Government Operations Committee on Feb. 13th, 2023

[The Chair, Conservative, Kelly McCauley]

I call this meeting to order.

Welcome to meeting number 52 of the House of Commons Standing Committee on Government Operations and Estimates, or, as I like to call it, the mighty OGGO.

Pursuant to the motion adopted by the committee on Wednesday, January 18, 2022, the committee is meeting on the study of federal government consulting contracts awarded to McKinsey & Company.

In accordance with our routine motion, I am informing the committee that all witnesses appearing by video conference have completed the required connection tests in advance of the meeting.

Each of our three witnesses will have a five-minute opening statement. We'll start with a friend to this committee, Mr. Hutton.

Welcome back. Go ahead for five minutes, please.

[David Hutton, Senior Fellow, Centre for Free Expression]

Thank you, Kelly.

My name is David Hutton. I'm a senior fellow with the Centre for Free Expression at Toronto Metropolitan University.

Thank you for the invitation to testify.

Based on my experience in the world of management consulting, I hope to provide some insights into what is likely going on in this particular situation. I've also listened to all of the previous testimony and can comment on some of that.

What are my credentials to speak about management consulting?

Early in my career, I was hired by the largest management consulting firm in the U.K. as its internal consultant to apply quality management principles to the firm's operations. It was a wonderful opportunity to study how large firms operate and what causes engagements to go well or badly.

In 1990, after coming to Canada, I founded my own management consulting practice and served what became a diverse international clientele for 20 years. I conducted assessments of various organizations. The Auditor General of Canada at one point, Sheila Fraser, was my client, as well as Xerox Canada, the Ontario government and the United States army bases in Europe.

In total, I led over 100 management system assessments. In the course of these, I partially conducted over 1,500 structured one-on-one interviews with senior executives. I learned a lot about organizational behaviour and how senior executives think.

With regard to the larger consulting firms, I competed against them successfully. I collaborated occasionally on joint projects that I would lead. I often found myself in the position of examining their handiwork and occasionally helping to clean up the mess they had left behind.

There are some major challenges inherent in employing management consultants. One is the inherent imbalance of knowledge and expertise, which makes it difficult for clients to judge the competency of consultants in order to avoid buying a pig in a poke.

While there are many ethical, talented consultants who do wonderful work, the consulting industry is also wide open to shady methods. Some of these are actually common practice. I'll be happy to describe some of these if anyone is interested.

Regarding McKinsey and the sudden spectacular growth in Canada over the past few years, the committee has rightly been exploring whether this growth has been achieved by leveraging personal friendships, since this is a common sales strategy, but there is another possibility: that McKinsey has simply impressed senior decision-makers so much that the doors have been thrown open to them. This is exactly how McKinsey operates.

In the consulting world, there's a hierarchy of perceived prestige. Worldwide, the top three firms are McKinsey, Boston Consulting Group and Bain. They rank at roughly eight out of 10 on that scale. The KPMGs of this world are rated more like six or seven out of 10.

This top-dog status that McKinsey has translates directly into very high fee rates, intimate engagement with clients—both governments and corporations—at the very highest levels, and often a bypassing of the due diligence that would routinely be applied to less well-connected firms.

Does it translate into supremely competent consulting? There's absolutely no guarantee of that. In fact, there are some disturbing examples of what I would describe as serious incompetence. A couple of examples are U.S. Steel and Disney, which are fairly recent and well-documented cases.

How does this play out in Canada? In the past, for a senior bureaucrat to employ McKinsey might have been a risky move, likely to attract scrutiny and criticism because of the outrageous costs and the company's track record, but if the senior leadership becomes convinced that McKinsey is simply the best, then, suddenly, hiring McKinsey can seem like a smart move that is likely to be applauded by one's boss.

What I’ve been describing so far is what can go on and what can go wrong when everyone is working honestly within the rules, but this is not always the reality. In any sizable organization, we can expect that there are some bad actors. In Canada, because of our absolute lack of whistle-blower protection, we have zero protection against the mayhem that such people can predictably cause. We are butt-naked.

Phoenix continues to be the poster child for wilful mismanagement and stunning incompetence. The software still isn’t being fixed, and probably never will be, but the tragedy is that nothing has changed in the management system. We still have the perfect environment for breeding more disasters just like Phoenix.

I have some suggestions for the committee, but I think I'm out of time. Hopefully, that will come up later.

[The Chair, Conservative, Kelly McCauley]

You are indeed out of time, Mr. Hutton. Thanks very much.

Mr. Duguay, you have five minutes, please.

[Dr. Benoit Duguay, Full Professor, Université du Québec à Montréal, As an Individual]

Thank you, Mr. Chairman.

Thank you for inviting me, members of Parliament and Mr. Chairman.

I will address you in both French and English from time to time, and I will attempt to answer questions in the language in which they are asked of me.

I will not read through my notes, because that would be awfully boring. You have had all of this for some time now.

To present myself, I'm a sort of hybrid. I have a hybrid formation. I have an M.B.A. and I also have a Ph.D. in communications. I studied sociology and human behaviour, which was very helpful in this case, and psychology.

I also have experience in the field, because half of my career was spent in business doing management and doing consulting, including with the government, and what we're seeing with McKinsey right now I can't say I saw when I was a consultant. That's one of the main issues I have with this situation.

That's about me. If you want to know more about me, just go to my website, duguay.org, and you will find out everything you want to know about me.

Today, the committee's purpose is to study the contracts awarded to McKinsey by the federal government. I am familiar with the consulting world, and there are many consulting companies. Why is McKinsey being scrutinized at this time, but not other companies?

What I am going to tell you will help answer that question.

I have done a fair amount of research by reading this book and several articles. I have been interviewed by many journalists, who then wrote articles. I was even interviewed on RDI by Kim Vermette. You will find all of that on my website.

Let's start now. I will try to be brief.

The single most important thing I noticed about McKinsey is their culture of secrecy. That's the most disturbing thing, and it's not in Canada and not in Quebec and not in Ontario: It's all over the world, and I find this very, very troubling. I said so repeatedly in the media. I am worried. That worries me. That alone is cause enough to ask questions, but you ask questions and you never get answers.

They work for competing firms, sometimes with conflicting interests, saying it doesn't matter because they have a firewall and people within their firm do not talk to each other. Fine; I believe you, but mistakes happen.

They also work in the U.S., for instance, with health care corporations and with the FDA, which supervises them. I find this hard to swallow, personally.

They also work with competing countries. For instance, they helped China build the Spratly Islands in the South China Sea and turned around and took a contract with the Pentagon to counteract the influence of China in the South China Sea. I'll let you draw your own conclusions on that.

They consult on just about anything. I was being facetious at the time I was interviewed on TV and said that soon they will give us cake recipes. Of course, I was not serious, but it seems so.

That said, no law prevents McKinsey from doing business in Canada. It has not broken any laws. No one has told McKinsey that it cannot do business with a Canadian company or the Government of Canada. That cannot be said at present. We have even been told that it abides by Canada's ethics rules.

That comment came from a credible individual, and therefore I must presume that they were telling the truth. It is also possible that our ethics rules are not stringent enough and that we are considering only Canada's ethics, and not looking more globally. If we consider that McKinsey helped—

I'm sorry. I'm told that my time is up.

Thank you, Mr. Chairman. You can read the rest.

[The Chair, Conservative, Kelly McCauley]

I tried to give you a bit more time, Mr. Duguay, but we have to wrap up.

Professor Thomas, go ahead for five minutes, please.

[Dr. Paul Thomas, Professor Emeritus, Political Studies, University of Manitoba, As an Individual]

Thank you for the opportunity.

I read and listened to the testimony before this committee, but I don't have specialized knowledge about the McKinsey case. Therefore, my remarks will necessarily be rather general in nature. I encourage the committee to study the topic of contracting in all of its many forms in future work.

In the limited time available, I propose to make a series of brief points without much elaboration.

I'll start with this point: The growing use of management consultants reflects the broader trend of intermingling of public and private roles and functions. The assumption behind this trend is that governments get the best of both worlds. They benefit from their reliance on the presumed superior knowledge and skills of commercial private firms particularly. However, we all know that this isn't a guaranteed outcome, as there can be real horror stories arising from the contracting-out process.

In my view, successful contracting requires that governments behave as smart buyers to maximize the benefits and limit the risks of reliance on the private sector.

Sweeping generalizations about the advantages, disadvantages and risks of contracting out should be avoided. There are just too many different types of contracting and many different functions that can be wholly or partially transferred to the private sector, whether that be to for-profit firms or non-profit organizations.

Not all functions of government or all program activities are good candidates for transfer to the private sector. Based on experience and research, there are some general principles that can be used to guide the contracting process. Ultimately, it is a particularistic activity best approached on a case-by-case basis.

Fundamental to that process is a determination of whether a particular task or related activity is “inherently governmental” in nature. Such a determination involves, to a greater or lesser extent, a subjective normative judgment about the appropriate role of government and an assessment of the capacity of the public service to deliver effective results.

Attempts to define what functions are inherently governmental have occurred mainly in the United States. Functions that serve “the public interest” and those that involve the exercise of subjective policy judgments—

[The Chair, Conservative, Kelly McCauley]

I'm sorry, Professor Thomas—

[Jean-Denis Garon, Bloc, Mirabel, QC]

Mr. Chair, on a point of order for the usual reason. There is no interpretation.

[The Chair, Conservative, Kelly McCauley]

We're not getting translation.

I'm sorry, Professor Thomas, but we're having translation issues. One moment, please.

[Dr. Paul Thomas]

Okay.

[The Chair, Conservative, Kelly McCauley]

Can someone try to translate for me? We'll see if it works.

Go ahead, Professor Thomas. We have our system working again. You have about two and a half minutes.

[Dr. Paul Thomas]

Okay. I suggest that there are some criteria, but they're generally quite vague, and certain activities should not be candidates for outsourcing.

Diminished policy capacity within the public service and a lack of confidence in the willingness of senior public servants to speak truth to power may have contributed to the trend towards reliance on consultants as policy advisers. However, I know of no comprehensive empirical study of the historical pattern of the use of consultants for high-level policy work. That is something that could be explored. For accountability to work as intended, ministers must always have the final say on policy decisions.

I make the point that contracting out—and contracting—is a multi-stage process with various stages involved. Not all organizations have the capacity at all stages to behave as smart buyers. Managing relationships with contractors is crucial and is more difficult to produce effectively when managing across organizational boundaries.

I believe that management consultants and other contractors should be required to sign a conflict of interest declaration, just as registered lobbyists are required to do under the lobbyists' code. Consultants should also fall within the scope of the Access to Information Act to reinforce the principle that the information and knowledge generated in the contracting process is open to public disclosure, with limited exceptions.

I've read many of the guides and policy documents produced by the Treasury Board Secretariat, including the government-wide integrity regime document. The more fundamental challenge, I believe, is to create a professional community of contract managers with a shared culture, developed on a foundation of evidence-based, results-oriented decision-making.

My conclusion is that there is a place for management consultants in the modern governing process and that those consultants should be kept in their place.

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thank you, Professor.

We'll start with Mrs. Kusie for six minutes, please.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Chair, and thank you to the witnesses for being here today.

Mr. Hutton, in your remarks you indicated some examples of McKinsey—such as Disney—that you described as “incompetence”. Would you say they were examples more of incompetence or of negligence, in your opinion?

[David Hutton]

I think there's perhaps negligence in who is assigned to the contracts. I think people on the ground are obviously incompetent.

What I saw in both Disney and U.S. Steel looked to me as if they were supposed to be strategic engagements designed to find a new business model in an industry that was suffering. It turned into simply a cost-cutting exercise that was done very badly and really stupidly, with unavoidable negative consequences, including not only reputational harm and financial harm, but loss of life in both cases.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

You said you had some suggestions for the committee. I thought I would give you the opportunity to share some of those suggestions, please.

[David Hutton]

Yes. I'm obviously here about whistle-blowing. I always am.

I see the committee and anybody like this as being severely hampered in getting at information if people in the trenches—employees—are not able to safely come forward with what they know. It's an absolute disaster, and it has led to a lot of the problems we've seen in the past.

I think that in the long term, the committee should continue the excellent work it's done in the past of pushing for some kind of decent protection for whistle-blowers, and in both the public and the private sector, by the way. In the short term, I would consider having the committee set up its own mechanisms for people to come forward safely and give it information.

I'm not saying that there's a precedent for that in Canada. I'm not saying it would be trivial, but I think it's doable. I think that would open floodgates of information to you that would be very revealing.

I'll go on a little bit longer. One thing I learned over the 100 assignments that I led was that you really don't have the full picture until you've talked to the people in the trenches. As you work down through the levels conducting interviews, you would get different pictures at different levels. Those would, on the face, be contradictory, but it was really like walking around an object and seeing it from three dimensions. Once you'd interviewed all of the levels, you had a complete, three-dimensional picture of what was going on, which you could not get from any single viewpoint.

It's a very strong principle for me that if you're doing management consulting or running any type of organization, you need to understand what the people in the trenches believe and see and you need to have access to their knowledge and information.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Mr. Hutton.

Dr. Duguay, you spoke of a culture of secrecy at McKinsey. What do you think is the reason for this culture? Why does that exist at McKinsey?

[Dr. Benoit Duguay]

The culture of secrecy is enforced by McKinsey itself. They have the clients agree to that secrecy. I don't think they could exist without that secrecy.

That secrecy, in turn, is what's causing the problem. We are here today because of that secrecy. We don't know what's going on. We ask questions—in Quebec, in Ottawa or elsewhere—but we never get answers. That's why I say that secrecy is the worst problem.

Listening to my colleague, couldn't we enforce some sort of disclosure when we sign a contract? As a consultant with the government, we have never had anything secret about our clients or what we were saying to the government. If someone asked the government what we told them or what documents we gave them, there was no restriction to that. Why is there such restriction with McKinsey?

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Do you think governments are complicit with the secrecy?

[Dr. Benoit Duguay]

I don't think I can answer that question. What documents were signed originally when the contracts were given? We would have to see those for me to answer that. I have not seen those, so I cannot say.

I'm not about to say that the government is complicit, but there is definitely something wrong. How to fix it is up to you—all the MPs.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Dr. Duguay.

Dr. Thomas, you said that ministers should always have the final say when it comes to policy decisions. Can you think of any examples with this government in particular in their relationship with McKinsey & Company when you think the minister might not have had the final say and you think perhaps the company had the final say? Do any examples come to your mind?

[Dr. Paul Thomas]

One of the problems for outside observers like me—and for members of Parliament, I would say—is that the most interesting parts of the decision-making process are cloaked in confidentiality and secrecy. You really can't see the main decision-making point.

I would observe, based on past research on the contracting process, that consultants develop very close working relationships with senior public servants and even with ministers. They are literally embedded in the department. That's why you too often get automatic contract renewals without further openness—open competition, tenders for recall of the contracts, and so on. Once you're in that status, then there's a greater likelihood.... You may not have the final say, but you have very strong influence over the parameters of decision-making and the scope of what's considered appropriate and feasible.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Dr. Thomas. Thank you, Chair.

[The Chair, Conservative, Kelly McCauley]

Thank you.

Mr. Housefather, you have six minutes.