The might of the McKinsey mob

It's the ultimate old boys' network. Its tentacles reach into the boardrooms of Britain's biggest companies and snake through Westminster's corridors of power. Its membership includes the director-general of the CBI, Digby Jones, the chairman of the London Stock Exchange, Don Cruickshank, the head of the Financial Services Authority, Sir Howard Davies, Tory MPs William Hague and Archie Norman, and the core of Tony Blair's "blue sky" policy unit.

Welcome to the McKinsey mob.

The management consultancy can count more former partners running Britain than anyone else. And this complex network of McKinseyites has become embedded even deeper in UK politics with the recent arrival of two consultants in Whitehall.

Matthew Elson, a former McKinsey senior partner, has become transport adviser in the Downing Street Policy Unit. Also working on transport is Nick Lovegrove, another senior McKinsey partner. He has agreed to work for nothing with his old friend Lord Birt, the former BBC director-general, on a similar transport study.

It's not the first time Mr Lovegrove, who would normally charge clients well over £1,000 a day, has offered his services to the Government for free. In 1998 he wrote a report on productivity that formed the backbone of Lord Falconer's reforms to the town and country planning system.

Another ex-McKinsey partner drafted into Lord Birt's "Forward Strategy Unit" is Adair Turner. He is a former head of the CBI, which boasts three past and one present McKinsey-trained director-generals.

The McKinsey mob just keeps growing. The firm, of course, doesn't use such crude terminology for its former partners; the "alumni network" is its preferred phrase.

One source close to McKinsey says: "The alumni are seen as ambassadors to the McKinsey brand. The network isn't openly exploited, but the firm maintains a database of members and holds an annual reception for the alumni."

McKinsey is run by New York-based Rajat Gupta. Born in Calcutta, he's from the classic McKinsey mould: bright, well travelled and holding an MBA from Harvard.

Ian Davies, brother of Reed Elsevier's chief executive Crispin Davies, is the senior partner in charge of the UK office.

Unlike many McKinsey alumni, both men keep a deliberately low profile and the firm refuses to talk openly about them. But both have stuck to a tried-and-tested formula in ensuring that the McKinsey machine keeps churning out future leaders. They hire the best MBA graduates when they are young (less set in their ways), put them through rigorous training (rivals quip they come out as clones), work them hard (no relaxing in the evenings or at weekends) and massively reward those who survive (wealth and status). It's no wonder that the firm's internal mantra is "up or out".

Losing a young graduate who can't hack the pressure is one thing, but over the last decade a raft of high flyers have quit the firm to join business or politics. Among them is Bradford & Bingley's chief executive, Chris Rodrigues.

"With some firms, the attitude if you leave is 'don't ever darken my door again'. But at McKinsey they milk their network," says one source close to the firm.

Railtrack is a good example. Former chief executive Gerald Corbett has links with former board member and Tory MP Archie Norman, an ex-McKinsey man. There is a link with Kingfisher chief Sir Geoff Mulcahy, who last year appointed Mr Corbett to run Woolworths, until recently owned by Kingfisher. And Mr Norman was once Sir Geoff's finance director at Kingfisher. Taking things a step further, Kingfisher is a big customer of McKinsey, and the retail group's former chairman, Sir John Banham, is a former McKinsey partner.

Confused? This is exactly the sort of tangled web of contacts that McKinsey is expert at exploiting. And once it has been paid millions to create something, it can knock it down again, as is about to happen at Railtrack. In the late 1990s Mr Corbett commissioned McKinsey to devise a blueprint for the company. The central recommendation that came out was that Railtrack should "sweat" its assets. This meant replacing its cyclical system of rail maintenance with a programme where infrastructure was mended on an as-and-when basis. "The theme was very much that we should get the most out of the assets before we renewed them," says a Railtrack insider.

When Lord Birt and Mr Lovegrove get down to their "blue sky" thinking on transport, the problems of rail maintenance will feature large.

The pair are best known for introduc- ing sweeping reforms at the BBC, such as the infamous "producer choice". John Birt, as he was then known, brought in McKinsey and set about introducing hard-headed business principles to what was a creative but flabby organisation. "The BBC board had to give a huge amount of respect to Lovegrove and McKinsey against their emotional urges," says a BBC insider.

The results of McKinsey's work were mixed. It tightened the BBC structure and introduced transparency. But some initiatives never quite worked. One was an "internal market". Some programme editors found as a result that it was cheaper to buy a CD from a megastore than borrow one from the BBC library.

McKinsey has since repaid the favour to Lord Birt by hiring him as a part-time consultant on overseas media issues.

Despite employing 7,000 very bright people, even McKinsey can sometimes get things very wrong. "Enron has built a reputation as one of the world's most innovative companies by attacking and atomising traditional industry structures," McKinsey gushed in a report published a few months before Enron's collapse.

It's also worth remembering that Jeff Skilling, the former chief executive of Enron, is a member of the McKinsey mob.