McKinsey Return to BOE Spurs 1960s Memory of Unfinished Business

McKinsey Return to BOE Spurs 1960s Memory of Unfinished Business

McKinsey & Co. consultants working at the Bank of England are competing with the ghosts of their predecessors.

Governor Mark Carney is giving the U.S. firm another shot at transforming the three-century-old institution, more than four decades after the BOE first hired it to conduct a full-scale examination of operations. The impact of the original review was “limited,” according to former BOE official Guy de Moubray, who participated in the study.“The bank doesn’t like other people telling it what it ought to do,” de Moubray, 88, said in a telephone interview. The work McKinsey did in the late 1960s “brought changes on which wouldn’t have happened without them coming, but it certainly wasn’t a revolution.”

Carney wants the new strategic review to guide investment decisions, working methods and allocation of resources after the BOE took over financial regulation and swelled its staff numbers. The engagement of McKinsey marks the latest stage in the governor’s makeover of the so-called Old Lady of Threadneedle Street, which began with the introduction of forward guidance on monetary policy in August.

The review is being overseen by Chief Operating Officer Charlotte Hogg, a former McKinsey employee. In a sign of how the BOE can wince at radical change, Bloomberg News reported last month that the central bank’s governing body described a list of Hogg’s proposals for human resources as “daunting.”

Cultural Change

In the 1960s, the BOE found itself under pressure to evolve amid calls for greater transparency, according to Forrest Capie, author of “The Bank of England: 1950s to 1979.”

At the time, London’s financial hub was still a conservative center of bowler hats and stiff collars, as recounted by historian David Kynaston in his book “The City of London: A Club No More.” Outside of finance, anti-Vietnam War protests at the U.S. embassy in Grosvenor Square and the release of The Beatles’ animated film “Yellow Submarine” reflected an age of social transformation and upheaval.

“There was a cultural change” at the bank, de Moubray said. “But the Bank of England in the 1960s wasn’t Carnaby Street, it wasn’t that type of culture. I had a bowler hat and a rolled umbrella.”

The central bank appointed McKinsey in late 1968 to examine structure, decision making and work processes, and the firm’s study ended in early 1970, according to documents in the BOE’s archive. When the consultancy was hired, they had already worked for a number of U.K. institutions, including the British Broadcasting Corp. and National Westminster Bank.

“You were top class if you used McKinsey,” de Moubray said. “It was a fashionable thing to do.”

Crisis Response

The latest McKinsey study, first reported by Bloomberg News on Oct. 22, comes as the BOE adapts to its new powers and also responds to three inquiries sought by U.K. lawmakers after criticism of its handling of the 2008 financial crisis.

Carney, 48, joined the BOE in July as the institution’s first foreign governor after previously leading the Bank of Canada. He introduced guidance on the future path of interest rates a month later, and initiated the strategic review under Hogg as a priority.

Spokesmen for the Bank of England and McKinsey declined to comment on the 1960s and present-day reviews.

A taste of the contrasting styles of old and new management was hinted at during the Sept. 25 meeting of the BOE’s Court of Directors, its governing body. Just months into the job, Hogg was pushing human resources objectives that “might need to be less ambitious,” according to minutes of the gathering.

McKinsey’s Advice

Back in 1969, McKinsey submitted a report advising the BOE to overhaul management of personnel, improve long-range planning, and implement better budget and cost controls. This was “accepted in its major recommendations,” the bank said at the time.

While the institution responded by creating a new policy committee, establishing new systems and a “Management Development Division” that is the forerunner of its Human Resources function today, the overall legacy was “very little,” Capie, who is professor emeritus of economic history at Cass Business School in London, said in an interview.

It would be surprising “if anything of any great significance came through” from the current study, he said.

De Moubray ended up with a new job out of the review, as the manager of the new division, though he then rejected McKinsey’s recommendations on how to change the system for staff appraisal.

While McKinsey came up with “interesting” ideas, they didn’t sufficiently tailor their advice to the BOE and didn’t understand central banking, de Moubray said.

“If I was still in the bank I wouldn’t call in McKinsey in 2013,” he said. “I would have tried to solve it ourselves, not just with intuition, but with real understanding of what needed to be done.”

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net