Inside BCG’s Gaza work scandal

0:00In 1898, John Nuveen had a vision to underwrite municipal bonds that would propel American infrastructure into the 20th century. More than 125 years later, that vision lives on. Today, Nuveen has grown into a leading global asset manager with expertise spanning public and private markets, still investing with a future in mind. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk. Principal loss is possible. In the middle of May, the United Nations humanitarian relief chief, Tom Fletcher, provided an update to the U.N. Security Council.

0:41It was about the situation in Gaza. Mr.

0:44Stephen Foley: President, members of the council, briefing you again on this subject is a grim undertaking.

0:55In the briefing, he spoke about a new U.S. and Israeli-backed aid system that would launch later that month in Gaza. And he did not mince words. It makes aid conditional on political and military aims.

1:09Stephen Foley: It makes starvation a bargaining chip. It is a cynical sideshow, a deliberate distraction, a fig leaf for further violence and displacement. If any of that still matters, have no part in it. This organization he's speaking of is called the Gaza Humanitarian Foundation, or GHF. And when it began operations on the ground in Gaza in May, it did so amid a great deal of controversy and mayhem. My colleagues at the FT had been writing about the launch of GHF, about the mystery around its origins and its financing, and about the chaotic and deadly early days of the operation. Scores of Palestinians had been killed on their way to its aid distribution sites.

1:59That's my colleague Stephen Foley. Now, as all this news is coming out, another piece of information is revealed. It's that one of the world's leading consulting firms, Boston Consulting Group, is also involved in this. And that is where Stephen, who covers accounting and consulting for the FT, enters this picture. And then there's this story from The Washington Post saying that Boston Consulting Group has been helping out with this organization and has just pulled its team out of Tel Aviv that had been involved in helping establish and set up and run this new organization. I cover the world's top consulting firms and this was not the kind of project that I expected to find one of them involved with.

2:46BCG's statements that they release distanced the firm from the project. They say that the firm was, quote, shocked and outraged to learn that people at the firm were so closely tied to it. Two partners were fired, and BCG said they were launching an internal investigation. All of this made Stephen himself want to dig deeper into this story, and what he uncovered surprised him even more. And it points to a larger issue in the consulting industry, which has repeatedly struggled with reputational crises. If there's been like a theme or a trend to my coverage of this sector over the last three years, it's that this is a sector that has been investing hundreds of millions of dollars, possibly even billions across the firms into new risk management functions where projects are supposed to be reviewed, monitored.

3:40New client work is supposed to be checked against the firm's values. This is not the sort of thing that's supposed to happen.

3:51I'm Michaela Tendera from the Financial Times. Today on Behind the Money, we're looking into Stephen's reporting on BCG's involvement in a Gaza project and what this tells us about the consulting sector on the whole.

4:23When Stephen got interested in BCG's involvement in this Gaza project, he told me there wasn't a ton to work from. We had a statement from BCG saying that this project began as a piece of pro bono work in October that was sketching out a new multilateral aid organization. Of course, it would turn out that that organization would eventually become the Gaza Humanitarian Foundation. And then we have on the other end, we have BCG saying it had pulled a team of consultants out of Tel Aviv at the end of May after helping establish the GHF, which was incredibly controversial. Now, there's quite a long journey from a small pro bono project to pulling a whole team of consultants out of Tel Aviv.

5:11So the question for me was, can I set out exactly how we got from one end of that timeline to the other? So, Stephen, what did you find out in your own reporting? So learned a little bit more about the origins of that pro bono project back in October of 2024. BCG was engaged by a U.S. security contractor called Orbis, which itself was working on behalf of an Israeli think tank. And as the GHF concept was developed and became closer to a reality, BCG's involvement got a little deeper. And by March, there's a new security contractor set up to run operations for GHF. It's called SRS. And BCG is employed to work with them to provide operational support.

6:01They send a team out to Tel Aviv. This is a big contract. It's going to be worth, over the course of the next few months, about$4 million to BCG. Although the firm ultimately says it won't be taking that money. So what Stephen's saying here is that he discovered that BCG's role was more extensive than it had publicly described. Its involvement stretched over seven months, and there were internal discussions at senior levels of the firm. And of course, over this period, GHF itself is evolving. There is suggestion throughout the BCG team that money might come from governments around the world. It might become a multilateral organization.

6:40It might have buy-in from humanitarian organizations. It becomes clear eventually that that's not going to happen. And by the time of the launch in May, the UN has come out against the organization. Humanitarian groups are not cooperating with it. The BCG team has actually started giving advice on how GHF can secure food supplies itself because the humanitarian groups have not bought into this operation. All this is only part of what Stephen discovered the BCG team was doing for GHF and its founders. So what I learned was that BCG's staffers had built a very complicated financial model that would explain what the economy of Gaza might look like in, say, 10 years' time.

7:29And it had modeled all sorts of different inputs into that, including infrastructure, investments, and GDP growth. And within all that, Stephen found something that really stood out. There's a particularly controversial part of that model, and that's a program to relocate Garzans from the enclave. The scenario that eventually found its way into a slide deck envisaged paying food and rental subsidies plus a cash bonus to Garzans to encourage them to leave, at least on a voluntary, temporary basis. Those subsidies would have amounted to about$9 ,000 per person under the scenario that appeared in the slide deck.

8:12Plans like this or even more extreme relocation plans have been championed by the White House this year by President Trump and others. But they've been condemned internationally. So to review, a consulting firm that started out doing pro bono work for an aid program ended up helping to model a relocation program for Palestinians, which is highly controversial. Now, as we said, when news of BCG's involvement first broke, they really distanced themselves from the project. But Stephen, your reporting showed much more involvement than people previously thought. So what has BCG said when you reported these new findings?

8:57So BCG's CEO, Christoph Schweitzer, has said that the firm's internal investigation has confirmed much of what's been reported in our coverage, particularly this issue around the modeling of post-war Gaza and the relocation of Gazans. He says it's revealed what he calls process failures at the firm. The work was enabled by unwarranted process exemptions, they say, They missed warning signs, misplaced trust, and they've committed to a firm-wide remediation effort, to learning the lessons, basically. And since our reporting, they've provided some more detail about what they said happened internally.

9:36We reported that some very senior figures inside the firm had conversations with the partners on this project about the project. So BCG told us that those senior figures had been misled by the partners involved and that the work on post-war Gaza, the modeling of relocation and how many people would leave Gaza, that work specifically was done after the lead partner had been told not to do it. So it sounds like some partners at BCG basically went rogue here. I mean, how is that possible? Well, I should say that neither of the two partners who were fired have responded to messages from the Financial Times to comment on this.

10:20But I will say that this all was incredibly surprising because of what I've been told and what we know about BCG's internal processes here. What Stephen's talking about here is that we have a good idea of how BCG has tried to mitigate risk in the past. That's because Stephen says that just last year, BCG was faced with another scandal. The firm got into trouble for paying bribes to win business in Angola. Now, this was something that was investigated by the U.S. Department of Justice. And in its agreement with BCG, in fact, the DOJ decided not to prosecute them precisely because it said they had put a great deal of effort and money into building out compliance procedures.

11:05This beefing up of compliance procedures was, according to a Harvard Business School study, some of the most robust among its peers. The general counsel of BCG told HBS that some of these officers had been embedded across the globe, so not done centrally. They'd made a conscious decision to spread out looking for the risk in our firm across many people because risks arise locally, they told HBS. Risks arrive locally with local particulars, and they need local counterparts to assess and understand those risks. And still, even with all those preventative measures, BCG is in this situation involving the Gaza Project.

11:45Now, you might remember, at the beginning of the episode, Stephen said that all he's been hearing for the past few years reporting on his beat is how consulting firms are investing millions into setting up just the kinds of processes that should help avoid these kinds of crises. So what's going wrong here? We'll dive into that next.

12:32Thank you. risk. Principal loss is possible. So Stephen, you said that more recently the top consulting firms, which generally speaking includes the MBB Group or BCG, McKinsey and Bain, you said they've been investing in setting up guardrails to help avoid reputational scandals. But just to get into some definitions here, what exactly are we talking about when we say compliance or guardrails? So these are firms that historically have been partner led, right? The partners get to go out and win business. They bring in the clients. They've been managed by the partners. And there hasn't historically been a lot of oversight of partners.

13:20The new risk and compliance functions are much more formal structures that mean partners have to go through rigorous reviews of the clients they're bringing in and the type of work they're bringing in. And the work has to be monitored by a class of professional people in the headquarters who examine whether this work is going to bring the firm into disrepute or generate conflicts of interest or legal risks. So you also mentioned this sort of investment in guardrails has been a recent trend. So what propelled this? Well, it's because the consequences of not getting this right can be financially incredibly damaging.

14:00You only need to look across at McKinsey, honestly, to see why they have invested so heavily over the last few years. As that firm has grown, they've found themselves in a number of spots where they've taken on work and done things that have really damaged their reputation. The most significant one in the United States has been their work for the opioid manufacturer, Purdue Pharma. McKinsey staff were involved in producing strategies to what they call turbocharged sales of OxyContin. And that's led to accusations that McKinsey has played a role in the epidemic of opioid addiction in the United States.

14:42And that's had not just reputational consequence for McKinsey. It's had financial consequence, too. They've now paid significantly more than a billion dollars in settlements, legal settlements, including with the U.S. government. Yeah. And what's the impact of that been on McKinsey, for example? I mean, how would you say that affected the firm? Well, that's money that's come out of senior partners' pockets, for starters. They've also scaled back some of their work with pharmaceutical companies. And the US federal government has scaled back its work with McKinsey after a series of heated congressional hearings into this matter.

15:26McKinsey was also embroiled in the sprawling corruption scandals in South Africa. It's paid a settlement there too because of some bribes that it paid to win business. Bain, another one of the MBB firms, banned from doing work with the South African government, again, because of its involvement in a corruption scandal there. So these do have financial implications and lasting implications for firms if they don't get this stuff right. And I want to talk about what the fallout for BCG has been. But I should add that we've been learning about BCG's involvement in this GHF aid system at a moment when news is coming out all the time.

16:09The FT's reported that Israeli forces have repeatedly attacked Palestinians traveling to the GHF centers, according to local authorities. More than 500 people have been killed, according to Gaza's health ministry, and thousands have been injured. So tell me, what has the fallout for BCG been since your reporting came out earlier this month? Well, we've seen a few things. Save the Children, for example, which is a charity that BCG has been very closely partnered with for two decades. The charity said last week that it was suspending that relationship until it got some answers from BCG. The World Food Programme also is reviewing its partnership with BCG.

16:53And it does raise the question about whether or not other clients, commercial clients across the world, might think twice or at least ask more serious questions before engaging BCG. There's also a question, too, about the internal fallout. And Christoph Schweitzer, BCG's CEO, has acknowledged in a letter to staff and to alumni that this has been reputationally very damaging, in his phrase, for BCG and very disappointing for many staff and people in the BCG family. The other thing that's happened is that last week, BCG said that two senior executives would be stepping down from their leadership roles.

17:36That's including the chief risk officer and the head of the social impact practice. These are people who knew something about this project, but BCG says they were misled. OK, so a number of different ways that BCG has been impacted by this. But now I want to zoom out for a sec. So help me understand just how common is it for consulting firms like BCG to be on projects that are labeled, quote unquote, humanitarian efforts? I mean, when I think when people think about consultants work, the first thing that comes to mind is more projects about how do we make X widget more efficiently? Not necessarily this work that's labeled humanitarian.

18:21Oh, it's not just widgets. And no consulting firms can go into any organization, honestly. They have big practices working for governments around the world, for example. And of course, aid organizations, you know, they have they have budgets. They have supply chains. They need organizational structure. They need to know what best practice is. So there's plenty of room for consultants to come in and advise these kinds of organizations. And that is the work that BCG was doing as GHF came from being an idea back in October 2024 to being a real organization on the ground in Gaza. You know, employees like to know that their organizations are making a difference in the world.

19:08The social impact practice at BCG actually funded some of the work that was done related to Gaza, precisely because it was looking for ways to contribute in the region. Okay, so despite these guardrails, and it sounds like even despite sometimes altruistic intentions, there was this lapse at BCG. So why do you think that is? Well, I'm waiting to see what else might emerge as a result of the internal probe that BCG is doing. They say that's coming to a conclusion soon. But of course, it does raise a lot of interesting questions about the compliance systems that have been put into place about whether in fact, they will do what they're meant to do.

19:58I mean, in many cases, these are new or evolving processes in an industry that is not a regulated industry, right? You have FT reporters on here talking about the financial services sector, for example. I cover the accounting firms as well on my beat. These are heavily regulated industries, and they have set guardrails about how to do their processes that they're judged against. That's not the case in consulting. And I have talked to business professors who argue that sometimes the wrong type of processes can breed a certain amount of cynicism and gamesmanship about how to get around some of them.

20:39So these are tricky organizational issues. Now, I'm wondering just to wrap up here. Do you think that there's such a thing as a genuine safeguard that a firm could implement? or, you know, is this just a challenge that will persist no matter what? I'm sure a good consultant could come up with a very impressive slide deck that will show exactly what the optimal organizational structure for a legal and compliance and a risk management function looks like. But of course, these are organizations of tens of thousands of people making individual decisions and partners making decisions based on their own reputations and the outlook for them financially about winning new business, the very best consultant will tell you that the reality is going to be more complicated.

21:31Behind the Money is hosted by me, Michaela Tendera. Our intern is Michaela Sia. Sound design and mixing by Sam Giovinco. Original music is by Hannes Brown. Topher Forges is the FT's acting co-head of audio. Thanks for listening. See you next week. Thank you.

22:21Transcription by CastingWords