Risk Update

Consulting Conflicts Allegations — McKinsey Can’t Escape Suit, Canadian Ex-Minister’s KPMG Job Earns Attention

Posted Dan Bressler

“U.S. Supreme Court spurns McKinsey & Co appeal in bankruptcy conflicts case” —

  • “The U.S. Supreme Court on Tuesday declined to hear McKinsey & Co’s bid to escape a lawsuit by retired turnaround specialist Jay Alix accusing the management consulting firm of concealing potential conflicts when seeking permission from bankruptcy courts to perform lucrative work on corporate restructurings.”
  • “The justices turned away McKinsey’s request that they overturn a lower court’s decision that the lawsuit by Alix, who has accused the firm of running a ‘criminal enterprise’ by hiding its ties to lenders and its clients’ competitors.”
  • “Alix’s lawsuit accused McKinsey and several current or former employees of violating the Racketeer Influenced and Corrupt Organizations Act (RICO), a U.S. law used to target illegal conspiracies that originally was designed to target organized crime.”
  • “U.S. District Judge Jesse Furman in Manhattan in 2019 dismissed the lawsuit, saying Alix did not assert a ‘proximate’ link between McKinsey’s alleged wrongdoing and harm to AlixPartners. Alix reported owning a 35% equity stake in AlixPartners.”
  • ‘The New York-based 2nd U.S. Circuit Court of Appeals in January revived the case, saying Furman gave ‘insufficient consideration’ to whether McKinsey undermined the integrity of federal judicial proceedings.”
  • “‘If McKinsey’s conduct has corrupted the process of engaging bankruptcy advisors, as Alix plausibly alleges, then the unsuccessful participants in that process are directly harmed,’ 2nd Circuit Judge Barrington Parker wrote.”

“Conflict-of-interest law limits ex-Tory minister at new job” —

  • “Former Progressive Conservative cabinet minister Scott Fielding has parlayed his government experience into a job with one of Canada’s largest private consulting firms, raising inevitable questions about the potential for perceived conflicts of interest.”
  • “After quitting Premier Heather Stefanson’s government in June, the former Kirkfield Park MLA and Winnipeg city councillor has landed at KPMG as a deal adviser.”
  • “Fielding will provide strategic advice to clients in Western Canada and at the national level, with a focus on ‘economic development, infrastructure, finance, fiscal performance, organizational transformation and strategy,’ a KPMG ad in the Saturday Winnipeg Free Press business section stated.”
  • “The former natural resources and northern development minister who was responsible for liquor and lotteries — and was shuffled out of finance in January — is subject to the Legislative Assembly and Executive Council Conflict of Interest Act. It includes rules for former ministers and what they can’t do for a year after leaving office, with fines ranging from $1,000 to $10,000 for those who break them.”
  • “‘Depending on what the minister did and what the new employment involved is, it may limit the activities the former minister can engage in,’ said conflict of interest commissioner Jeffrey Schnoor, who could comment generally on the legislation pertaining to former ministers but not specifically on Fielding’s new job.”
  • “An expert on Manitoba politics said Fielding’s move to the consulting firm is no surprise, and neither will be questions about potential or perceived conflicts.”
  • “At the same time, there are organizations such as Democracy Watch calling for tougher conflict rules for elected officials before and after they leave office — prohibiting them from talking to a prospective, future employer while they’re still in public office, Thomas said, ‘So people in their twilight years in public office — say, when Fielding was finance minister, wasn’t holding conversations perhaps as part of a sidebar to ongoing use of KPMG,’ he said.”
  • “There is one lifetime ban in the conflict-of-interest legislation. A section prohibits all MLAs and ministers from using ‘insider information’ for personal gain or for the gain of another person, Schnoor said. It prohibits the use of information that is not available to the public they acquire in the performance of their official powers, duties and functions to benefit themselves or someone else.”