McKinsey Plots Thousands of Job Cuts in Slowdown for Consulting Industry

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. You know what firm is celebrating 100 years? What? McKinsey. Really? Yeah. It's 100 years in business. And of course, they kind of invented the modern consultancy business overall. But what's interesting is, of course, the solutions that they tend to prescribe, you know, streamlining and cutting down staff and consolidating is something that they now need to do to themselves.

1:46Okay. Sridhar Natarajan is Bloomberg News' chief Wall Street correspondent. He's been writing about this. And Sridhar, this all comes on the heels of a pretty, I don't want to say disappointing, but lackluster five years. And that's probably the best way to describe it, right? Any company that earns$15 billion a year, you can't really look at their performance and say, wow, they're in terrible shape. But around 2021, McKinsey had revenue at the$15 billion mark. Here we are in 2024, 2025. By the time this year ends, we're going to be$16 billion, just a little bit over. So they've operated in this narrow band of$15 billion to$16 billion in annual revenue, which is great.

2:23Any other management consulting firm would absolutely love to post numbers like that. For McKinsey, it is a sense that their revenue has flatlined a little bit. And you did mention their 100-year celebrations, right? Which, 2026, that is when they will turn 100. So they had this annual partner gathering, which also doubled up as this kickoff for their 100-year festivities. And for those who were there who listened to Bob Sternfels, the global managing partner at McKinsey, the de facto leader, You could sense some plain spoken bravado. His words to his partners were, we will kick some ass as we start our second century.

3:01He was asking people, are you in for this mission? And those who say yes, I can assure you good times are ahead. Because it is also an acknowledgement that the last few years have been rocky, not just from its standpoint of its financial health, but you have to think about some of the challenges and the controversies that McKinsey has had to navigate the opioid scandal, some of the criticism over their work in China and Saudi Arabia and even back home here in the US with ICE, for instance. These are questions that were asked and stuff that McKinsey has had to answer. And it presented an unwelcome distraction.

3:33But the bottom line is for this firm is when it looks at its numbers, it does realize people won't like hearing this, but at management levels, that's how they talk about it. It realized that there was some bloat. And the message that's percolating through the firm right now is it's time to get leaner. I was interviewing with McKinsey when I was in business school. And like the second round, they asked me to get up on a whiteboard and sketch out kind of like a business flow model. I just turned to them and said, thank you, but no thank you, and walked out the door. That's not for me. Anytime you bring a whiteboard, I'm out of there.

4:05I can't think like it. So I went and traded stocks for a living after that. Sri, why has revenue been flat here? Is there some concern that maybe all this AI spending is taken away from other budgets where maybe I don't need the consulting? That's certainly the concern on the forward, perhaps. But just in the last few years, the reality of the industry and McKinsey in some ways is the flag bearer for the industry. But there are perhaps other major consulting firms that are struggling even more. And the fact is that the demand for traditional consulting services may not be as high as it used to be.

4:43companies and clients are getting cost conscious when your clients are not able to post great revenue growth. The only other lever that they can pull is expenses and consulting fees are the first ones thrown out the window, right? Advertising is the first one, I think. Advertising then consulting fees for apps. But is McKinsey's solution so out of the box? I mean, at this point, what McKinsey recommends is kind of dogma in corporate boardrooms. You don't need to hire McKinsey to tell you how to do some of these things. Look, and I think the way you're framing it is just a little bit more of a polite way of some of the memes that you see out there, which is this idea that all that consulting firms do is prescribe, grow revenue, and cut costs.

5:28And in the moment, it might be funny, but to some extent, it is an oversimplification of what they do because if you look at the list of clients that they've racked up we talked about them starting out in 1926 a university professor who advised a local meatpacker armors and company from that what they've grown up to they are the go-to advisor to blue chip companies from coca-cola and goldman sachs to everyone else and also countries that span the globe and a lot of these people are repeat clients. So you have to assume that it's not as simple as rote advice that they're doling out because for these big companies to turn to McKinsey again and again, tells you that they see value in most of what they do.

6:11There might be some extreme cases on either side. One, it might be some undesirable work. And two, it might just be obvious advice. But for the most part, they're clearly doing something that companies value and countries value. Speaking of countries, you mentioned China and Saudi Arabia. China wants its companies to continue to bring in consultants, but they just want them to be homegrown consultants. Right. And that seems to be the push in China, which is a good job relying on all of these Western firms to figure out how you need to modernize and be ready to compete on a global scale. But they're also encouraging them now to turn to homegrown consulting firms.

6:48Saudi Arabia is a completely different channel. We have a person at McKinsey who estimated that in the prior decades of 2014 to 2024, McKinsey earned at least, at least$500 million a year from the kingdom, which is either with companies affiliated with Saudi Arabia or the government itself. But the challenge in Saudi Arabia is also obvious. You've seen some of the recent headlines where they're pulling back on consulting expenses. Some of these pie-in-the-sky projects are not working out as they had hoped for. And again, consulting fees are going away and Saudi Arabia had become one of McKinsey's most important clients globally.

7:23So that is obviously also a place where they don't necessarily see a lot of room for rapid growth. Stay with us. More from Bloomberg Intelligence coming up after this.

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8:41You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We are monitoring the latest on Netflix's bid for Warner Brothers Discovery. I think we're in week two or week three. Where are we at? Yeah, I don't know. It's just been out there for a long time. And I think it's going to take a long time to resolve this. Absolutely. So, I mean, they were thinking 12 to 18 months could be longer. Of course, we need to bring in Jennifer Reed, Bloomberg Intelligence Senior Litigation Analyst.

9:14who's been on top of all the regulatory concerns. And Jen, you heard what Lisa was saying about this letter that the co-CEOs Greg Peters and Ted Sarandos have released. Did we learn anything new from that letter that helps clarify and clear up the regulatory murkiness? I mean, I think not. I think what they said in the letter is what they had to say. You know, right now they are trying to convince the shareholders of Warner Brothers that they're going to be a better buyer than Paramount. They're in a fight for the assets. And they've heard what the concerns are that it's going to kill the movie theater experience and kill movie theaters, that people will lose jobs.

9:49People who create content will lose jobs because it's one fewer buyer of content. And so they're just trying to assuage these people that that won't be the case if Netflix ends up actually being the fire of Warner Brothers down the road. Red headline crossing the Bloomberg terminal. Nick Reiner arrested by LAPD. Bail set at$4 million. That's according to Bloomberg News. We'll have some more reporting on that going forward. Um, if you were advising the Warner Brothers Discovery Board, which do you would you recommend from a regulatory standpoint? Which has the least amount of risk? Oh, I think from an antitrust perspective, it would be paramount.

10:25Yeah. And the reason is because there are overlaps. Both companies have risk. Both companies raise antitrust issues. But I think the issues that are raised by the paramount bid may be more easily defensible or easily, more easily fixed than the issues that come up with Netflix. And then you also have, you know, what we've seen in the news, that it seems that the owners, the people who are behind Paramount are allies with the administration. And this administration has said that they will be involved in this. And that obviously gives them a leg up with respect to that situation. Jen, you noticed noted in your research that there was a consumer lawsuit filed against Netflix's bid for Warner Brothers.

11:03And it's a proposed class action suit as well. Does that matter? Does that make a difference to what we're seeing right now? You know, it does. I'll say that these consumer lawsuits seeking to block a deal, sort of aligned alongside any kind of federal or state scrutiny that would occur, they are rarely successful. And this is usually because the Department of Justice or the FTC, whoever the reviewer is at the time, is really considered the expert in antitrust, right? And a judge would prefer to sit back and let that play out and see what happens there than to be the one to decide to block a deal.

11:34Because that's what the consumers are looking for. It's not money, which is what you usually see in a class action, but to enjoin the closing of the deal. But it adds risk no matter what. It's yet another piece of opposition that you never know could turn into something along with states that could get involved, that could align with this consumer action or align with the federal agency, the Department of Justice that could end up going after a deal. So, yes, it adds risk. I would say it's a limited risk, but it does. so if paramount wins there's going to be just my understanding of the media business a lot more job losses because for every set designer every writer that warner brothers has paramount has one as well that's right and i i would argue the synergies and i've seen research that the synergies i.e job cuts are 2x paramount versus netflix does that factor into what the regulators look at?

12:31It does. You know, it didn't as much in the past, but this has been a trend in the last 10 years. They will look at the impact on workers. This is what we call in the antitrust world, a monopsony issue, too few buyers of a service. And the Department of Justice is coming off success with that theory of harm. They were able to block Simon & Schuster from acquiring Penguin Random House. And it was all about fewer bidders for top-selling authors and similar, right? Fewer bidders for content, for writers, for creatives. And so they won that in court recently. And so it is a theory that they could pursue.

13:06And it's a viable antitrust theory of harm. My other question for you, and I guess this should have been the first question I asked you, is Netflix has promised all kinds of things. They're going to continue to release Warner Brothers movies and theaters. They promise no overlap or studio closures. Netflix has a habit, a tendency of going back on their word. They, you know, reverse course on advertising, reverse course on live sports. So how much can we really trust legally any of what they're saying? Nothing. You really can't. And honestly, sometimes there are consent orders, settlements entered with the government where these kinds of promises are memorialized in writing.

13:41And even in that case, what antitrust practitioners would tell you is that it often often fails, right? That those and the companies would say, look, we're publicly traded companies. We have a fiduciary duty to our shareholders. Economic conditions change. Things change. And so that had to change our strategy. So really what they say today doesn't have a lot of meaning. Now, if it were memorialized in a consent order, maybe it has a little bit more clout because then somebody could go after it in court if they fail to abide by those promises. But even in those cases, you know, this doesn't mean very much.

14:13Do we know which regulatory body, the Department of Justice or the Federal Trade Commission, which one's going to review this deal? Do we care? It'll very likely be the Department of Justice because they have experience in this area that that's how these deals are cleared to one or the other. So do I hire like DOJ counsel just to argue my case or to the dudes at Simpson Thatcher or whoever, do they have those people? Do I hire a specialist law firm to do this? I will tell you, you hire a big antitrust firm where many of the partners probably came from, the Department of Justice or Federal Trade Commission.

14:44That revolving door. Yes. Final question to you, Jen. Is the burden all on Netflix to prove that this is not an antitrust breaking deal? Or does Warner Brothers Discovery have a role to play here? They've been fairly quiet. Well, the burden, if they have a deal and it goes before the Department of Justice, the burden is on the Department of Justice actually to prove that the deal raises antitrust concerns. I think they have a fairly easy burden because right off with the overlapping So I guess the question is, is the burden on Netflix to defend against that? Yes. Or is it on Warner Brothers Discovery?

15:15Once there's an agreement signed, it will be up to both of them. Mostly Netflix as the buyer, but the seller also has to be a participant and cooperate in defending the deal. What does Warner Brothers do in the meantime? Right now, I think they should just be sitting quietly because it might be there's a battle for the assets and it might be there are yet higher bids coming, which would be a benefit to them. So it seems to me that I think they've been fairly quiet. It seems to me that's probably a good strategy for them. Boy, I'm looking at this, the Paramount acquisition. They've got the lawyers Cleary, they've got Cravath, they've got Latham.

15:52I mean, three of the monster firms. Yes, yes, they're serious. Each of those firms, and including the firms representing Netflix, they probably had to say, proceed with this deal. We think it will pass muster, right? Well, what they say is we think we can defend this. I don't think any lawyer would say, for sure, we're clearing this deal. for you. They would say, look, we think we have defenses and that if those defenses don't work before the Department of Justice, you have yet another shot before a judge because it isn't really at the end of the day up to the Department of Justice. It's up to a federal judge.

16:23You have to go to court and the department. You can win. Merging companies can win these deals in court. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Matt Miller and I'm Hannah Elliott, inviting you to join us for the Bloomberg Hot Pursuit Podcast. Every week we bring you news and industry insight on everything cars. And we do a whole lot more than just talk about cars, Matt. We actually get behind the wheel of basically every latest model, especially the luxury ones and the sports cars, direct from the showroom floor. It really is remarkable how many cars we have access to.

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17:35You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Scarlett, Phu, and Paul Sweeney, we're live here in our Bloomberg Interactive Broker Studio in New York City. We are streaming live on YouTube as well. You know, we love the big take stories. These are really interesting topics. They are deeply researched, deeply sourced, and get a lot of resources, and they're just awesome. And a lot of cool graphics for people like me who likes graphics.

18:09This one's a good one. A shadowy global network to help Trump make millions in meme coins. I can't follow all of the places and exposure that President Trump and his family has in the crypto space, but I know meme coins is certainly one of them. So let's check in with the author. Zeke Fox, investigative reporter for Bloomberg News, joins us live here in our Bloomberg Interactive Brokers studio. meme coins president trump and his family what's the story yeah so during his first term just a couple years ago trump was calling crypto a scam but as he prepared to take office this time he and his family started uh two big crypto ventures and for this story i went deep on kind of the silliest one which is uh the trump and melania meme coins i forgot about that one yeah so this was on the eve of inauguration the president and then his wife both announced they were creating new cryptocurrencies that didn't do anything at all and these are like transparently useless it's kind of like a a gambling game um and at the time this was really hot in crypto so many people dived in that on paper for just a second, the Trump meme coin, the Trump family had$50 billion of holdings of this meme coin.

19:29But this is a crypto world where things can go poof overnight. The best estimates we've found from chain analysis and bubble maps to crypto research firms were that the Trump family made about$350 million of real profit on these meme coins. Wow. Who helped them market these coins? Who helped them, you know, presumably profit off of that? That's the gist of your story. And was it a difficult question to answer? Yeah, like on the one hand, the whole thing sort of happened in the open. And it felt like there was, we sort of knew what happened. On the other hand, as I tried to dive in and figure out who was behind this, it was really tough.

20:11you'd think that people might be proud to say that they'd helped the president with an important business venture but really nobody was talking the trail took us in a very convoluted way but it ended up with a guy who uses an icon of a cartoon cat wearing an astronaut suit on twitter he goes he goes only by meow and he runs a crypto exchange or he was the co-founder of a crypto exchange called Meteora that was actually home to a ton of these giant meme coin launches. And all of them, or most of them, seemed to follow this pattern where they'd go up a lot on hype when they got announced and then soon crash.

20:54And we were trying to figure out, you know, who knew what when. The trail took us to Istanbul, to Singapore. You got to read the story to see how close we got. So what was is the Trump meme coin still in existence? Yeah, these things like never really die, but there's there's no excitement around it anymore. The price is down about 90 percent from its peak. Where do I find the price? You know, their coin market cap is a pretty big crypto tracking site. But one funny thing we found in reporting this was talking to meme coin traders. a lot of them said that Trump actually killed this boom. Like for a while, we were all having a lot of fun trading these meme coins.

21:40But the Trumps made so much money off theirs that the gamblers in the casino were like, you know what, we've emptied our pockets. We're done with this. We need to bring on prediction markets. We need something different to gamble on. So our meme coins, they've peaked already. They've died or I mean, they're still there, but no one's making money off of them the way they used to. Yeah, it's a little bit like if you remember the NFT bubble, the like digital crypto art. For a minute, it's hot and people are making good money. They're telling their friends. And then at some point, people just, they crashes and people move on.

22:19So a lot of the same people who were in on NFTs got in on meme coins. And while this was running, it was a great business. We talked to one 22-year-old who started one of the biggest meme coin creation and trading apps. His company, which just had a few employees, generated a billion dollars during this meme coin bubble. But now a lot of the people who are excited about meme coins have moved on to prediction markets, where the Trump family has its own interests as well. Yeah. Don Jr., right, has some pretty big stakes or has a pretty key role in some of the companies. Yeah. He's an advisor to both Kalshi and Polymarket, the two big prediction markets.

23:06And then the Trump family's social media platform, Truth Social, has announced plans to create its own prediction market. But it's kind of a pattern where the Trump family has these business interests in this kind of gray area market. And then the Trump administration is creating rules that are legalizing these markets and helping make them grow. Has President Trump or his family or his administration commented on your story or about the meme coin part of it? So the press secretary got back to us not really getting into the specifics, but just saying, hey, the Trump family would never engage in conflicts of interest, but not really addressing how they manage having interests in both the business side and being in charge of drafting the rules.

23:59And I guess no one cares anymore? I'd like to think that people still care. But, you know, when it came, normally you have like, let's say this was the stock market and somebody created like a penny stock that went up, you know, a thousand X and crashed. Yeah, somebody would be diving in. They'd be digging through people's messages. They've been trying to figure out what happened. Meme coins, a few weeks after Trump was elected, the SEC put out a statement that basically said, not our business. Nobody has stepped up to look into these yet. All right. Very good. There's the answer to your question, Paul.

24:34Yeah, there's the answer to my question. I think maybe the definitive report is your article here. Zeke Fox, investigative reporter for Bloomberg News, joining us here in our Bloomberg Interactive Broker Studio. Again, you can read this Big Take story on the Bloomberg terminal and at Bloomberg.com slash Big Take. So you can read Zeke's article as well as all the other Big Take stuff. And again, every day they come out with just blockbuster stories where they're really well sourced as well. Stay with us. More from Bloomberg Intelligence coming up after this. Bloomberg Invest returns to New York on March 3rd and 4th, where the sharpest voices across banking, asset management, and private capital will discuss the forces reshaping finance.