years of the dot–com boom “did put severe strain on our basic values.

In the kerfuffle, I think some of them got lost. We didn’t knowingly move away from them, but my sense is that after this period we need to affirm our basic approach and values. ” (Another of those values – privacy and lack of personal status–seeking – is illustrated by the fact that Davis didn’t give his first interview to the press until more than a year after his election as managing partner. Though the firm guards its staff rolls as closely as its client list, it’s clear that the company has taken pains to retain its best and brightest during the weakened post–September 2001 economy.

In addition, one– to two–week role–change courses are provided at each career milestone. McKinsey also provides an array of workshops and learning opportunities in a range of topics, including communications, functional skills, coaching and team leadership, and negotiating skills. Publish or perish McKinsey has built a solid reputation as a publisher of management–related booklets, documents, papers and magazines, including the well–regarded McKinsey Quarterly. McKinsey partners also often write books independently of the firm.

McKinsey also analyzes its own business approach, hoping to understand the difference between change that is fundamental and change that is fundamentally faddish. For example, the firm acknowledged that McKinsey itself had put client service ahead of wealth creation for clients during the recent Internet euphoria, but now applies the principles of strategic thinking, industry and functional knowledge, and analytical rigor to today’s environment.

Thanks in part to the vast amounts of research produced by the firm, McKinsey is known as a preeminent information source on globalization, governance, organizational performance and corporate strategy. The McKinsey Global Institute (MGI), established in 1990, operates as an independent economics think tank within McKinsey, conducting research and developing positions on issues affecting businesses and governments worldwide. The Institute’s approach “combines the rigor of academia with the real–world experience of business,” according to the firm.

Through its research, MGI has amassed a fact base that covers more than 15 countries, four continents and more than 28 sectors. Located just steps from the White House in Washington, D. C. , the Institute been estimated to spend more than $100 million a year on its information gathering and internal research. Reports released in 2003 include a study of multinational company investment in developing economies; an analysis of the benefits and impact of offshoring worldwide; and reports on improving productivity and competitiveness in Europe. Going nonprofit

Another of McKinsey’s specialty areas, the nonprofit world, got a jumpstart in 2001 when the firm launched the McKinsey Institute on the Nonprofit Sector, appointing Senator Bill Bradley as chairman of its advisory board. The practice coordinates the firm’s community and pro bono activities. Each office devotes 5 to 10 percent of its consultants’ time to work for nonprofits, and more than half of its North American partners are on the boards of at least one nonprofit organization. The firm served more than 200 nonprofit and/or public sector clients in 2003, representing an in–kind contribution of well over $100 million.

The Big Apple office has also done work for the United Way, the World Economic Forum and the New York City Opera. On the tech track In a hyper–competitive consulting arena, McKinsey’s efforts at going high–tech in response to more IT–centric rivals like Accenture has gotten off to a rocky start. The firm admits that previous attempts to build a major IT consulting capability, through acquisition and then through the creation of an IT practice, “could not achieve sufficient scale to ensure long–term success. As a result, the firm formed the Business Technology Office (BTO), in 1997, the only McKinsey office not tied to one specific geographic location. The office helps companies implement IT strategies, improve their operations, strengthen the value of their customer relationships and craft innovative approaches to IT architecture and IT management in areas such as post–merger integration, prioritization of IT investments and strengthening of the IT organization. The strategy seemed to pay off – the number of consultants in the BTO grew by 30 percent in 2003.

Still, word on the street indicates that McKinsey, along with many of its high–powered peers, may be facing competition in the high–tech arena from newer consultancies with IT–centered backgrounds, especially those spun off from high–tech companies themselves, such as IBM’s Global Business Services unit. Private equity is another new area for McKinsey, and it offers advice in strategy/organization, opportunities for growth, deal assessment and due diligence, and cross–portfolio support.

The firm’s recent projects have been global in scale: In 2004, as in previous years, a group of McKinsey delegates joined the World Economic Forum in Davos, Switzerland, addressing topics such as the benefits and challenges of offshoring, business opportunities and trends in China, and the balance between risk and control in managing corporations. In May 2003, the firm took on the role of investment advisor for the privatization of the oil group Unipetrol in the Czech Republic. In July 2003, the firm issued a report on the use of the English language in South Korea.

Also in 2003, McKinsey began conducting a comprehensive analysis of the global coffee industry on a pro bono basis, in addition to advising the Colombian Coffee Federation on a new retail strategy. In May 2004, the firm was tapped by the Confederation of Indian Industry to study and suggest changes to the laws governing mining operations in India. At U. N. Visit the Vault Consulting Career Channel at www. vault. com/Consulting — with insider firm profiles, message boards, the Finance Job Board and more. The Scoop eadquarters in June 2004, McKinsey issued a report on the Global Compact with the business community, which U. N. Secretary–General Koffi Annan had proposed five years earlier (the compact, aimed at summoning corporate responsibility for issues such as human rights, labor, and the environment in developing nations, is working, the report concluded). Closer to home, Tennessee’s largest insurer, TennCare – now run by a former McKinseyite – has paid the firm more than $4 million as it works to reform the troubled health care system, with a $1. 8 million two–month contract renewal signed in June 2004.

McKinsey also has been under contract to produce a report suggesting ways to improve the city government in Dallas. 14 © 2004 Vault Inc. McKinsey & Company Organization Managing Director: Ian Davis Appointed managing director in March 2003, Davis, 52, had already spent 23 years at the firm. Based in London, he is McKinsey’s tenth managing director. He holds a degree in politics, philosophy and economics from Oxford, and joined McKinsey in 1979 after a seven–year stint at paper manufacturer Bowater. His work for the consultancy has been wide–ranging, but mostly has fallen within the consumer and retail industries.

Davis got good practice in leadership heading the firm’s U. K. operations, among the firm’s larger offices, for eight years. Before that, he ran the firm’s consumer industries practice in Europe. Unlike many of McKinsey’s directors, who are known as a little bit dull, Davis is said to be outgoing, charming and highly visible, especially in his native Britain. Oddly, too, for a McKinsey man, he doesn’t have a graduate degree. He’s also veddy British – again, a departure for McKinsey, where each managing director before Davis’ predecessor, Rajit Gupta, was American.

Davis’ grandfather was a professor at Oxford, his daughter is a fifth–generation Oxford student and his three brothers are all “highly distinguished,” as a BusinessWeek article described them – one’s the CEO of publisher Reed Elsevier, one’s a judge and the other, a lawyer. And fittingly, Davis is a “keen sportsman,” fond of cricket, rugby and tennis. Though Davis had some big shoes to fill – Gupta presided over a period of unprecedented growth at the firm – his first year at the firm was met with favorable reviews.

The firm’s client base consists primarily of diversified, international corporations in all sectors of business and industry, such as financial services, e–commerce, retail, health care, consumer products and technology. According to the company, its clients have historically outperformed the stock market by three to one. Booz Allen Hamilton: Booz Allen racked up $2. billion in sales in 2004, and is a powerhouse in government–side consulting, landing major contracts with the Department of Health and Human Services, NASA and other agencies. Booz Allen garners 80 percent of its revenue from previous clients. Not a pure strategy firm, it puts an emphasis on transforming businesses rather than merely prescribing change. The firm reports spending one–third to one–half of its time helping clients implement its recommendations. Booz’s industry practices compete with McKinsey. Boston Consulting Group: BCG insists it’s McKinsey’s main competition, and McKinsey reluctantly agrees. BCG, a global powerhouse employing more than 2,600 consultants in 60 offices in 37 countries.

Founded in 1983 by a group of professors and consultants, including Michael Porter (a consulting guru and creator of popular case interview framework Porter’s Five Forces), Monitor tries to bridge the gap between academic ideas and business realities. The firm has developed a number of practices and expanded its client list to include everything from Fortune 500 companies and international firms to government agencies and major nonprofit organizations. Through its 28 offices in 23 countries, it offers advisory services in areas including private equity and venture capital, e–commerce incubation, and mergers and acquisition–related transactions. 20 © 2004 Vault Inc. McKinsey & Company

Vault Newswire July 2004 Managing director Ian Davis gives his first interview to the media, for London’s Financial Times. July 2004 McKinsey alumnus J. D. Hickey, who advised the TennCare program while with the firm, is appointed by Tennessee’s governor to lead the state’s health care system as director. June 2004 Tennessee health insurer TennCare signs a contract extension with the firm for an additional $1. 8 million. June 2004 McKinsey issues a report to the United Nations on Kofi Annan’s Global Compact with the world’s business community. May 2004 The Confederation of Indian Industry hires McKinsey to review the nation’s mining laws.

Gupta also notes that during the height of dot–com fever, turnover rose to 21 percent at the firm. May 2000 McKinsey signs on as the strategic advisor to Apollis AG, a new company founded by General Atlantic Partners that will create and support wireless applications in Germany and soon, throughout Europe. This alliance signals McKinsey’s increasing efforts to expand into the trendy wireless space. March 2000 McKinsey says it will raise associates’ pay. Crain’s New York Business reports that the total compensation package for incoming MBAs will be in the $150,000 range. February 2000 In a hotly contested battle, managing partner Rajat Gupta is reelected for his third three–year term.

A report the following month in The Economist maintains that Gupta withstood internal challenges to the throne from Ian Davis, manager of McKinsey’s London office; Clay Deutsch, former head of the Cleveland/Pittsburgh office; and Michael Patsalos–Fox, the New Jersey office manager, among others. Visit the Vault Consulting Career Channel at www. vault. com/Consulting — with insider firm profiles, message boards, the Finance Job Board and more. 23 McKinsey & Company Vault Newswire January 2000 A McKinsey study of the Indian technology industry concludes that the industry could grow to $87 billion by 2008 if the government can improve its telecommunications infrastructure. In addition, McKinsey says that the IT industry has the potential to provide India with 2. 2 million new jobs, attract foreign investment totaling $5 billion and account for more than 7. 5 percent of India’s GDP by 2008.

In an effort to recruit and retain the best b–school grads and ward off growing competition from dot–com companies, McKinsey decides to offer its associates the opportunity to invest in Internet startups. Junior consultants can also, for the first time, buy stakes in investment funds that would not normally be open to them. September 1999 McKinsey puts Ogilvy & Mather, the venerable agency known for its work with IBM, American Express and Ford, in charge of its first–ever advertising campaign. August 1999 President Clinton announces his intention this month to name Dr. Martin Baily to chair the Council of Economic Advisers (CEA). Baily is a principal at McKinsey, based at the McKinsey Global Institute in Washington, D. C.

Our Survey Says The chosen few A life with The Firm is “crazy and exhilarating,” sources say. “It is a place where you meet tons of people who are extremely smart, but unique in a very diverse fashion,” says an insider. Your colleagues might include a quantum physicist, “top lawyers,” people who hold “PhDs twice over in information science,” even an “orchestra director. ” Indeed, “There is an overpowering feeling at McKinsey & Company that you are among the chosen few, that you are the best and the brightest. Having survived the grueling interview process, you do indeed feel that you have reached some sort of career pinnacle,” a consultant relates.

Others describe life at McKinsey more simply as “a roller coaster. ” And as you might expect, “whenever you stick overachievers together, it’s competitive. But there’s no backstabbing,” says a source. Another insider says, “To outsiders, we must look extremely competitive. We’re told we should never feel comfortable doing what we’re doing, that we should always be reaching to do more. But the people who come here thrive on challenge, and you’re only competing with yourself. ” McKinsey gets kudos for its professional culture as well. Consultants say the firm’s “values–driven culture rewards people for doing the right thing, not the profitable thing. Another insider agrees, “You are always encouraged to improve yourself. The work is stimulating, for you have the opportunity to tackle complex issues for blue chips. The resources at our disposal can be impressive. ” “You work with the best people and the projects provide you with opportunities to learn, present to executives and build a strong network,” says a colleague. Still, despite all the prestige and glamour, “All that glitters is not gold,” remarks one consultant. “You expect this place to be an Eden, but it’s not. There are stains on the carpet. Sometimes you work on a project and it winds up being fairly uninteresting. Sometimes a client changes his mind on a project plan and the result sucks. McKinsey’s rigorous selectivity is wellknown. Insiders say it’s “not easy” to get an offer from McKinsey, partly because “the job market has changed,” and “the bar is set much higher now. ” “Relative to other consulting firms,” boasts one insider, “it is the most or among the most selective. ” This means that “when people get offers from us and from others, the vast majority end up coming here. ” But it isn’t enough just to be an Ivy–league MBA with a gleaming transcript, insiders note: “Given two people with the same analytical skills, we always want someone who is fun,” says one McKinsey recruiter.

Another says that while there’s a “pretty good balance in terms of hours and keeping weekends free … being out of town is always tough. ” But a colleague suggests this may depend on who’s managing your projects: “Your time is almost entirely controlled by the EM, with late night conference calls with the partners, who frequently show up late. Get lucky enough to have an EM who cares about lifestyle (they’re rare), and you might get out at 8 p. m. regularly. Get the more typical EM in a busy office that’s overscoping and understaffing projects, and the late nights are the usual. ” Another senior consultant says that while increased work–life balance is now “part of the conversation” at McKinsey, a “sustainable life” is still a challenge.

Of course, as one associate puts it, “If balance is important to you, consulting is not the place you want to be, and definitely not McKinsey. ” But, the source adds, “we try to do ‘sanity checks’ on the workload, because all these overachievers will kill themselves with the pace. ” Another insider notes that those sanity checks “are a matter of common sense. When you work 70 to 75 hours per week for a while, you realize it just isn’t sustainable. ” As for travel, insiders report that there’s “a lot,” “which does not add to the happiness. ” For their troubles, however, consultants can expect plenty of “creature comforts during travel” like nice hotels and first class seats on long flights.

The royal treatment

Indeed, consultants at McKinsey get the “royal treatment” as a reward for their travails, sources suggest. Salaries at the firms are reportedly among the highest in the industry. One McKinsey insider notes, “Future increases in pay are based on the previous year’s pay, so you basically have to push for a large first–year package to make the biggest bucks later on. ” One McKinseyite warns: “You cannot negotiate with McKinsey. Your pay each year gets decided. ” Pay at the firm is based on individual performance; McKinsey’s senior partners receive salaries in excess of $1 million a year. In addition, “The firm tosses a substantial amount into your 401(k) every year, based on performance of the firm and your own performance.

There’s also a regular performance bonus that starts at $10,000 and goes up beyond $25,000 in year one,” an insider reports. Others report receiving signing bonuses, a low–rate home loan, and an interest–free loan for “settling in. ” The company provides a choice of health plans, two of which offer fully paid premiums, along with “fully–paid dental, life, STD and LTD, flexible spending plans and opportunities for group discounts with car insurance and mortgages. ” Adoption assistance and “generous ” maternity leave are also provided, and office perks include free beverages, free lunches and dinners when work is pressing, and free cab rides to and from work during early and late hours.

The firm also offers “monthly social events (bowling nights, creative art gatherings) and lots of opportunities to pick up free tickets to various sporting events. ” After reaching the rank of engagement manager, McKinseyites receive a personal assistant. The company is also generous to those who decide that McKinsey just isn’t for them (estimates of turnover range from 20 to 25 percent annually). When the time has come to part, one insider says, “The firm will continue to pay your salary until you find a job you like. Not just until you find a job, but one you like. ” No such thing as “good enough” For those who remain, the firm has a reputation for being, in the words of one consultant, “up–or–out, baby! ” – but it also helps ambitious consultants move vertically. McKinsey is all about the performance review, constantly giving every consultant the next, very specific list of things to work on and ‘upping’ the bar each time you succeed. If you love to constantly be challenged to the next level, you’ll love it here,” says a source, who adds, “If incessant evaluation will make you crazy as a loon, try somewhere else”.

‘Meets expectations’ is a failing grade around here – you’re always supposed to do more, to add value that you weren’t asked for. ” That leads to a lot of performance pressure, which isn’t always good. He continues, “The expectations are so high, you never feel that your work is good enough. You want to be recognized a little, take a short breather, maybe say, ‘That’s good enough. ‘ Management is so used to overachievers that they don’t remember the ‘I care about you’ human factor, the praise you need for a job well done. ” A colleague adds, “Sometimes you’ll wish they didn’t advance you so fast.

Just when you begin to get confident at one position, they’ll fling you into the next. ” Another describes the corporate ladder at McKinsey as “fairly self–weeding,” noting that “fewer than 10 percent starting at McKinsey at entry–level move up to partner. Some people thrive on the hard work and competitiveness; many others find greener pastures. ” A typical path for McKinsey promotions is described as “about two years to manager, another two years to junior partner (associate principal), and another two years to partner. ” To help its consultants become ever more promotable, says a consultant, the firm invests in intense mentoring and on–the–job learning.

MBA–level consultants are able to take a training program called ILW after two years on the job. “It is some of the best training in the world – you lean about problem solving and communication. It’s done all over the world in groups of about 20. In my group, we had people from 13 different countries. ” McKinseyites learn from the masters, too, as interaction with firm and client higher–ups is the norm: “You can easily meet the partners,” says a source. Another says that “I’ve interacted with around a dozen CEOs in my five years with McKinsey. ” Minority report McKinsey insiders say that the firm’s “diversity is pretty broad from the perspective of background, but not nearly enough from a gender or racial perspective. A consultant notes that “women are fairly numerous (30 percent) in the associate class, but dwindle quickly as you move up the ranks – probably due to lifestyle issues as much as anything else. ” The company reportedly has launched initiatives to encourage workplace diversity, though another source observes that “newly–minted MBA consultants tend to be white and male. ” “African–Americans are the most under represented of all minorities at McKinsey,” says a colleague. As for gays and lesbians, the firm “offered domestic partner benefits early on,” a source reports.

Target your search by area of consulting, function and experience level, and find the job openings that you want. No surfing required. VaultMatch Resume Database Vault takes match–making to the next level: post your resume and customize your search by area of consulting, experience and more. We’ll match job listings with your interests and criteria and e–mail them directly to your inbox. McKinsey & Company Getting Hired Early birds only Students wishing to join McKinsey’s hallowed ranks should start gathering resources for the highly competitive process early. Both MBA and undergrad scholars should check with their school campus career centers as early in the year as possible to find out whether McKinsey recruits on their campuses.

If so, sign up quickly for an interview – the slots are likely to go fast! Those who aren’t lucky enough to be graced by an on–campus visit shouldn’t fret. McKinsey accepts applications online from students who don’t attend the firm’s target schools, as well as from working professionals and non–MBA advanced degree holders. The career section of McKinsey’s web site includes helpful information for job candidates from undergraduate, MBA and advanced degree programs, as well as experienced professionals. It also walks applicants through a sample case study. Insiders tell us there is “no internship program for analysts,” though the firm, of course, offers MBA–level internships.

Undergrads who join the firm as analysts are “retained for 18–24 months,” according to sources; after that, the entire class is cut loose to go back to school or seek employment at another firm. A return trip to the mother ship is quite possible. “If they like you and want you back, they pay for grad school,” says one source. One insider thinks the company could improve by “adjusting the promotion system to promote high–performing analysts without an MBA. ” In the past, there have been instances of analysts being promoted straight into the associate ranks, but more than one insider describes these as “extremely rare. ” We are told “there are no promotions when times are bad. “

Interviewing

During the interview process, the site says, McKinsey looks for people with strengths in problem solving, influencing others, leading others and building relationships, and achieving goals. Prospective candidates can find interviewing tips and a practice case study online. McKinsey encourages candidates to use its online application system. After the boom period of the late 1990s, the interview process has changed, insiders note. “Now there’s a much bigger structure – cases, group interviews and presentations,” a source reports. Another says it’s “very rigorous. “

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Ethical Businesses Have a Greater Probability

Undoubtedly some of your stakeholders are being negatively Impacted by your dealings. If this is true then you will not receive the best possible performance from whoever is feeling the effects of the unethical behavior. This must affect your overall profits In some way, shape or form. “Leading firms In a range of fields, including energy, banking, auditing and investment have been assessed huge fines for unethical dealings. Executives have been Jailed. (Holland, 2011) Unethical is defined by Argosy University as; “not conforming to approved standards of social or professional behavior; “unethical business practices”” In a large reparation such as suggested above, when you do not adhere to ethical practices, someone will know. There will be tons of attention on your business simply due to its size and scope. When this happens it can be like a snowball effect and before you know it, sales, community support and stock prices can plummet It Is hard to run a profitable business when you have to deal with negative and potentially global scrutiny.

Let’s take for instance Enron. This was a huge corporation that was highly respected around the world but after what is now known as “The ENRON Scandal is unconsidered to be one of the most notorious within American history” (Finance Laws. Com, 2002), they no longer exist. “Due to the actions of the ENRON executives, the ENRON Company went bankrupt. The loss sustained by investors exceeded $70 billion.

Furthermore, these actions cost both trustees and employees upwards of $2 billion; this total is considered to be a result of misappropriated investments, pension funds, stock options, and savings plans ? as a result of the government regulation and the limited liability status of the ENRON Corporation, only a small amount of the money lost was ever returned. (Finance Laws. Com, 2002) Tens of thousands of people lost their investments, retirement funds and their trust in corporate America. If this Is not proof positive that unethical behavior will eventually fall short in the profit department, I do not know what is. OFFS take a firm stand on ethics” (Choctaws 1990, 50). ” Source: http://www. Livableness. Com/ human-resources/employee-development-employee-ethics/ 401975-1 . HTML#tizzy embower Now let’s talk ethical profit. There are thousands of companies out there that operate solely based on ethical practices. I could not possibly list all of them, however one in reticular comes to mind; Google, Inc. Here is a company that believes in the exceptional treatment of its employees. They firmly believe that thru the good and fair treatment of their stakeholders, they can enjoy and share their profits and ensure sustainability for the future.

Google has been operating under the “Ten things we know to be true” philosophy and so far so good. After reading them I thought two really applied here; “#1 : Focus on the user and all else will follow. This shows a true concern for the reason it all got started; to provide a service to people who want an easier way to find things. The great part is they remain focused on that today even though money and profits come from ads and sponsors. “we take great care to ensure that they will ultimately serve you, rather than our own internal goal or bottom line. (Google. Com, 2009) This is a main, yet small part of their ethical business practices. My favorite one is number 6, it really goes in line with what we are discussing here; “#6: You can make money without doing evil. ” (Google. Com, 2009) This goes on to include subheadings showing a concern, not only for their advertisers and sponsors, but also for the end user. “We don’t allow ads to be displayed on our results pages unless they are relevant where they are shown. ” * We believe that advertising can be effective without being flashy.

We don’t accept pop-up advertising, which interferes with your ability to see the content you’ve requested. * Advertising on Google is always clearly identified as a “Sponsored Link,” so it does not compromise the integrity of our search results. We never manipulate rankings to put our partners higher in our search results and no one can buy better Page Rank. Our users trust our objectivity and no short-term gain could ever Justify breaching that rust. (Google. Com, 2009) What a great focus… This company has set the bar for others to follow.

They were nearly an overnight success that managed to stay tuned to what got them there and also know how to treat their employees by allowing them to share in their success. The company now has a Market cap of $197 Billion, trading over 325 Million shares at more than $600 a share! Opinion What we are talking about here is not only a matter of what we do but also how we do it and why we do it. Should we always do the right thing Just because it is right? Well, yes. “Honesty is the best policy. I know, I’ve tried it both ways. ” Richard W. Sears (Sun, Douglas. “Sears, Roebuck and Co. ” in International Directory of Company Histories, Volvo. , 1992, Detroit: SST. James Press, p. 180. )” (Michael J. Booker, 1997) Moreover, I believe we should do the right things because we are always being people for guidance. Maybe it’s because they don’t want to read a set of rules that they won’t understand or maybe they are Just lazy. Whatever the reason, it is true that people tend to follow the lead of others. “In practical terms, this means that most dulls are looking outside themselves for guidance in ethical dilemma situations, either to significant others in the relevant environment (e. G. , peers, leaders) or to society’s rules and laws.

It also means that most people need to be led when it comes to ethics. ” (Brown, 2004) Back when I was Just a child I learned that if you did the wrong things you would get caught… Maybe not right away but you would nonetheless. I think I was around 8 or 10 years old and we used to go into this local “Mom/Pops” grocery store that was owned & operated by a really elderly man named Tommy. He couldn’t hear or see very well and as an immature young boy with no money might do, I used to steal “penny fish” (which back then actually did cost a penny), chewing gum and other assorted candies.

I always felt bad about it but never bad enough to stop until the time I got caught. I don’t remember all the details but I do remember that I had to work for him doing odd Jobs cleaning and such. A little later in life I felt the pain that old Tommy must have felt when I came downstairs one morning heading out to my car to go to work and saw the door to my car wide open. Of course I had locked it but sure enough there it was wide open. When I looked inside I found that someone had stolen my prized pool cue, my newly acquired hi-powered stereo and a small amount of money that was left in the car.

I had a strong, sick feeling in my gut that I will never forget. That was the day I knew that I would never cheat, steal or hurt someone Just to get money. I had worked hard to buy that pool cue and stereo equipment and someone stole that from me, Just the way I had done to poor old Tommy. “Ethical decisions are heavily dependent on the complex interplay of the individual aloes of top level management and have little to do with personal values. The small business owner/manager does not have the same constraints or guidance and can employ personal values to a much greater degree. Source: http:// www. Livableness. Com/human-resources/employee-development-employee-ethics/ 401975-1 . HTML#tizzy arranging Although the above quote may be true, I took a look at companies that people/ employees love and what I found affirms my beliefs about ethical behavior being profitable even in the big leagues. There was a list of the Top-25 companies to work or and what they all had in common was a sound ethics based philosophy, good employee relations and strong community support. Oddly enough, these businesses were all Fortune 500 companies… Mm; maybe they are on to something huh? At #7 in the rankings was Colgate-Palmolive who employs more than 40,000 personnel, has a market value of $40 Billion and a 97% CEO approval rating. (Fortune Magazine, 2011) At #6 Southern Company is a great place to start a career with many learning opportunities, employs 26,000 personnel, is valued at more than $57 Billion and favorite company, Google whom we discussed earlier in this debate. Conclusion “According to Erosion’s theory of psychosocial development, the final stage of individual development is called “Integrity” (Wolff, 1995, p. 6)” (Sergeant, 2007) Not only is this statement true but it also happens to be the Air Force’s first Core Value… “Linearity First”. This is followed by; “Service before Self” and “Excellence in all We do”. These three Core Values have been the mainstay in my life for the last 20 years. Without them I am not sure where I would be today. The Air Force values and the values/beliefs instilled in me by my parents are the only thing I know and they eave led me down a road that I am very proud of. I sincerely plan to live my life continuing on with these beliefs because I know they are both morally and ethically sound.

I have seen many different values, beliefs and moral subsets in my 20 years with probably thousands of people displaying them. Each person is unique in how they think and act, however the ones who have performed the highest have always led their lives thru good ethical conduct. Very recently, I was helping one of my troops move into a new apartment when I discovered a few items with Air Force markings on them… Thing really, Just a couple of broken drop lights. When I questioned the troop about these items he said they were in the garbage so he took them to see if he could fix them.

Although a little leery of the reply, I figured it was Just trash. As we continued packing I couldn’t shake the feeling that it Just wasn’t right or that there was more to the story. Before I was ready to re-attack the subject I located several other government tools and staying with the Core Values I had no choice but to notify the proper authorities. This person was a 22 year Test who was Just starting the retirement process. Did this act negate the last 22 years they gave to their country? Should I have given this instance separate consideration from that of say a 2 year Airman First Class?

Trust me, pondering this over and over again in my head nearly drove me crazy for several weeks but in the end, I know that I did the right thing. This person had stolen tools and equipment from the same Air Force that provided for them and their family for 22 years. If they had thought about it for even a minute longer than they did and utilized the Core Values they were taught, then this would never have happened. We must always stick to our guns both personally and professionally. If you do not agree with the standards of conduct at your place of employment, I suggest finding another Job.

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Enron’s Financial Mistakes

The history of accounting scams is as old as accounting and in the past it was mostly, if not all, unintentional and less crooked. But, when fraudulent accounting practices were found as a means to favorably convert financial information, efforts were started to think seriously about the techniques of misstating the statements and intentionally deceive the stakeholders, especially investors. The accounting scams in the US such as Enron and WorldCom have attracted the attention of professionals as well as general public from every nook and corner of the world.

The collapse of Enron, the seventh largest corporation in the country, as a result of accounting scams, was a real shock to the entire business community in general and accounting professionals in particular and the first of its type in the history of the country. The WorldCom, one of the biggest telecommunication corporations was found committed accounting fraud during 1990s and that led to its eventual bankruptcy. In March 2002, the U. S. Securities and Exchange Commission (SEC) enquired for information on accounting practices and the loans it extended to the officers from WorldCom.

In April 2002, Standard & Poor’s, Moody’s and Fitch downgraded WorldCom’s credit ratings soon after the company cut 3,700 jobs. The U. S. Justice Department has launched an independent probe into the WorldCom scandal and it finally came out with the stunning report that many of the accounting practices of the company were of crooked and deceptive in nature. Some of the reported corporate scandals are exhibited in the following Corporate Scandal Sheet. Enron- The Only Fall of a Giant..? Is Enron the only big company to file for bankruptcy?

Many of the big and famous American firms like Polaroid Regal Cinema, Federal Mogul and Bethlehem Steel have gone belly up. In fact the number of high profile bankruptcies has considerably increased. In 2001 there were more than 32 bankruptcies of companies with billions of dollars in liabilities. This is a huge turnaround from the previous years. Defaults between 1992 and 1998 were pretty low in number. The bankruptcies this time are vastly different from the earlier ones. During the past years the bankruptcies were more specific to the company while now entire industries are in trouble especially in movies, hospitals and steel.

The attitude towards bankruptcies also has changed. Unlike in the past when companies that went bankrupt were given years to try to work out their problems, now, Midway Airlines, a troubled carrier, which following the attacks of September 11 was declared bankrupt and closed for good on the same day (Albrecht, 2003). The Story Behind the Collapse The institution of the American capitalism that had touched and closely advocate to the rest of the world, that every system simply failed by the collapse of Enron’s corporation. Enron corporate failure hits almost all areas like management, Board of directors, Internal and external audit function.

Yet the greatest failure of American free market capitalism was the failure of the securities exchange commission. The most shocking matter in the United States business world is Enron Corporation, one of the most innovative, fastest growing and best managed business houses filing the bankruptcy in the year of 2001 (Consumer Federation of America). The investigation related to the cause may take long periods to get result but the exact reason by which the company failed to operate is the financial oversight issues or Froude in the accounting process.

However the report shows the truth that the accounting system is failed to give the real picture of the firm’s condition. But the independent auditors were didn’t shown any interest to challenge with the management about the fraud. The company was started in the year of 1985 by a merger of Houston natural Gas and intermonth as Enron Corporation. Gradually the company becomes countries first nationwide natural gas pipeline network. Meanwhile the firm’s business activities shifted from the regulated transportation of natural gas in the unregulated energy trading.

The management was guided to the company to make more money through buying and selling financial agreements linked to the value of energy assets than the actual possession of the tangible assets (Louth). And the management of Enron Corporation declares that the company’s revenue was grown as tremendous height from 1990 to 2000 period. In 1990 it was $10 billion and in 2000 it reached to $101 billion and ranked as the 7th place among the fortune 500 companies in terms of revenue (O’Harrow).

The real fact of the corporation was begun in august 2001 by the resignation of CEO Jeffrey Skilling on unrevealed reason. The company reported its first quarter loss in 4 years and stated as poor performance in the business. Hence the during the third quarter loss reached to $618 million against $ 292 million profit a year before. Ultimately the fact comes out when the company approaches to the Securities and Exchange Commission that it is going to restate its earnings from 1997 (Fulcrum Financial Inquiry, 2004).

Under this degraded position several committees were formed in the house and the discussion were hold to clarify case related to Enron’s fall. Hence the committees were found that the final reason for collapse is the mistake done by the finance manager. Ultimately it caused for the collapse of world’s 7th largest fortune 500 company Enron Corporation (McNamee, 2002). Auditing Issues The US federal securities law states to the publicly traded corporations that it should have certified by an independent auditor to its accounting report.

The Enron gives much attention to the outside auditors but the auditor failed to challenge with the management to show financial mistakes did by the company. Hence this cause to the bankruptcy problem and a sharp fall in the stock price (Saporito). Meanwhile the outside investors were misled by the report that it is far larger than generally published. And subsequently the company dismissed the auditor to admit some mistakes in the company report. Under the auditors problem the Securities and Exchange Commission proposed a new board that it is responsible for disciplinary actions.

Accounting issues The Enron corporation argument involves several issues related to accounting. One issue is the rules governing whether the financial announcement of special purpose body established by a corporation should be combined with the corporation’s financial statement and another issues is, the consolidation is not necessary among other things if an independent third party invests as little as 3% of the capital. Similarly certain other concern like autonomy allowed in valuing derivatives particularly non exchange traded energy agreements.

However certain issues concerned to the management under accounting process are its arrangements towards liabilities, which pushed the accounting to give wrong statement (CNN Money, 2004). Pension Issues Similar to the other multinational corporation the Enron followed certain employee retirement plan- “401(K)” in which the employees can contribute a part of their pay on a tax – deferred basis. In the year of 2000 nearly 62% of the assets were held in the company under 401(k) retirement plan. Ultimately the year many employees from the Enron Corporation have its largest percentage of stock in their 401(k) plan.

Under the bankruptcy the value of employee stocks were declined and it caused for beginning of another problem in the corporation (Smith, 2002). Corporate governance issues The role of the board of directors in an organization is to supervise the corporate management to uphold the concentration of shareholders. Meanwhile a conflict raised in the Enron Corporation when Chief Financial Officer attempt to make a private partnership with third party. Securities analyst issues The main aim to keep the securities analyst is to provide information and to make research regarding the various securities followed by a company to its clients.

Under which he recommends the most return oriented stock to buy or to sell or to hold. These recommendations were largely followed by various investors throughout the market. However the analysts couldn’t support the Enron stock because it needs a large infusion of funds from the market. After the collapse its stocks were fallen nearly 99% and majority of the analysts firms were suggested sell option to their clients (LACE Financial, 2003). Finding this recommendation majority shareholders sold their stock at very little price.

So this is another topmost reason for devalue of company stock price. Derivatives issues Enron business majority of the dealings appears in the derivative contracts and it is based on the oil price, gas, electricity and the prices related to the other variables. For concern if Enron trade the long term contracts to vend energy at fixed price, which allows the buyer to hedge their security from the risk. Since the market in which Enron traded is largely unregulated, with no reporting requirements and modest information available concerned with Enron derivative activities.

However on the other hand, the trading process may have been gainful and problem free and Enron’s financial obscurity may consequence of other distinct operations. The failure occurs The problem would occur when Enron’s senior executives remarkably lay, skilling and faster. Yet they tried to convince that they were operating with the approval of board of directors. However the board of directors continuously supporting the outside auditor and they audit the company accounts according to the influence of board of directors.

The accounting system also developed to confirm with generally accepted accounting principles as interpreted by the joint agreement of Arthur Anderson auditors and the consulting unit. But each player in the Enron system believed that they are operating in the same system and each system is linked to the confirmation of others department. Hence everybody in the system was believed and confident about the supplementary players in the system. But even the credit rating organization with their strong accounting system and with analytical expertise failed to understand the Enron’s truth.

And they failed to give a superior recommendation and warning of possible failure to the investing public and financial institutions. The in desperate endeavor to keep up with hostile earnings targets, Enron’s managers become so arbitrary in consigning the firm’s capital in 1999. However the international energy division offered the skilling with a plan that consider earning just $100 million in profit on a capital base of $7 billion. By that performances an amount to loss of several hundred million in terms of financial profits, the CFO faced significant pressure to use deceiving strategy to put off day of estimation.

But certainty in the Enron’s accounts the morality plays a major role. The major part of the responsibility must be allocated to the plan of the company’s performance measures and internal management. The case of Enron Corporation is concern that it is one of the most complex mistake chains imaginable and cases of multiple failure of management multiple mistakes. Once the arrogance becomes the dominant behavior of the senior management at Enron, another dangerous effect took place that had to do with pushing boundaries.

Enron got so used to believing it could alter the rules of the diversion, that it used arrangement so complicated that the only imaginable purpose was to give the manifestation of enhanced performance while disguise of the reality. Hence the corporate culture is the critical part of a company. But when an organization culture is start to discourage the delivery of bad news it will affect the people to speak about what they see. Under this aspect the potential disputes between the senior management and board lead the collectively responsible for its failure.

However it states that the transaction in the company was found excellent in service but the main responsible factor is the management. So Enron’s outside advisor also failed to protect the interest of shareholders. Conflict of interest Traveler and Citibank merged in the year 2000. Since then the two have won market share in underwriting and advising on mergers and acquisition from traditional investment banks like Goldman Sachs, Morgan Stanley and Merrill Lynch. They have done so in part by using huge balance sheets to offer both loans and investment banking services to their clients.

Rivals complain that JP Morgan and Citigroup have made loans at a loss in order to win more lucrative investment banking business. These banks, rivals say, are able to avoid disclosure at least in the short-term, thanks to favorable accounting rules that do not require commercial banks to mark the loan portfolio to the market. However, both the banks deny lending at lower standards. If this is what happened with Enron, then what about its Indian connectionthe Dabhol Power Project (DPC); In Dabhol, Enron owns 65 percent of stake.

Other promoters include GE and US Contractor Bechtel who own 10 percent each and Maharashtra State Electricity Board owning the remaining 15 percent. Indian banks and institutions have sanctioned a total loan of Rs. 6194 crore. And a disbursement of more than 90 percent has already been completed. This includes non-fund exposure of Rs. 3200 crore on account of guarantees to exposure taken by overseas banks and export credit agencies. The individual exposures according to the media are Rs. 2121 crore for IDBI, Rs. 1473 crore for ICICI, Rs. 1749 crore for State Bank of India, Rs. 454 crore for IFCI.

This write-off of such a large lending would close curtains for many of these institutions IDBI and ICICI have already called for a bailout package earlier last year. Things were a lot different when the loan was sanctioned. The interest return was good but now they do not know where they stand with respect to the foreign creditors. They are listening to the legal counsel White and Case. Indian FIs maintain that Dabhol is not a part of the bankruptcy proceedings and Enron’s holdings in DPC is pledged with them and cannot be auctioned by a liquidator.

However, they do agree that legal impediments exist and every thing depends on whether the Indian FIs can push through the third party sale of Enron’s equity. Six major companies have shown their interest in Dabholthree Indian (BSES Tata Power and GAIL) and three foreign (Gas de France, Royal Dutch Shell and TotalFiaElf). These high level bankruptcies call for a proper mechanism which the banks and FIs need to keep in place and stop myopic lending to the highly leveraged firms with greater risks. Investment banking divisions’ and the commercial banking divisions should be separated so that the conflict of interest does not arise.

Given the sheer size of the bankrupt companies, it would be no surprise if banks drown along with the sinking companies. Conclusion So why are banks lending blindly to highly leveraged companies? Are there no warning signals? The banks often blame the external credit rating agencies as they lend based on the agencies’ ratings. With the new Basle norms coming up which gives an open hand to the banks to do their own ratings and lend on this basis, the problem of blaming the external agencies may be solved. However, the area requiring scrutiny is the role of the bankers.

In the case of Enron, the role of JP Morgan and Citigroup is in the spotlight. These two financial conglomerates in their current form do both investment banking and commercial banking. This service was extended to Enron only because of the abolition of Glass-Steagall Act. This Act had imposed statutory barriers between commercial banking, investment banking and insurance. The conflicts of interests between the two banking activities may have played a role in Enron’s collapse. References Albrecht, Steve W (2003) “Business Fraud – Enron and others.

” American Institution of Certified Public Accountants, Retrieved 25 July, 2009, from http://www. aicpa. org/download/antifraud/118. ppt CNN Money “Skilling indicted for fraud (2004)” Central News Network. , Retrieved 25 July, 2009, from <money. cnn. com/2004/02/19/news/companies/skilling/> Enron Collapse exposed longstanding and massive gaps in key investor safeguards. ” Consumer Federation of America, Retrieved 25 July, 2009, from www. consumerfed. org/enron_auditor_pr. PDF Fulcrum Financial Inquiry (2004) “This corporate accounting fraud is sanctioned”, Fulcrum

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My Culture and Background

I was born and raised in Southeast Asia, Philippines. It consists of 7,107 islands and each one of them has each own dialect and tribes that lives in rural part of the area. My mom is a Spanish Filipino and my dad is a Chinese. I embraced two cultures with no problems. Both cultures molded me strongly with values, ethics, religion and economics. It plays a vital role of who I am now. Let me begin by telling you that in my country, the Spanish colony conquered the Philippines in 1621. Magellan named the archipelago in the honor of King Phillip of Portugal at that time.

My great –great grandfathers were baptized as a Catholics and was given Spanish names by them. Until now, this still exist. We adapted their dialect and even have Spanish alphabets too. I and my siblings grew up in a very strict Catholic way and Dad would approved of it even though he is not a Catholic but a Buddist. Very conflicting, right? At early age, we were trained through various tasks. I learned how to slaughter a chicken at the age of 9. Then, I and my siblings lived in dormitory where our school has one at that time. From preschool until my high school yrs, that’s where I considered my second home.

I studied in Chinese school and all of us were taught in a communist way. Example is we are not allowed to wear jewelries and the only thing that was allowed at that time is a watch. Then the hair shouldn’t be longer than the collar of the white blouse uniform. The allowance was given by the matron . Then our time was being scheduled every day. It was hard because we were trained like soldiers. It was a very rigid training for us. I was trained not to be late on any appointment. I was used to it until now. I and my siblings studied in a Chinese school. From Pre-K to high school.

It is to educate us about Chinese language so that when we go to visit our Chinese relatives, we know how to communicate and understand. (If you don’t know the Chinese dialect, you will feel outcast from the family). For the most part, Chinese and Filipino customs are similar to each other. Regarding the family values, it is a very strict custom that we should always take care of our elders. Also, we are not allowed to talk back to them and if you say something when they are talking to you or reprimanding you, this is showing to them that you are disrespecting them.

Also, we don’t have divorce in our country. Marriage is sacred there. We still have a courtship, engagement and a dowry. This goes for a bride’s price. I am a cultural diversity. It came a big surprise for me too when I came here in United States. I thought there is only one or two cultures mixed together but I was wrong. The culture here is totally very much different or opposite rather than what I grew up with. It was a culture shock for me. People here don’t hold or guard their tongue when they talk to you, rude by any means or praising you.

They don’t care about how you feel. They also have racial discrimination. This is totally a big conflict to what I am. For me, I was taught not to say any bad or disrespectful or even words that will hurt somebody’s feeling. Then, how people handle their relationship here, it’s like nobody cares to save the marriage anymore. Couples fight in terms of money, child custody and infidelity. We worked hard to keep our marriage intact for the sake of our family and kids. The vows for us is sacred. Our families don’t like broken marriage, it is shameful to the family if there is one.

And the most important of all, kids or younger generation don’t know how to respect the elders anymore. They would call you with your first name even if you are related to them. It’s like both of you are of the same age. These are all very disturbing for me. But somehow, I adjusted and respect it somehow. Accepting the way things or circumstances and blending with other culture and learning from it is a good way to learn more. But I won’t depart from what I was taught and I am happy and contented the way I am.

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Analysis of the Case Using a Framework

As GE is a truly global organization, it has significant exposure to the global economy, with 40% of revenue being generated outside their domestic market; an economic slowdown would significantly affect the company as a whole.  As a global company General Electric can often be exposed by the adverse effects of foreign currency fluctuations. The company operates in more than 100 countries worldwide including some lesser developed economies where local currency rates often fluctuate.

Following the demise of Enron, investors have come to demand new standards of disclosure from all companies. They have focused their criticism particularly on blue chips such as GE and International Business Machines. The public image of all large companies has suffered as a result of Enron. In virtually all of its global business activities, GE encounters aggressive and able competition. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development, as well as customer commitments

After listing out GE’s Strengths, Weaknesses, Opportunities and Threats, we can come to a conclusion that GE’s main asset lies in the fact that it has been successful for very long and has a market presence. Any new business it forays into, it would have the advantage of its brand name and it need not spend money in proving its worth. However, the new business has to carefully planned and it has to be strategically aligned with the organization’s goals and culture. They must not repeat the mistake of other diversified companies who siphon off losses from one business to another and destroy shareholder value in the process. It should maintain its six sigma quality across all businesses of GE and reduce waste and lower its operating costs. GE must aim at translating ideas into action across its divisions thus making the company more profitable.

WHAT COULD BE THE POSSIBLE FUTURE STRATEGY FOR A HIGHLY DIVERSIFIED BUSINESS LIKE GE?

GE should look at mainly 5 areas while formulating its future strategy: Making new acquisitions and/ or entering into additional strategic partnerships: GE can try and build positions in new related and unrelated industries. It can also look at entering into some totally new and profitable sectors in new geographies which it is not currently exploring in its existing geographies, eg it could look at sunrise sectors such as telecom and insurance in India. It should constantly strengthen and support the position of business units in the industries where the firm already has a footing.

However, the entering into new businesses should not entail increasing the number of businesses in the existing structure. The new businesses should be opened as part of the existing structure itself, otherwise it will once again lead to the same bureaucratic structure that existed before Welch. Divesting some of the company’s existing businesses This can be done keeping in mind the following three points 1. The attractiveness of each industry represented in the business portfolio 2. Each industry’s attractiveness relative to others 3. The attractiveness of all the industries as a group.

To some extent, GE has already done this, however, it is still being accused of holding on to non profitable businesses and covering that up with its profitable financial services organization. The company should do a similar holistic analysis for the geographies in which it operates as well. Investing the accumulated cash into R;D and marketing GE is a cash rich company. It can afford to spend on R;D not only for its existing businesses but also to enter new industries. It can also afford to support new and existing businesses with advertising and marketing activities.

Continuously improve its image amongst its suppliers, customers and other interest groups In the face of various issues in the external environment, GE’s financial reporting systems are coming under fire. GE should immediately understand that this is not a one off incident, and that shareholders as well as customers are very soon going to demand greater and greater levels of transparency, specially when it comes to financial issues. Hence GE should be proactive in this regard and comply with financial standards such as the GAAP.

Another thing GE could do to improve its image could be to actively enter the area of Corporate Social Responsibility. Most importantly, identification of a core competence and a set of structures, systems and processes that will survive beyond the next CEO Right now, with every successive CEO, the systems and processes at GE are overhauled. This has been working well in the past, because it probably enabled GE to cope up with the rapidly changing environment.

Because GE has been so greatly affected by the personalities of its successive CEO’s, perhaps that is why from the case, there is no single striking core competence. However, each CEO should learn from his predecessors, and instead of writing the rules from scratch, he should adopt his best practices and build upon his legacy. This will enable GE to have a strong culture and world class processes.

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The Enron Collapse and ERP System

In business, companies have their glorious moments. However, they also have their periods of failure in management, spending or in other areas. There are also companies whose failures have led to total business closures. No matter how big or how successful the company is, the possibility of collapsing is still at hand, like what happened to Enron. As Enron collapsed, other businesses have been greatly affected as well. To prevent the same demise of other companies from happening again, Enterprise Resource Planning (ERP) must be implemented.

Enron was a giant company in the natural gas pipeline business. It was ranked as the most innovative company in 2000. It was also known for being the first on management talent and second on employee talent. In a p of 12 years, from 1989 to 2001, Enron’s market value has grown from $3 billion to $80 billion. With this growth and success, no one has foreseen that Enron would end up into bankruptcy (Doggett, 2009). In addition, Enron was also a large law firm, with more than 400 lawyers in the company’s general counsel office. This large number made Enron the second largest law firm in Texas.

Later investigations assumed that the main reason for its large legal staff has to do with the many offshore partnerships Enron has involved in, particularly with Caribbean countries. The company did not pay federal income tax in four years, although it was considered as a fast growing and most profitable company (Doggett, 2009). Aside from these, during those times that Enron was not paying their taxes, its 24 top executives and board members have sold $1. 1 billion in stock. These executives and board members committed another mistake when they kept their employees and retirees from selling their stocks.

They switched the company’s pension plan administrator before they announced losses. The major player which caused the bankruptcy of the company was its auditor, Arthur Andersen. Andersen was also employed in an accounting firm that Enron hired to audit the company’s books, as required by the law. Speculations arose whether Enron implemented accounting practices that were questionable in misrepresenting the company’s true financial condition. Andersen was tasked to warn the public about those things, but he either just let things happen (Louis, 2002), could not see what was happening or was simply involved in a cover-up (Doggett, 2009).

The demise of Enron has affected other businesses, and they do not want to have the same fate as Enron. Some experts say that Enterprise Resource Planning (ERP) systems cannot prevent all fraud. However, companies with ERP systems can easily comply with the Sarbanes-Oxley Act, which encourages accountability of the top management. ERP systems, having centralized databases, can solve some of the problems faced by the companies. Since data sharing with accounting does not occur in “real time,” and there is always the need to do significant research to collect data for reports, ERP systems can help companies to avoid these problems.

The ERP systems can be used to avoid mistakes such as inconsistency in record keeping and inaccuracy in inventory-costing systems (Antony, n. d. ). Furthermore, ERP systems can better prevent corporate fraud through the following: archiving, user authorizations, tolerance groups and financial transparency. Archiving is important for auditors in order to validate the financial position of the company at any given time. ERP is also useful in keeping track of any changes or input of data. User authorizations help by making sure that the employees perform the transactions that their job requires. Also you may be interested in HealthSouth Corporation Scandal essay

Authorizations can also prevent them from making payments to a nonexistent vendor (Murray State University, n. d. ). A tolerance group is another way of preventing employees from exercising control beyond their authority. The company can set limits on the total document amount, payment difference and discounts (Antony, n. d. ). Most importantly, financial transparency is also a fundamental aspect of the system. ERP systems can allow companies “unprecedented levels of financial transparency” over operations (Hamblen, 2009).

References

Antony, S. (n. d. ). Concepts in enterprise resource planning.Retrieved January 14, 2009, from http://66. 218. 69. 11/search/cache? ei=UTF-8&p=ERP+systems+%2Benron+collapse&fr=yfp-t-501&fp_ip=PH&u=campus. murraystate. edu/academic/faculty/solomon. antony/Spring06/CIS545/ch05. ppt&w=erp+systems+system+enron+collapse&d=fg3h7kfiSFqJ&icp=1&. intl=us Doggett, J. N. (2009). The Enron-Andersen debacle. WorldNetDaily. com. Retrieved January 14, 2009, from http://www. worldnetdaily. com/news/article. asp? ARTICLE_ID=26110 Hamblen, M. (2009). CA picks SAP’s apps for global ERP system. ComputerWorld. Retrieved January 15, 2009, from http://www. computerworld.

com/printthis/2004/0,4814,98053,00. html Louis, A. M. (2002, January 19). The Enron Collapse. San Francisco Chronicle online. Retrieved January 14, 2009, from http://www. sfgate. com/cgi-bin/article. cgi? file=/chronicle/archive/2002/01/19/BU193561. DTL Murray State University. (n. d). Enron story and ERP implications. Retrieved January 15, 2009, from http://66. 218. 69. 11/search/cache? ei=UTF-8&p=ERP+systems+%2Benron+collapse&fr=yfp-t-501&fp_ip=PH&u=campus. murraystate. edu/academic/faculty/solomon. antony/Spring06/CIS545/EnronERP. doc&w=erp+systems+system+enron+collapse&d=JivwnUfiSELR&icp=1&. intl=us

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Enron’s Questionable Accounting Practices

Enron used multiple strategic partners to help cover up their accounting schemes. Houston law firm Vinson ; Elkins’ top client was Enron. The law firm wrote opinion letters supporting the legality of the deals Enron was making even though they were illegal. Additionally, Arthur Andersen LLP was Enron’s auditor. More than 100 employees at Arthur Andersen were dedicated to Enron’s account. The firm was a major business partner of Enron and some Arthur Andersen executives accepted jobs with Enron. Some believe there was a conflict of interest.

It is also believed Andersen was influenced to destroy auditing documents because of the large consulting fees Enron paid them. Also, Merrill Lynch, one of the largest investment banking firms, was also a contributor. They reportedly helped in a scheme of Enron’s to improperly record their earnings in 1999 through the sale of Nigerian Barges. Andrew Fastow, Enron’s Chief Financial Officer, is believed to be the mastermind behind the partnerships used to hide the $1 billion debt that led to Enron’s bankruptcy.

He defrauded Enron and its shareholders to make Enron look more profitable than it really was (“Castalar Articles”, 2005). Castalar Articles (2005) says, “People have described the organizational culture of Enron as being arrogant. Enron’s compensation plans seemed less concerned with generating profits for shareholders than with enriching officer wealth. Enron’s corporate culture reportedly encouraged flouting or even breaking the rules. Enron’s focus shifted from working hard and being successful, to taking short cuts to stay successful.

Former CEO Jeffrey Skilling is seen as the mastermind behind Enron’s fraudulent accounting. Skilling has been quoted as saying Enron could make “a kazillion dollars” in a new accounting scheme. He is also reported dumping 39 percent of his Enron stock before the company disclosed its financial troubles. ” I think it is easy to say what we would have done in this situation. We would all like to believe we would have done the right thing and report the company and its CEO as well as the CFO. I know that I would have not stayed with a company I thought was acting unethically.

If I had been hired to audit Enron, I would certainly not have swept things under the rug, destroyed documents or accepted bribes. I do not believe this behavior helps anyone in the end. If there would have been some honest reporting and accounting the company would have most likely been successful. However, due to greed and selfishness the company was driven into collapse. Source: Castalar articles. (2005). Retrieved from http://articles. castelarhost. com/enron_questionable_accounting_leads_to_collapse. htm

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