A brawl that is erupting in the Federal Bankruptcy Court in Houston has the potential to cause big problems for the consultancy McKinsey & Company, the New York Times reported. The courtroom fight hinges on whether McKinsey or its clients have hidden interests in a bankrupt coal company that the firm has been advising, a practice prohibited by federal laws meant to ensure that one insider can’t effectively cut itself or its friends a great deal at the expense of others. The man leveling the accusations, Jay Alix, is a retired turnaround expert who has made it his personal mission to harry McKinsey. Alix has spent four years first needling the firm’s leadership, then attacking it in court, accusing it of violating federal laws and unethical behavior. Normally a firm of McKinsey’s size would swat away a gadfly’s attacks. But in this case, which involves the bankruptcy of Colorado’s Westmoreland Coal, Mr. Alix has a powerful ally: the United States Justice Department. On Dec. 14, the department said in a court filing that McKinsey was fraught with “pervasive disclosure deficiencies” and should be dismissed from the Westmoreland case immediately and stripped of the fees it had earned so far. If that were to happen, it would deal a severe blow to McKinsey’s reputation, as well as its argument that the firm is free of conflicts of interest.
