When McKinsey Comes to Canada's Crown Corporations
Multimillion-dollar contracts awarded by the Business Development Bank of Canada (BDC) to consulting firm McKinsey, coupled with some unusual spending choices — including a decision to fly a private chauffeur to B.C. to drive the Crown corporation's president around — are raising eyebrows within the BDC, sources say.
Current and former BDC employees say they're alarmed at some of the expenses incurred by the BDC under the leadership of president Isabelle Hudon.
Hudon, Canada's former ambassador to France, was appointed by Prime Minister Justin Trudeau's government in 2021 to head the Crown corporation. The BDC provides loans, venture capital and advisory services to small and medium-sized businesses across Canada.
Hudon is bringing major changes to the organization. The BDC has adopted more ambitious long-term growth targets and is taking on a larger social media profile, even as employment turnover in upper management has spiked.
"It has been a shock to the organization," said a source with a long record at the BDC.
All of the confidential sources who spoke to Radio-Canada for this report have worked under Hudon, although some have since left the BDC. They spoke on the condition of anonymity, either because they were not authorized to speak publicly on the matter or because they wanted to speak freely about their professional experiences.
Hudon did not agree to a request for an interview. CBC/Radio Canada asked a series of questions of the BDC, which provided written answers.
McKinsey's 'strategic review'
One of Hudon's first decisions at the BDC was to hire a consulting company to carry out a major strategic review of the role and objectives of the Crown corporation over the next 10 years.
A source who was working at BDC at the time said Hudon wanted to "start from scratch."
The BDC confirmed that Hudon, with the support of her board and management team, was behind the decision to hire an outside consultant — a decision that has caused a stir inside her organization.
"Any incoming CEO must, upon entering office, evaluate the current situation and define the road ahead for the corporation. Which, let's be honest, will not necessarily please everyone involved," said BDC spokesperson Phil Taylor.
The BDC invited five consulting firms to submit proposals. After a ranking process, the BDC picked McKinsey & Company, which had worked for the BDC already and has received a large number of lucrative federal contracts.
The BDC awarded a $2.8-million contract to McKinsey for the review in August, 2021. A $2.1 million extension in June, 2022 brought the total value of the contract to $4.9 million.
Sources with long ties to the BDC question the benefits of hiring McKinsey.
Several sources said the decision to hire McKinsey fuelled frustration among employees — because the BDC had carried out similar strategic exercises before Hudon's arrival. One source said the decision also suggested a lack of confidence in the BDC's internal expertise.
The sources added the external consultants required large amounts of information from BDC employees. They claimed McKinsey ended up making recommendations that will be hard to put into practice.
"It's not realistic," said a source.
McKinsey did not comment on its work on this file. It recently published a statement saying it won its federal contracts through competitive processes and the work represented only a small share of Ottawa's overall spending on consulting services.
BDC is thinking bigger under its new strategic vision. Three times bigger, in fact.
According to a confidential document obtained by Radio-Canada, the BDC wants to roughly triple the size of its pool of entrepreneur clients — from 73,000 to 230,000 — in 10 years. It's also looking to boost the value of its current portfolio from $38 billion to $95 billion.
To get there, the BDC is relying in large part on its work with McKinsey.
Among other things, the BDC says it wants to serve small and medium sized enterprises (SMEs) traditionally overlooked by the financial sector in Canada, including businesses run by women, visible minorities and Indigenous people.
The BDC also says it wants to help SMEs mobilize for "the great challenges of our time," such as the fight against climate change.
The BDC is working on several projects to reach out to SME clients, including a possible effort to automate online loans for SMEs.
"What you are now seeing is an acceleration of ambitions in sectors that were already a priority for the BDC," said Taylor.
Through access to information law, Radio-Canada obtained three presentations produced in connection with the McKinsey contracts. Most of the key information in all three documents was redacted. The documents contain BDC logos and are not identified as having been made by McKinsey.
BDC sources said they believe the objectives developed during the strategic review will have to be adjusted in response to economic trends that have deteriorated since McKinsey was hired in 2021.
Taylor said the strategic plan was approved by the BDC's board of directors.
"The planning process is done every year … and takes into account market conditions and economic trends, among a number of variables, and we adjust our operational plans accordingly," said Taylor.
The $320,000 event
On June 3, 2022, Hudon sat in a grey armchair in the lobby of BDC's head offices in Montreal in front of an audience of a few dozen employees.
The outreach event — shared online with thousands of BDC employees across the country — was presented by professional host Rebecca Makonnen. Radio-Canada obtained a recording of the 68-minute event.
Hudon and Makonnen began the event by chatting about a shopping trip they'd taken together in Paris. Hudon then segued into comments about remote work, the importance of human connections in the post-pandemic era and the "new chapter" that had started under her leadership.
Sources who attended that June 3 event say they still have no idea what the point of it was. And it wasn't cheap; according to information obtained under access law, the event involved $320,000 in external contracts, in addition to the salaries of the BDC employees who worked on it.
According to BDC figures, $146,000 of that sum was spent on audiovisual services (awarded without competition because the amount was under the BDC's $150,000 threshold for tender calls), $145,000 went to script-writing and video production and $11,500 went to hiring Makonnen as master of ceremonies in Montreal. (Makonnen is also a host at Radio-Canada. The master of ceremonies in Toronto during the June 3 event was a BDC employee.)
Taylor confirmed that Hudon and Makonnen are "friendly acquaintances" but added their relationship is not a "close or personal one."
He said that the BDC manages costs in a "diligent manner" and all spending met the criteria for a pan-Canadian event. He added that BDC expenses are paid out of BDC revenues and are not considered to be government expenditures.
Hudon travelled with her own driver
The BDC acknowledges that it is unusual for the Crown corporation's Montreal-based driver to travel with its president by plane.
Still, the BDC spent $8,100 in 2022 to twice send its driver to British Columbia to accompany Hudon on official trips.
On October 25 and 26, 2022, Hudon and the BDC driver made a brief round trip between Montreal and Vancouver, spending $6,510 and $2,625 respectively on travel.
The trip — recorded in part in a video later posted on LinkedIn — allowed Hudon to make a surprise visit to employees gathered in Whistler, B.C.
Comments made online by employees suggest that Hudon's visit was appreciated by many people on site.
But BDC sources questioned the decision to fly the president's driver all the way to B.C. for such a brief event. Taxi services between Vancouver Airport and Whistler, for example, advertise online prices of $500 for the round trip.
The BDC driver also accompanied Hudon on a four-day trip to British Columbia in June 2022, which cost the BDC $12,300. Vehicle rental and gas expenses for this trip amounted to $1,500.
The BDC insisted that sending its driver to B.C. offered the best value for money.
"We decided to use the corporation's driver for these two trips because of external factors, long distances and the need to allow the CEO to work in a confidential setting," said Taylor. "That being said, it is the only occasion in which the driver traveled by plane to drive the CEO."
Upheaval in the upper ranks
Several sources have pointed to a high turnover rate in BDC's senior ranks. Roughly ten people have left top positions at the Crown corporation in recent months.
The BDC hired four of Hudon's former colleagues from her time at Sun Life from 2010 to 2017, when she ran the firm's Quebec operations.
A BDC spokesperson confirmed that Hudon participated in the hiring of two of these Sun Life alumni.
BDC recently advertised new positions for a vice president of marketing and a vice president of public relations.
Taylor said the BDC is reshuffling existing positions. Several sources told Radio-Canada the personnel changes are part of Hudon's efforts to emphasize communications and marketing.
Hudon is very active on social media and has increased BDC's communication capabilities on several platforms in recent months.
But some staffing changes have made waves internally. According to a well-placed source, some succession plans — which involved grooming certain employees to eventually take on certain roles — have not been followed over the past year.
Some of these people were not seriously considered for key positions under Hudon, said the source, who added the situation caused "a commotion." The BDC acknowledges that it has not followed all succession plans under Hudon.
The future of the BDC
The Trudeau government has said that, after 78 years of existence, the BDC needed to be modernized.
A number of measures announced under Hudon — such as investment funds for clean energy ($400 million) and women entrepreneurs ($500 million) — have been well received in the business community.
A government source said Hudon was given a mandate to transform the BDC.
"She is excellent and the culture had to be changed," said the source.
The federal government is about to launch a legislative review of the BDC.
"The review, initially planned for 2020 but delayed because of the pandemic, will result in a report to Parliament that must be tabled in the House of Commons one year from the review's launch," said another Liberal government official.
I cringed when a friend of mine sent this to me earlier today stating: “Notice that she hired people without competing the position which is a big no-no in the public sector.”
Why? Apart from being textbook MBA 101 crappy approach to running an organization, everything Isabelle Hudon has done at the BDC I've seen a dozen times at the Caisse and PSP -- and it always ends terribly.
Word of advice to all you new incoming CEOs, the last thing you should be doing for the first six months on the job is hiring McKinsey or Boston Consulting Group.
It shows you're utterly clueless and shouldn't be in charge and because you're insecure, you hire some big consulting group which you pay millions of dollars to and they come in equally clueless and start doing their magic -- ie. gathering information, nice PowerPoint slides, they package some cookie cutter report which will impress the Board and CEO while everyone else with half a brain rolls their eyes in disbelief and disgust.
The running gag is when McKinsey comes in to "evaluate" your organization, polish up your resume because they will be recommending cuts (discussed beforehand with the CEO, of course).
Do consultants add value? Some do, most don't but it's an easy way for the Board and CEOs to cover their asses in case something goes wrong.
Anyway, BDC is a complementary lender whose main role is to lend money to small and medium sized enterprises alongside Canada's large banks. It also invests in venture capital which is going to get hit this year as technology shares get hit hard.
The key thing to remember is the BDC is a complementary lender and should never compete with Canada's large banks but lend alongside them, especially during a credit crisis.
All these grandiose and quite frankly delusional ideas of tripling the size of its pool of entrepreneur clients — from 73,000 to 230,000 — in 10 years. and boosting the value of its current portfolio from $38 billion to $95 billion make me laugh.
Why? Because the BDC's only focus right now should be to prepare and try to survive the next two to three years when the Canadian and global economy are going to be in a severe recession unlike anything we have seen since the 1970s and 80s.
McKinsey won't tell you that. Only Pension Pulse will here, here, here and here!
The other reason why I cringed reading this article is because I worked at the BDC during the great financial crisis.
After leaving PSP in 2006 and doing a governance study for Treasury Board of Canada Secretariat on the governance of the Public Sector Pension Plan of the federal civil service which incorporated looking at PSP (fun, fun!) and other governance elements, I went to work as a senior economist at the BDC between September 2008 till October 2010.
I replaced another senior economist who was on maternity leave and they even asked me to stay another year (corporate planning and strategy group).
We were working on big files and it was very busy because of the financial crisis and banks weren’t lending money.
For the most part, I enjoyed working at the BDC, it has a lot of positives as an established Crown corp (generally a good work environment where employees are treated nicely) and some negatives (it’s not a terribly exciting place to work especially if you’re a markets guy like me).
All in all, I did enjoy working there. You had nice people working there, a few arrogant jerks just like any other place which I tried to steer clear of as much as possible, but it was generally pleasant and they did have people in a wheelchair working there when I was there which was a rare and pleasant surprise (unfortunately, I later found out the real reason these two employees were hired and realized the BDC isn't as progressive as I initially thought).
Now, I didn’t like how the BDC handled a certain issue at the end of my term (HR and my managers infuriated me over something which was grossly mishandled) but I moved on and said good riddance to this organization!
Still, I saw how Jean-Rene Halde (former CEO when I was there), Édmée Métivier (former COO when I was there) and others lead that organization properly during the crisis (they weren’t perfect, far from it, but competent and showed leadership during that tough time).
Halde’s successor at the BDC was Michael Denham. I only met him once and heard him speak in Toronto at a KPMG-sponsored event and I can assure you that he too was highly qualified and a solid leader (he wasn't perfect either, nobody is).
But when I saw Ms. Hudon being politically appointed as CEO, I knew it would be perceived well because she’s a woman but I also knew she’s not qualified to hold this important role, especially if a crisis develops.
In my opinion, the Board should ask her to immediately tender her resignation.
I couldn't care less if her driver flew to Vancouver with her, or if she has a driver (so does Charles Emond and his predecessors, some CEOs need one, others don't want one. CDPQ's CEO has a dual mandate so he has to move around a lot and one can argue he needs a driver).
Yes, some things in this article only prove to me she doesn't deserve this role and still thinks she's the Canadian ambassador to France gorging on taxpayers' funds, but that isn't what concerns me.
What concerns me is the BDC being ill-prepared for what is coming up next.
And let there be no mistake, a whopper of a global recession is coming later this year which is why BDC’s Board better pick a highly experienced and qualified internal or external candidate to replace the current CEO either from within or externally.
December marked 10 consecutive m/m declines for LEI from @Conferenceboard … going back to 1960, we've never seen that stretch without economy already being in recession pic.twitter.com/7ZbHPx2pmI— Liz Ann Sonders (@LizAnnSonders) January 24, 2023
Either way, these shenanigans must end once and for all. The BDC can learn a lot from the EDC, CPP Investments and PSP Investments. Not that they’re perfect, far from it, but their governance is far better.
Most of you don't know how big Canada's Crown corporations are, how much they cost taxpayers and the power they exert.
At the top of the list are CPP Investments and PSP Investments.
Unlike other Crown corporations, they manage billions in retirement savings and their governance needs to be a lot better than other Crown corporations.
Specifically, that means more transparency, no government interference whatsoever, they nominate an independent and qualified Board which then hires the CEO who is responsible to hire his or her senior management team.
Of course, in that process, favoritism can play a role. CEOs typically hire people they worked with who then hire people they worked with and so on.
And they too hire McKinsey or Boston Consulting Group when they have major strategic shifts underway.
In that regard, I can't say anything Ms. Hudon is doing at the BDC is any different.
But generally speaking the quality of the board of directors at these large public pensions and the quality of their senior managers is much better because they pay a lot more (again, better governance, better compensation to attract and retain top talent).
Still, just like all other Canadian Crown corporations -- and there are some biggies like EDC and CMHC -- they need to be reviewed by the Auditor General of Canada and the Office of Chief Actuary of Canada, on top of other market regulators.
In general, they are extremely transparent but what concerns me about some of these Crown corporations is they still keep some things under the radar.
For example, Canadian legislation should change so that every Crown corporation publishes on its site travel and other expenses every month, detailing these expenses.
They do this for their Board, they can easily do it for the public.
All of Canada's Maple Eight (including HOOPP) should publish the top compensation of their senior executives (most do in their annual report) and that of the ones working at large subsidiaries (Real Estate, Infrastructure, Private Equity, Private Debt, etc).
They should publish the fees they dole out to funds every year.
And if you want to take it further, they should publish total compensation of every employee since they are managing billions in public pension retirement savings (they have captive clients).
That last one might raise concerns with some pension funds as they always remind me "there is a talent war" but I would apply these rules uniformly across all of Canada's Crown corporations.
What else? They all need to enhance their whistleblower policies and make them transparent, encouraging employees who see something unlawful to report it through the proper channels.
And that leads me to my final point for tonight.
One of the things the BDC did well was have a quarterly review of managers by their employees and senior executives took it seriously (at least they did when I was there).
I would do the same thing at all Crown corporations except I'd have the Board work with an independent third party to conduct these quarterly assessment reviews on mid-level and senior managers and report their findings directly to the Board.
Alright, let me wrap it up there.
I realize some of you may disagree with my views so if you feel strongly against what I an writing here, feel free to email me at LKolivakis@gmail.com and I will post your thoughts here.
I also realize that some "disgruntled employees" may have leaked this information to CBC News but another word of advice to leaders, when you're doing a good job, people don't tend to leak anything to reporters.
BDC's Board needs to review these allegations and they need to put more bankers on that Board to be better prepared for what lies ahead (I know Sandra Bosela, Global Head of PE at OPTrust, is excellent and qualified but she's not a banker).
Below, Adam Grant is an organizational psychologist, a Wharton professor, and the best-selling author. Grant sat down with Business Insider editor-at-large Sara Silverstein at the World Economic Forum in Davos, Switzerland to discuss how people get power, how they keep it, and what they do with it (2019).
Grant posted this on on LinkedIn today which is spot on:
"Exit interviews are too late to start the conversation about why people are leaving. We should do entry to interviews to find out why they joined—and stay interviews to figure out how to keep them."
Also, new book attempts to shed light on an extremely effective but little understood organization. The consulting firm McKinsey & Company has influenced companies and governments behind the scenes for decades. In their new book, New York Times investigative reporters Walt Bogdanich and Michael Forsythe take a rare look into the cloistered company. Amna Nawaz reports.
Lastly, in their new book, "When McKinsey Comes to Town," New York Times investigative reporters Walt Bogdanich and Michael Forsythe dig inside McKinsey & Company, the consulting firm that has worked with corporate and government clients around the world (from entertainment firms to tobacco companies and pharmaceutical manufacturers). They talk with correspondent Erin Moriarty about what makes McKinsey, they say, a major force for spreading ideas globally, both good and bad.
Just remember when McKinsey comes to town, it's too late, you're already cooked!
They're not that bad, like I said, some consultants are better than others, it depends on who you fall in but the entire consulting industry has inherent conflicts of interest and they're always looking fro repeat business.
Update: Warren Kinsella of the Toronto Sun wrote a scathing critique of the way the BDC's CEO spent taxpayer money:
KINSELLA: Federal bureaucrat latest to spare no taxpayer expense https://t.co/lPB86VG7gv Via @kinsellawarren pic.twitter.com/RGL7PS2nPJ— Toronto Sun (@TheTorontoSun) January 24, 2023
Also, Glen Hodgson who has 37 years of experience in global and Canadian macroeconomics, international trade analysis and finance, fiscal and tax policy, and other “big picture” topics. shared his C.D. Howe Institute paper "Finding Jewels Among the Crowns: Optimal Governance Principles for Canada’s State-Owned Enterprises" which you can download here.
Glen’s career has spanned the Conference Board of Canada, where he was Senior Vice-President and Chief Economist for twelve years; the International Monetary Fund (IMF) in Washington D.C.; Export Development Canada (EDC); and the Canadian Department of Finance. His affiliations include: Senior Fellow at the C.D. Howe Institute; Chief Economist with International Financial Consulting Ltd (IFCL); member of Canada’s Ecofiscal Commission; Fellow with the Public Policy Forum; and represented by Speakers Spotlight.
I thank Glen for sharing this with my readers.
Lastly, I learned Ms. Hudon does not hold a university degree (only an honorary one) which amazed people at Sun Life Financial where she previously held the position of Senior Vice President (Canada).
It goes to show you, sky's the limit under the Trudeau Liberals if you know the right people!!
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