Talk:McKinsey & Company/McKinseyHistory

History

1920s and 1930s

McKinsey & Company was founded in 1926 in Chicago by James McKinsey under the name James O. McKinsey & Company. Previously, McKinsey served as an accounting professor at the University of Chicago Booth School of Business and is considered the father of managerial accounting. Advocates for the concepts introduced in McKinsey's book, Budgetary Control, were among McKinsey’s first clients. The book founded the practice of managerial accounting.

Mr. McKinsey hired Tom Kearney and Marvin Bower in the early 1930s. In 1935, In 1935, Marshall Field's became a client and in 1935 convinced McKinsey to leave the firm to accept a temporary position and become its Chairman and CEO, in order to help the company through a restructuring. After McKinsey left, the remaining members of the firm agreed to merge with the accounting firm Scovell, Wellington & Company in 1935, leading to the creation of McKinsey, Wellington & Co.

In 1937 James O. McKinsey died unexpectedly of pneumonia, which led to the division of McKinsey, Wellington & Company in 1939. C. Oliver Wellington returned to manage Scovell, Wellington & Company full time and took the accounting practice with him. The management engineering practice was split into two affiliated firms: McKinsey & Company and McKinsey, Kearney & Company. McKinsey & Company was led by Guy Crockett, Dick Fletcher, and Marvin Bower. Guy Crockett became Managing Partner of McKinsey & Company, running day-to-day operations, while Marvin Bower handled conceptual and long-term strategy as Crockett’s deputy. Bower would lead the company for 30 years with a focus on being "professional" in looks, tone, and conduct.

McKinsey & Company is credited with creating modern management consulting as a professional service. Marvin Bower is credited with shaping the firm’s values and principles. Bower’s idea was to create a management consulting firm working with senior executives with the same professional standards he had witnessed as a lawyer for the firm of Jones Day Reavis & Pogue, in Cleveland.

In New York, Bower established the firm’s core principles in a 1937 memo. According to Fortune Magazine:

"A McKinsey consultant is supposed to put the interests of his client ahead of increasing The Firm's revenues; he should keep his mouth shut about his client's affairs; he should tell the truth and not be afraid to challenge a client's opinion; and he should only agree to perform work that he feels is both necessary and something McKinsey can do well. Along with the professional code, Bower insisted on professional, as opposed to business, language, which is why McKinsey is always The Firm, never the company; jobs are engagements; and The Firm has a practice, not a business."

1940s & 1950s

In the early 1940s, Bower placed more emphasis on persuading clients to accept and act on its recommendations. In 1945, the firm established a New Engagement and Executive Relations Guide.

In 1950, Guy Crockett stepped down as managing director and Bower served as the firm’s managing director until 1967. The firm’s profit-sharing, executive and planning committees were formed in 1951. In 1953, McKinsey began hiring consultants straight out of business school. Bower decided to hire and train primarily young graduates at a time when most consultants were mature executives and experienced professionals. The postwar period was a time of expansion for McKinsey and the economy in general. McKinsey's client base grew to include several bluechip, defense contractors, government and military organizations.

The “up or out” philosophy, which says that consultants should find a role outside of the firm if they are not advancing, was first implemented in 1954, after years of internal consensus building. The move was internally controversial. The McKinsey ownership plan was adopted to improve incentives in 1956 and more guidelines were formalized on profit sharing, promotions, and elections. After seven years of deliberation, McKinsey turned itself into a private corporation with shares exclusive to McKinsey employees. McKinsey’s planning committee a plan for international expansion and established an office in London in 1959. By 1952 McKinsey & Company formally parted ways with McKinsey, Kearney & Company, which was renamed A.T. Kearney & Company.

1960 -1990

In 1964 McKinsey started publishing the McKinsey Quarterly, a business journal written primarily by McKinsey consultants. In the 1970s, McKinsey was faced with a loss of market-share and began investing in what it called systematic knowledge-building.

After stepping down as managing director in 1967, Marvin Bower sold his shares back to McKinsey believing this would give young partners a sense of ownership in the firm. Future consultants followed his example. In 1976, Ron Daniel was elected managing director and served until 1988. Daniel worked for McKinsey for almost fifty years and lead the New York office. From 1977 to 1981, a group of 15-20 partners organized to address the issue of clients not acting on McKinsey’s advice.

Fred Gluck was McKinsey’s managing director from 1988 to 1994. Under Gluck’s tenure, McKinsey increased its international focus by opening 17 new offices outside the US. He also created an internal network for sharing knowledge and experience among McKinsey consultants and spent $50 million on knowledge building. Over two decades McKinsey & Company grew eightfold. In 1989 the firm acquired the Information Consulting Group (ICG), but a culture clash caused many employees of ICG to leave.

1990s

In 1990, the firm established an economics think tank on globalization, corporate strategy and governance called the McKinsey Global Institute. Firm revenues more than doubled from 1993 to 2004 with 20 news offices and twice as many employees. In 1994 Rajat Gupta became the first non-American-born partner to be elected as the firm’s managing director. By the end of his tenure, McKinsey had grown from 2,900 to 7,000 consultants, who were working across 82 offices in over 40 countries.

In the 1990s, the firm set up “accelerators” for smaller internet startups to get started, accepting stock-based reimbursement for its services in a small number of cases. The Business Technology Office was started in 1997 to focus on IT consulting and was growing at an annualized rate of 30% by 2003.

2000 onward

Recently McKinsey has focused more on expansion in Asia and developing practices focused on the public and social sectors. In 2001, McKinsey launched several practices that focused on the public and social sector, which included taking on hundreds of nonprofit or public sector clients on a pro bono basis. By 2002 McKinsey invested a $35.8 million budget on knowledge management, up from $8.3 million in 1999. As the firm rebounded from the dot-com bust, its recruiting efforts substantially expanded in 2003 with 1,600 new hires, a 60 percent increase over the prior year.

In 2003, Ian Davis, the head of the London office, was elected to managing director. Davis promised a return to the company’s core values, after a period in which some felt the firm had expanded too quickly and strayed from its heritage. Davis was the first managing director to run the firm outside the US from his London office. By 2004, more than 60 percent of revenues came from outside the US and consultants were citizens of 95 countries. In 2003, the firm established a headquarters for the Asia-Pacific region in Shanghai. By 2009 the firm had 400 directors (senior partners), up from 151 in 1993.

Dominic Barton was elected as Managing Director in 2009 and re-elected in 2012. He had previously been selected by Ian Davis to lead McKinsey’s offices in Asia. Barton has suggested companies take a longer-term view and avoid “quarterly capitalism” he says took root before the financial crisis. The firm also conducted research and advocated for a greater role for women in business during this time period.