When McKinsey & Company sat down with executives of Juul Labs in late 2017, the company was well on its way to becoming a sensation among teenagers.
McKinsey, the most respected voice in consulting, was needed to help Juul reach a valuation greater than the Ford Motor Company. McKinsey billed between 15 million and 17 million for less than two years.
McKinsey kept the arrangement secret because of the client's reputation risk. Juul was accused of marketing nicotine to a new generation in the same way the cigarette industry hooked their parents because it was conceived as a way to help adults stop smoking. McKinsey took the company as a client several years ago but did not acknowledge wrongdoing in the settlement. They used young models, social media and nicotine.
McKinsey was not involved in the settlement and focused on youth vaping prevention. The work that was done was the latest in a long line of work for companies that sell addictive products. The McKinsey role in advising these companies has never been told.
McKinsey agreed to pay more than $600 million to settle state investigations into its role in helping the pharmaceutical industry. For decades, McKinsey has helped manufacturers increase cigarette sales.
McKinsey continued to help companies sell more cigarettes even after the surgeon general confirmed the link between smoking and cancer.
McKinsey offered ideas for how the tobacco company could keep customers and lure new smokers. It showed a mock-up of a Marlboro app with a way for loyal smokers to win points.
McKinsey wrote in a slide deck that they were one team and worked side by side. McKinsey stopped advising tobacco companies last year, after they were advised to market e-cigarettes with the goal of making one of them the "Nespresso of e-vapor".
Many of the most respected blue-chip companies, as well as governments around the world, use McKinsey's services. The FDA is vital to the survival of companies that sell addictive products. The F.D.A. gave McKinsey 77 million dollars in consulting contracts in four years.
McKinsey points out that a company that is widely admired could end up working for many years for tobacco companies. McKinsey used those values to recruit the best and brightest students by suggesting that a job there meant more than a big paycheck and that it also offered the possibility of doing good. The environment in which client service sometimes trumped its own moral code was created by McKinsey.
A McKinsey spokesman said in a written response that McKinsey never advised the agency on any specific drug and that its F.D.A. contracts did not pose a conflict of interest.
The wisdom of adhering to the client-first dictum was questioned by a former McKinsey consultant. The purpose inevitably becomes the client and whatever the client is trying to achieve if we don't bring a moral purpose.
Consultants for Big Tobacco.
Alfonso Pulido, a McKinsey partner, arrived at the San Francisco offices of the Covington & Burling law firm on a mid-October morning last year to do something that was contrary to the firm's strict code of secrecy: talk about McKinsey's work with clients.
There was a deposition taking place in relation to a product liability case filed in a federal court in California. According to the deposition, McKinsey proposed doing a risk assessment of Juul's plan to enter the marijuana market.
Marijuana was not regulated or legal at the time that McKinsey decided not to do the study.
The price study for the device was done in 2017. McKinsey gave advice on branding, organization, retail, flavor evaluation, and youth vaping prevention. The company consulted with Altria, which was trying to get into the business of e-cigs.
Juul was blamed for using flavors that appealed to young people.
McKinsey asked teenagers as young as 13 if they wanted to rank flavor names in order of preference, but no sensory testing took place.
He was pressed on that answer by the lawyer representing the clients who had sued.
Did anyone at McKinsey say, "Hey, maybe we shouldn't be helping tobacco companies?"
The objectives were to inform youth prevention activity and to introduce a flavor that was appealing to adult smokers.
McKinsey thinks the survey was appropriate. The man asked several minutes later.
Mr. Pulido didn't have an opinion on it. He said that it feels right.
Mint was found to be the most popular flavor name among 13 to 21 year olds.
Mint became an incredibly popular flavor with teens a year after the Power Point deck was presented. "Mr. Nafisi, what do you think?"
I didn't know that.
There was interest at the highest levels in the work with Juul. An internal document shows that Bob Sternfels was an administrative role on the account. A McKinsey spokesman said that Mr. Sternfels didn't work on that account.
The most important work McKinsey did for Juul was to respond to the F.D.A.'s anti-vaping campaign. With the F.D.A. demanding answers as to why teenagers were so attracted to Juul, McKinsey was asked to prepare a defense.
The nature of McKinsey's work remains a secret because it was paid through a law firm. In some cases, we are retained through legal counsel.
At least one McKinsey partner, Michael Chui, was worried about the rise in popularity of e-cigs, though it was not clear that he knew McKinsey had a client. Information cannot be shared by consulting teams.
In a public comment on a magazine article, Mr. Chui said that vaping has wiped out two decades of work to get teens to stop smoking cigarettes.
Increasing regulatory uncertainty and increased awareness of youth use caused McKinsey to stop working with Juul in 2019.
Vaping became popular as smoking rates across the nation began to decline in response to a drumbeat of scientific findings that cigarettes are addictive and deadly.
The tobacco industry was counseled by McKinsey in the mid-sixties after researchers reported that smoking appeared to cause cancer. McKinsey was hired by Philip Morris to look at its manufacturing operation. This was not a walk- through. Consultants looked at sales figures.
The company should set up a research department according to McKinsey. It foretold the industry's transformation from a mostly agricultural product to a scientifically engineered cigarette with fine-tuned nicotine levels. The manufacturing process of reconstituted tobacco was shown to help achieve nicotine levels that were considered sufficient to ensure addiction.
In 1964, Surgeon General Luther L. Terry said that there was a link between smoking and cancer. The announcement was made on the weekend to minimize the impact on the stock price.
McKinsey decided to back away from Big Tobacco. McKinsey was retained by the tobacco companies to help them sell more cigarettes. Philip Morris was one of the firms clients.
There were more warnings.
In 1992, the federal judge H. Lee Sarokin cast aside judicial restraint when he wrote: "Who are these persons who knowingly and secretly decide to put the buying public at risk solely for the purpose of making profits and who believe?"
In 1993 Lorillard's chief executive asked employees to cooperate with McKinsey, assuring them that the consultants were renowned for their ability to solve problems.
Lorillard's best-selling cigarette was Newport, with its high nicotine content, and McKinsey agreed to help the company. Menthol made it appealing for beginners to smoke. The rest were taken care of by nicotine.
It was easy to find replacements eager to impress senior partners critical to their advancement if McKinsey allowed employees to opt out of helping Big Tobacco.
The industry had marketed and sold their lethal product with zeal, with deception, with a single-minded focus on their financial success, and without regard for the human.
McKinsey proposed ways for the manufacturer of Marlboro cigarettes to sell more of them ten years ago.
After Congress gave the F.D.A. the authority to regulate tobacco products in 2009, the agency sought McKinsey's wisdom on a variety of issues, but its leaders were unaware that the firm had been guiding Big Tobacco's development for decades. The agency gave the consultancy $11 million for advice on tobacco regulation.
According to McKinsey, they have served the F.D.A. on over 30 initiatives and have secured over one million dollars for the Center for Tobacco Products. That could include cigarettes.
Lindblom was the former director of the Office of Policy for the Center of Tobacco Products. He said they didn't think they would serve the industry.
Dr. Lawrence Deyton was the first director of the tobacco center and was unaware of McKinsey's work. He said that it should have been made public. Imperial Brands, British American Tobacco, and Japan Tobacco International were some of McKinsey's tobacco clients.
McKinsey made at least $45 million in fees from these four companies over the course of a year. After years of criticism for not doing enough to protect the public from nicotine addiction, the F.D.A. ordered Juul off the market and proposed reducing nicotine in cigarettes to levels where consumers might no longer buy them. The agency's actions show how serious they are about the health risks of both products.
Questions about McKinsey's tobacco work were not answered. Over the years, McKinsey's approach to working on tobacco related issues has changed. When we stopped tobacco-related work last year, we imposed even tighter restrictions on our work. In 2020, we stopped working with the industry.
Questions were left unanswered. How could McKinsey advise hospitals and government agencies on how to reduce health care costs when its tobacco clients were filling hospital beds with the sick and dying at a huge cost to society?
McKinsey didn't explain why it continued to advise cigarette companies after it was known that their products are harmful and addictive.
The book "When McKinsey Comes to Town" was about to be published when Mr. Sternfels sent a note to the veterans.
We won't let the fear of criticism, or the possibility that we'll make mistakes in the future, stop us from helping our clients take on tough challenges and make a positive difference through our work.
All Rights Reserved © 2024
