McKinsey & Company has spent months fighting in court over how it should disclose potential conflicts of interest when it advises bankrupt companies. The powerful consulting firm has defended itself by arguing that federal disclosure rules are so vague and confusing that almost no one can agree on how to comply. But for years McKinsey has had a 57-page primer — titled “Bankruptcy 101” — that lays out how to identify possible conflicts and make proper disclosures, according to a New York Times analysis. The only problem: McKinsey hasn’t been following its own instruction manual. “It is critical that the disclosure rules and guidelines in these materials be followed,” the document says. It adds, “Failure to adequately disclose material connections may result in severe penalties and fines.” The disclosure rules are intended to protect the integrity of the bankruptcy courts, where valuable corporate assets and vast sums of cash regularly change hands, by safeguarding against secret deals. They allow regulators to make sure that the advisers retained by bankrupt companies are not improperly favoring one creditor or bidder over others. That’s precisely the situation McKinsey now finds itself in. The court battles have already cost McKinsey millions of dollars in penalties, and risk costing it millions more.
