Bob Bechek’s Bain & Company epitomizes the economic value of values

Headlining Bechek’s Tenure


This publication unanimously endorses Bob Bechek as CEO of Bain & Company. We believe his unique inward focus on the firm is appropriate, he has the broad support of his executive team and his style of leadership’s alignment with Bain’s needs is quite possibly the best we have seen for any of the consulting firms profiled in the CEO Rankings.

This ringing endorsement may seem counterintuitive given our consistent past, current and pending critical analyses of Bain & Co. Our endorsement of Bechek does not in way imply our views on Bain’s shortcomings have changed. Those shortcomings are significant, have an astounding consistency and should not be overlooked.

Moreover, our views on Bain have not been tempered even the slightest by the firm’s move up the rankings in many other publications. Most other rankings measure metrics like revenue, employee happiness and salary levels. None of those spurious metrics truly matter to the quality of the work a firm produces.


Our editorials are read widely, including within the leadership of the major consulting firms. We know this because some firms write to us. These critiques may be hard to read but they have the sincere purpose of helping the firms improve. The history of management consulting is one of many great firms that either failed and/or were unable to survive as independent concerns, or were tainted by scandal. As you read this the firms are constantly making decisions, some of which may lead to the same fate.

Rather than getting upset about these pieces, it may be more useful to think about the real problems we discuss and how you can play a role in fixing them. It is not healthy for you to assume the firms are perfect nor are we attacking the firms by pointing out their areas for improvement. Other case interview preparation services choose to avoid these topics because it hurts their business. Our clients go on to join all these firms. We hope they take a hard look at what they find and try to make the firms even greater than they currently are.


High salaries are only half the story.

Growth rates do not correlate to quality.

Consultants can be happy at weak firms.

Our editorials and rankings measure the ability of a consulting firm to effectively advise the senior most management, and the ability of a consulting CEO to lead such a firm. Nothing else should matter.

Our views on Bain & Company have not changed since this is an editorial of the CEO of Bain, and the CEO’s performance should not solely be measured by the performance of the firm. The halo effect of strong/weak profits and revenue should not cast too long a shadow over the CEO’s leadership. A consulting leader is elected into the role and faces numerous obstacles. Many well meaning and highly capable leaders can operate in struggling firms just as many weaker leaders can run a highly successful organization.

We need to separate the leader from the firm and analyze the leader.

This publication as always espoused the importance of values. It is the single most important trait we impart on all our clients. Should anyone ever believe values are an intangible and unnecessary distraction in management consulting, look no further than Bain & Company to see how values-based lapses can cause irrecoverable economic damage to the finances, prestige and standing of a firm.

Bain & Company is a case study in the economic value of values.

Many of you reading this will not be old enough to have the sense of déjà vu one now feels when reading about the cool, tingling, hip and hot Bain & Company.

We have heard this all before.

We have seen this all before.

We have been here before.

It did not end well for Bain.

When Bain was founded, it experienced the type of hockey-stick growth that would give a software start-up whiplash. Bill Bain’s unique idea to serve just one major client per sector, and his poaching of brilliant BCG consultants and clients allowed the firm to get off to a flying start. Bain was also a pioneer in using retired but eminently connected consigliore’s to introduce the firm to new clients in new markets. The company was especially successful at doing this in London and Paris, while the strategy outright failed in Germany where Bain is at best a distant 4th in that important part of the world.

Still, by 1982 Bain had overtaken BCG in the number of consultants and revenue, and was the larger firm.

Read that last sentence again. Bain was larger than BCG in 1982 and larger by an incredibly wide margin in 1987.

Every blog, article and ranking you read today erroneously implies Bain was always the 3rd largest firm and should be celebrated for its grand rise in pursuit of BCG and McKinsey. That is not true. From its founding in 1973 to 1982, it was indeed 3rd, but in that year it overtook BCG to chase McKinsey.

Bain was the 2nd largest firm and rapidly growing. This Fortune piece proves this often ignored fact.

So what caused this rapid fall from grace to bring Bain to its current position?

Despite Bain’s hot growth, by 1987 things had started cooling down pretty fast within a few months of the celebrated Fortune article. In fact, Bain’s very concept of sticking to one client per sector was constricting growth, even though this initially propelled the firm. Moreover, despite what many believed, Bain was never good at implementation and true competitors soon emerged in this space to force a realistic comparison with Bain’s true skills; a comparison in which it did not fare well.

Honestly, is there anyone out there besides the Bain & Company marketing department that believes Bain’s key strength is its implementation skills?

Although I suppose we will never really know why, Bain’s senior partners knowingly or unknowingly began using the value of their increasing equity as collateral to borrow cash from the firm. Sounds like they had a top-notch compliance and finance unit at the time. As the firm’s growth slowed the equity value dropped which made it impossible for the firm to recall its debt obligations. Bain came incredibly close to going bankrupt until Mitt Romney stepped in as the CEO to restructure the firm and, in particular, its ownership model.

As a result of the restructuring Bill Bain was out, the general equity partners owned the firm and a general committee of the partners, rather than the senior partners, ran the firm and set salaries for the partners.

Why is any of this important?

It is important because in 1987 Bain looked like it would take over the world. Two years later it was on life support and 25 years on it is still playing a rather distant catch-up to BCG. This is the importance of having a leadership team that is not obsessed with money. This is a case study in professional values.

This is why we constantly emphasize the importance of values. Corroded values lead to poor decisions that hurt the trajectory of even the finest businesses and the fallout cannot be corrected overnight, in a few months or even a few years. In a business of trust it may never fully recover and while the general public celebrates Bain’s bronze medal status, note that in professional terms it translates into Bain being the 3rd most trusted firm, after once being the second most trusted firm.

It lost the trust of clients.

Twenty-five years after Bain’s greedy management wrecked the firm, it has not yet caught up to BCG. It is still relatively less trusted.

That is a quarter of a century. That is a long time to be in ethical purgatory.

That is why Bain & Company epitomizes the economic value of values. As a result of this incident we can attach a top-down economic value to values. If we assume those greedy partners had not wrecked the firm and Bain continued on its trajectory past BCG into McKinsey’s orbit, it may have overtaken McKinsey. At the very least, Bain could conceivably have been twice as large as it is now.

That economic value it never earned lost the firm enormous influence and impact.

It is still stuck at 51 offices while BCG passes 80 and McKinsey goes past 100.

X non-existent offices means Bain is unable to influence management in vital cities and countries.

Bain remains weak in Y emerging markets as the world’s business shifts to these regions.

Z less capital means Bain hires fewer consultants, produces fewer partners and ultimately fewer alumni who become clients.

P lost earnings leads to less money for training and less investment for major research initiatives.

We have seen that keeping to your values is costly as demonstrated by BCG’s boringly slow and steady growth as it left opportunities on the table. Yet, losing your values like Bain did has a far bigger and more entrenched cost.

The next time Bain trots out this tired phrase at every recruiting event, interview and forum, “we are the fastest growing management consulting firm,” remember they are still catching up to where they where in 1982. It is easy to grow that fast when the senior partners obliterated your business through extremely selfish acts. All firms growing off a tiny base like to dazzle the market with growth numbers.

Bain is now marketing the concept of the founder mentality through an, admittedly, enticing video. The concept outlines the challenges of rapid growth faced by companies. Bain says that, “in too many cases, they accept a troubling trade-off: In achieving scale, they lose what we call the Founder’s Mentality — the very core strengths and values that helped them succeed.”

This is ironic given Bain had do the opposite to survive; it had to escape it’s own founder’s mentality to restructure itself and grow.

You way wonder why this editorial begins with events from over 25 years ago.

Surely, Bain is a different firm?

How can any of this be relevant to the Bain & Company of today?

Yet, this editorial argues that Bechek needs to overhaul the culture of a firm that is a repeat offender in trading in its values for profits. That is just as relevant today as it was in 1989.

It is relevant because the true test of a consulting firm is how it responds under pressure: will it remain true to its values or simply do what is required to grow and make money? While most consulting firms choose not to discuss their past or respond to media queries about the present, Bain has taken the rare step of not only responding, but airbrushing the important details like a Soviet-era exercise in revisionist history.

During the 2008 US Presidential election the firm released a deliberately misleading press release conveniently omitting the fact that Mitt Romney had been it’s interim-CEO. This happened at a time when the Romney campaign was under incessant attacks and Bain purportedly released the press release to bring clarity to Romney’s relationship with the firm.

“In 1985, as a vice president, Mr. Romney left our firm to help found Bain Capital.

Mr. Romney rejoined Bain & Company in the early 1990s to help the firm develop and execute a turnaround plan. He led a financial restructuring that included renegotiation of debt held by major creditors and put Bain & Company on the path to lasting growth and success.

Bain & Company does not endorse or provide financial support to any political candidates. “

The press release selectively omits his official title of “CEO” when he returned, yet conveniently chooses to include his earlier title of vice-president when he left the firm to found Bain Capital, thereby implying he was never CEO to the casual reader. In Bain’s words, Mitt Romney merely helped the firm. That is all he did.

This appeared on Romney’s website and is common knowledge:

“As Bain Capital was growing in prominence, Mitt returned to his old consulting firm, Bain & Company, as CEO. In a time of financial turmoil at the company, he led a successful turnaround.”

The lady doth protest too much, methinks. Has Bain not learned that vigorous or out of character attempts to convince readers of something will ironically convince readers that the opposite is true?

Smart consulting firms choose never to comment on anything controversial since it merely fuels the news cycle. That is a time-honored tradition at the elite firms. We are trained never to engage the media unless it is to discuss a management idea. Everything else should never ever be commented upon.

One needs to imagine the kind of leadership discussions that took place at Bain that led to the release of this press release. There were probably a few meetings along with multiple reviews by senior partners and the Bain legal team. Given the attention the release would get, it must have been vetted at all levels of the leadership structure. This was certainly not a mistake or ill-worded release from a junior member of the public relations department who prematurely pressed “send” in her haste to watch ‘The Batchelorette.’

This was a premeditated attack on a Bainie: one of their own. Might we add, not just any Bainie. Romney is arguably the most celebrated, grounded, ethical and successful Bain consultant and alum of all time. Yet, here was a firm that was actually bending to the rumors and innuendo in the press to release a public message that effectively character assassinated a celebrated member of the family. That alone was incredible.

What type of a culture condones this?

Even at the height of the Rajat Gupta scandal, McKinsey never ever publicly reacted to the blinding media coverage. They chose to walk away rather than respond. And if ever there were an incident worth responding to, that probably would have been it. Yet, thankfully they did nothing because the media firestorm from responding may very well have consumed them.

We know of Gupta’s crime, yet what was Romney’s crime? Bain chose to throw Romney under the bus. This is a decision Bain choose to make and a decision with which Bain must live.

“We’re a global team that lives by this principal of a ‘Bainie’ never lets another ‘Bainie’ fail,” said Steve Ellis, the former worldwide managing director of Bain & Company, shortly after the US Presidential elections. “This is true across geographies, cultures, languages, and over time and through generations. This is one thing that virtually every partner reflects on.”

Yes, this principal is well and alive at Bain, unless your name is Mitt Romney and you saved the Winter Olympic Games, became a successful governor, created one of the world’s greatest private equity firms and returned as CEO to save an ungrateful firm from certain death.

In this case Bain will choose to conveniently distance itself.

How can the phrase, ‘a ‘Bainie’ never lets another ‘Bainie’ fail,’ be taken seriously after this event?

Bain publicly failed the test of principles by omitting facts that did not support its narrative. Subterfuge by omission is still subterfuge. This may seem like a small issue, but in a profession built on trust and values, it is the small things that matter. It is the small things that make all the analytics, tools and methodologies mean something.

It is the glue that binds the client to a firm.

Many of you will wonder why our editorials shine a spotlight on values, ethics and professional standards. These few elements create great management consulting firms and ultimately great leaders. You should care about where you choose to work as a young professional and which firm’s culture you absorb. Our editorials provide a values-based lens against which to decide if a firm is a fit for you. Leadership is partially learned consciously but primarily learned subconsciously by observing those you trust and understanding what they consider acceptable. You need to ensure you are exposed to the right role models.

Ninety five percent of those reading this editorial will simply shrug their shoulders and think these value breaches are fine. Bain is not going out of business so why bother about it. They will think it is acceptable to work at Bain, make a lot of money and move on before anything happens. If that is what you think, that is perfectly fine.

This editorial is focused on the 5% who care deeply enough to make an impact and change the world through consulting. Firms change when we make them change. This editorial is for those future consulting leaders who worry about the type of leader they will turn out to be. Be a force for positive change in the firm where you work. Do not accept anything less.

Bain has the arrogance to believe it can breach its values on the most scrutinized media platform and no one will notice or care. The firm has the chutzpah to think that since it defines management consulting to some extent, we have no choice but to accept its sacrilegious interpretation of professional standards. Management consulting as a profession is bigger than any one firm. It is certainly bigger than Bain.

As Kevin Coyne points out when discussing the Gupta tragedy, this drift towards unethical behavior happens slowly and imperceptibly. Very few people wake up one morning and say they are going to act in an unethical manner. It happens slowly and most times you do not even realize you are engaging in unethical behavior. In fact, most unethical professionals justify their stained acts and strenuously argue they are right. It is almost guaranteed Bain does not understand the deep gash in its values created by this press release and will, therefore, vehemently defend its actions.

Yet, just as your friends and family define you to some extent, you should be defined by where you choose to work.

If you choose to judge Bain, or any other firm’s greatness on revenue, profits, growth and flashy marketing, than you can ignore this editorial because we are not saying Bain will fail. They will likely be incredibly successful on purely economic measures because not enough people care about values. We argue that success should not be determined by economic measures alone.

Success is measured by whether you are proud of what your firm truly is, versus what it claims to be. Values should not be nice words that exist solely for the sake of press releases, websites and recruiting conferences. A firm’s values illustrate what it will become when everything is at stake and it has nothing left to lose. What it becomes is essentially that defining action it will take under the greatest of pressure.  This action becomes that one story that is passed down for generations from current partner to future partner. It is what defines and reinforces a culture.

What is Bain’s story that is passed down from generation to generation?

We would sincerely like to know.

Bain’s obsession with growth has spurred other problems. Of the 3 largest general consulting firms, it has hired a disproportionately large number of external partners to build client relationships in new and emerging markets. While McKinsey has done the same in 2 practices and BCG has in the past acquired small firms to enter new markets, Bain is doing so across the business.

How Bain is able to preserve its culture via this import-leadership model does not compute. If Bain is so unique why are so many BCG, McKinsey and other partners able to seamlessly step in and take key roles? Is that not the opposite of being unique? Does it not take years to learn about the culture and values of a firm?

It seems values and culture are less important to Bain. The firm will go to great lengths to grow; lengths of such awesome scale that, from this new vantage point, it regularly breaks free of its alleged true north.

In 2002 a court found the firm guilty, and subjected Bain to full punitive damages, for another values-cringing act related to growth: Bain convinced the Brazilian partners of a European consulting firm to work with Bain to effectively steal the European rival’s Brazilian office.

The plan was for employees of the European firm to take a salary from their European employers. The employees would, however, remain under the secret employment of Bain and were effectively working for Bain from their old employer’s offices. Basically, Bain wanted to avoid the risks and costs of launching a new business in the fast-growing Brazilian market. Eventually, Bain simply took over the office, the employees and all the intellectual capital.

How many consulting firms can rightfully make a claim to having been found “liable for unfair competition and tortious interference under Brazilian law,” and having their appeals denied, thereby making their guilty verdict part of the public record?

The Brazilian incident is not a rumor. It is a court finding and matter for public record.

It seems that growth has become Bain’s single measure of greatness, their addiction so to speak, and it is now caught in a vicious cycle of having to maintain morale by generating breakneck growth even when such growth comes at the expense of preserving its culture, because Bain has no other marketing shtick other than claiming to be the fastest growing firm.

Really, how is Bain going to recruit without that tagline? It has no other point of distinction to offer.

Bain is caught in the health versus performance trap. It is performing better as measured by growth and earnings, but it is diluting its values, and health, to fuel that growth.

Bain’s reaction to all these unambiguously self-inflicted value’s breaches is what fuels its culture and, ultimately, its Achilles heel. Bain’s fall from grace in 1989 and its relative non-recovery since have spawned a firm culture akin to a mashup between Narcissism and Post Stress Disorder Syndrome.

Bain’s slogan of, “a ‘Bainie’ never lets another ‘Bainie’ fail,” is like something out of the US Navy Seals or US Rangers. Why do they think they are fighting a war? Why do they need a slogan that is centered on sacrifices in military terms? Where did it originate?

Bain’s past experiences creates a mentality where they feel the need to circle the wagons and protect their own, and if one of their own ever does anything to threaten the firm, they will publicly execute him/her.

Manfred Kets De Vries, the INSEAD clinical professor of psychology argues that although governance reforms may help shield companies (and the economy) from the destructive impulses of some decision makers, corporate failures and meltdowns are driven by deeply embedded attitudes. Those will not go away, no matter how strongly companies are regulated. One of the most prevalent influences is embedded narcissism: the profound self-centeredness of many high achievers, which is both a creative and a destructive force. Another is the willingness of everyone else to indulge that force.”

When Romney and, primarily, Gadiesh changed the partnership structure from 1989, they introduced many necessary checks and balances. Yet, these were mainly institutional. They were less cultural. They were not cultural because Bain acted liked the senior partners at the time who caused the problem where outsiders, and therefore, nothing was wrong with Bain. That was and remains a mistake, because it created the impression Bain was being attacked by outsiders. This falsified the sources of Bain’s weaknesses.

A firm’s culture is not set by the recentness of an event, but the severity of an event. Almost going bankrupt and being overtaken by arch-rival BCG is a defining cultural event that governed Bain’s institutional reforms, cultural changes and trajectory.

Who is Bain fighting with this military-like posture and willingness to sacrifice reputational blood to preserve their way of life? Since the collapse in 1989 was caused by their greed, is that not what they should be confronting versus made-up boogey men?

Bain should have a more positive credo versus one that sounds like the recruiting campaign for the police force in a police state.

We would argue that Bain leadership has created this mentality to force attention away from the firm’s own shortcomings. It is easier to build morale when employees think the culture is not the problem. It is far easier to blame others for one’s problems than to accept responsibility for one’s own shortcomings. Some would say there is nothing wrong this, but we would argue that the public assassination of Romney’s character in 2012 demonstrates exactly what is wrong with this way of thinking.

That was a pathological reaction to problems concerning self-worth. It manifested itself in the need to prove they were special, and entitled to special treatment by breaching their very own values. The act displayed a lack of empathy and exploitation of others for their self-benefit.

That small paragraph above is a deliberately lightly paraphrased definition of narcissism provided by Kets de Vries. It seems to fit.

Bain’s insular culture is crystallized in another problem. It has been slow to move past an outdated view of management consulting. Business today is so complex, so mutative and so undefined that the tired old playbook of MBA-only teams cannot solve all types of problems. One of the great failures of Bain is its inability, and general apathy, to layering in non-traditional skills from PhD’s, JD’s and even experienced hires.

Bain struggles to recruit and, of greater import, struggles to mentor non-traditional hires through fulfilling careers within the firm. Does Bain even want to hire them?

Bain has fallen for the classic hubris trap of assuming its success at solving problems is due to the effectiveness of its majority MBA-styled teams. The more sobering fact is that client’s do not recognize it can solve multidisciplinary problems and, therefore, do not award the firm these more complex problems requiring a diverse set of viewpoints and skills. If Bain claims otherwise, we would love to see how the MBAs are managing big data influenced problems, which today is just about every problem. Of course Bain needs to graduate to handling big data problems since its relatively weaker IT practice still needs to gain sufficient scale and skill.

Bain tends to specialize in areas McKinsey and BCG focused upon in the 1990s; traditional work in strategy and operations. Bain does not do much cutting-edge work in macro-economics, country productivity studies, big data, marketing real-time analytics etc. Like BCG, Bain is still copying McKinsey’s strategy from the 1990s.

While Bechek leads a firm that has kept its nose relatively clean in the last few years, it is the richness, blend and consistency of the violations that worries this publication. It is reasonable to dismiss a few of the violations as being isolated to management at the time of the incident.

What is the excuse when it happens roughly every decade? That must be independent of the leadership at the time. Therefore, it must be institutional.

Is that not the problem outlined by Kets de Vries above?

In 1973 Bain was founded by misleading the BCG CEO to keep him out of the USA and “capture” clients.

In 1983 the Guinness scandal erupted at a time when Bain broke protocol to place a senior partner on the advisory board of a major client simply to secure revenue.

In 1989 Bain almost collapsed when the senior partners saddled the firm with incredible debt.

In 2000 Bain was found guilty for violating Brazilian law.

In 2012 Bain throws its most celebrated Bainie under a bus.

At this rate Bain & Company is due for another major scandal in 2020.

Adhering to the principle of being mutually exclusively and collectively exhaustive, Bain consultants can take some comfort in knowing there are at least three other reasons why Bain behaves this way.

First, the firm is cursed. Henderson may well have put a hex on Bain as the latter was raiding his previous employer.

Second, Bain is just unlucky in getting caught at things BCG and McKinsey also do.

Third, we can rely on Hanlon’s Razor: Never attribute to malice that which is adequately explained by stupidity.

Finally, it is worth examining Bain’s recent rise in a variety of rankings. We have a very different interpretation on the implications of the higher salaries Bain generally pays its consultants. Yes, Bain salaries are generally higher than McKinsey and BCG in several offices. Most other rankings have celebrated this and moved Bain up because they tend rank the firms from the perspective of the applicant and consultants naturally prefer larger salaries. Who would not prefer larger salaries?

However, we believe Bain should be penalized for higher salaries and certainly not rewarded for it.

There are two reasons why this should be the case.

First, in a brutally efficient market no firm will pay you more unless it is compensating for a weakness. This is the central principle of any open exchange and the bedrock of efficient markets. Firms with a premium brand can actually get away with paying a slight discount.

A suitable analogy would be if you had an outstanding background and applied to a number of average and very strong MBA programs. The weaker schools would want you to attend to bolster their reputations, but knowing they have an apparently weaker brand, they offer you more incentives like scholarships etc. The stronger schools know you need to attend to enhance your profile and therefore there is little reason to offer you an incentive.

In other words, Bain’s higher salary is an incentive for a weaker brand and other weaknesses they, and the application market, believes they may have. It is basic logic. If an applicant receives offers from both McKinsey and Bain, the applicant tends to be pick McKinsey in the absence of any positive difference in the Bain offer. We are not implying McKinsey is a stronger brand. The market is implying this through the way the market participants, applicants, make decisions. A higher Bain salary is meant to attach a value to Bain’s perceived shortcomings and entice the applicant to believe the offers are now comparable.

So when Bain offers you a higher salary think carefully about what shortcoming you will most certainly experience later in your career.

Second, this higher salary is only good for the consultants receiving that salary in the short term, but detrimental for the firm in the medium to long term. There is a simple reason for this and it comes down to productivity. Just because Bain pays a higher average salary in many offices does not mean they attract the best people. And in the cases where they do attract the best recruits, it does not imply they have the systems, processes and culture to enable those consultants to produce the best possible work.

In other words, think of salaries as the highest input cost for a consulting firm. That input cost must be converted to an output value in the form of quality studies, research, and articles etc., which ultimately lead to higher margins. The output value divided by the input cost tells us how productive that consultant, and ultimately the firm, is.

This is again the basic principle of how firms and countries compete. To thrive, you have to be productive. There is no way around it.

All these rankings that heap Bain with adulation for the higher salaries completely misunderstand the impact of higher salaries. It is only good if the output value is relatively higher.

So, is it higher?

Let’s assume a Bain consultant is earning 10% more than the equivalent BCG and McKinsey consultant, including sign-on bonuses. This assumption is not unrealistic in many markets where Bain is competing aggressively against BCG and McKinsey. In fact, in some markets Bain is paying more than 10%. We have seen enough offer letters for our clients to know this is true.

So for one of the largest input cost buckets, salaries, Bain is bearing a heavier burden than its peers. Bain must recover that higher input cost through relatively higher output value or lower its cost structure somewhere else.

It can accomplish this in one of five ways.

First, Bain can charge higher fees than McKinsey or BCG. That does not happen. In speaking to numerous Bain partners, who chose to remain anonymous given the sensitivity of the matter discussed, Bain struggles to match the fees of its peers. This does not mean Bain never matches its peers or even exceeds its peers in some offices. It does so in just a few occasions and in a few locations.

This makes perfect sense. Logic dictates that if the brand’s weaknesses in a particular market requires higher salaries to hire consultants, that very same brand probably requires some type of discount incentive to attract clients. Clients are invariably more critical than applicants.

Therefore, at the very least we can see that Bain is probably not offsetting much of the higher salary difference through higher fees. If anything, Bain is on average across the world charging slightly lower fees. Not much lower, but enough to add to the 10% deficit caused by the higher salaries. In other words, the other paths below need to overcome the 10% salary deficit and another deficit due to lower fees.

Second, Bain could increase the output from its consultants on studies. Output could be increased through the quality of the studies or Bain can complete a study faster than McKinsey or BCG. Bain’s studies are not any more superior to a BCG or McKinsey study. There tends to be very rough parity where they compete.

That leaves the speed of a study. All other things being equal, Bain consultants need to be approximately as fast percentage wise as the salary premium they received. If the premium was 10%, they need to be 10% faster and therefore moved onto another study 10% earlier. This does not happen. The firms are roughly the same in the way they handle staffing. No firm is faster or slower at completing a study.

Therefore, there is no change to the 10% salary deficit and additional lower fees deficit that Bain needs to overcome.

Third, Bain could commit fewer resources to a study. In general, there is no evidence Bain understaffs its studies at the lower or senior levels. There will always be examples of overworked and understaffed war stories but that does not imply a trend or staffing policy.

If anything, Bain probably carries slightly higher study costs. Since it is aggressively trying to grow internationally, it would naturally try to supplement newer offices with consultants from established locations. While clients absorb the bulk of these costs, some will be borne by Bain and at least some consultants will temporarily have salaries priced in the currency of the release office while fees are priced in the local currency. Small currency losses are therefore expected.

So far, there is no reduction to the 10% salary deficit and lower fees deficit that Bain needs to overcome. There may even be a tiny currency loss due to Bain’s staffing for new offices.

Fourth, Bain could increase the output from its consultants on important areas like internal studies, articles and themes. We would be surprised if anyone assumed Bain was strong in this area. This is one of Bain’s major weaknesses. It does not have a culture of producing research pieces across the organization; partners write most pieces we read about and they are not the ones we are analyzing here. Bain does not have an equivalent of the McKinsey Quarterly, BCG Perspectives, McKinsey Global Institute or the Strategy Theory Initiative.

We realize Bain produces many studies. Yet, the point is whether or not it produces more and of better quality than BCG and McKinsey to offset the higher salary burden it carries for younger hires. That is what matters, the relative comparison since we are offsetting the relative premium in the salaries.

We see no reduction in the deficit after examining path four.

Five, Bain can lower administrative, office rental and supplier costs. It is highly unlikely Bain could have found some magic formula to do this across multiple offices. One or two is possible, but across all the offices is not a plausible assumption to make. If anything, Bain probably has better offices in many locations to enhance its brand, and its costs may be higher per square foot.

So, is Bain’s output value high enough to offset the higher salary costs? Logic would dictate it couldn’t possibly be so.

Therefore, we do not see Bain’s higher salaries as something to be rewarded because, for the five reasons listed above, Bain does not produce greater output value from that higher input costs. In other words, Bain is the most inefficient of the 3 routinely compared management-consulting firms.

That is something Bechek needs to manage quickly. While 10% may not seem like a meaningful number, it is the equivalent of having a 5% – 10% labor tax which slowly erodes your competitive advantage. It may take time to show up, but it will eventually hurt the business. Bain is likely viewing this as a cost of growth. It wants to aggressively fan out across the globe as quickly as possible, pay what is needed to find consultants and thereafter increase profits. The firm has seemed more than willing to trade its values for growth so why not trade in a few percentage points more on the salary side?

This is an element that journalists never consider when writing stories about Bain’s strident profits. If labor costs are higher, it must generate greater output value otherwise it is just a bloated firm that is overpaying for talent in the market.

No one can have their cake and eat it. Something has to give and in Bain’s case it must be lower productivity.

Bechek has stood out among every CEO we have profiled for his willingness to shun the limelight and focus on internal issues like a stay-at-home mom dealing with troublesome kids. That is the single reason why we endorse him. The problems in Bain’s cultural and productivity core require that he be inward looking.

That kind of focus on the firm is sincerely needed and he appears to have the solid backing of his partnership. Yet, why not use that backing to effect real change at Bain? More than most other CEOs in the rankings that will soon be published, he appears to have the mandate to do so.

It is hoped Bechek is sincerely focused on the core of Bain’s problems, and not merely glossing over the problems by encouraging Bain consultants and recruiters to be friendlier than their peers; which they are by a mile.

Applying friendliness as makeup to cover Bain’s deep values scars does not change the firm in any meaningful way. The firm needs some cultural reconstructive surgery.

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