New York Magazine

THE MCKINSEY WAY TO SAVE AN ISLAND

Why is a bankrupt Puerto Rico spending more than a billion dollars on expert advice?

Since 2016, Puerto Rico has been buffeted by a natural disaster and several overlapping, man-made catastrophes. Its government is bankrupt and owes $74 billion to bondholders: a staggering sum that amounts to 99 percent of the island’s gross national product, or $25,000 for each of its 3 million men, women, and children. It faces a vociferously hostile president, a stalemated and colonial relationship with Congress, entrenched local political dysfunction, and a bunch of angry creditors—most notably, a group of hedge funds that speculate in distressed debt and are fighting for every last penny they think they’re owed.

“I mean, it’s basically a management crisis,” Bertil Chappuis said one afternoon, as we sat at a Cuban luncheonette in San Juan. “Set aside the politics. Set aside policy. Set aside all of that. There was a true management crisis that had come to a head because of the debt.”

Nail, meet hammer: Chappuis is a senior partner at McKinsey & Company, perhaps the world’s most influential management consulting firm. McKinsey prides itself on tackling the world’s most important and intractable problems. Over its century-long existence, the firm—or “The Firm,” as its employees refer to it—has conceived and propagated many of the ideas that now rule American business, which is to say, American life. Its influence can be seen in corporate suites (a disproportionate number of Fortune 500 CEOs are ex-McKinsey consultants) and grocery stores (the bar code is a McKinsey innovation), in banks, universities, and hospitals. All the while, the firm has maintained an air of mystery, seldom disclosing the details of its work, deflecting credit when its efforts are successful, dodging blame when they blow up or inflict pain on those on the receiving end of its efficiencies.

For the last two years, though, Chappuis and the firm have taken on an unusually visible role in Puerto Rico’s contentious and very public bankruptcy process. Under a law Congress passed in 2016, the island’s finances are overseen by a federally appointed board, which hired McKinsey as its “strategic consultant.” Chappuis, in turn, is the firm’s point man. In October, the board issued a 148-page fiscal plan that touches nearly every sector of the Puerto Rican government. Following McKinsey’s guidance, it laid out numerous service reductions, agency consolidations, and “right-sizing” measures—the plan’s euphemism for job cuts.

“This is a historic opportunity to actually reset the game here,” Chappuis declared when we first met in mid-January. Raised in San Juan, he is tall and dark-haired with a regal bearing. His background is in internet technology, and he has scant experience dealing with a governance problem on the scale of Puerto Rico’s. He has never worked as an elected official or a bureaucrat or an economist (but he leads a team of consultants who do have such expertise). What he does possess is an infectious enthusiasm for management science—the much-chronicled “McKinsey Way.” His optimism is unwavering, even as his work and the firm’s role in Puerto Rico seemed imperiled.

The day after we had coffee, public employees would protest outside the federal courthouse, where the island’s bankruptcy case was being heard. Leaders of police unions were blaming a wave of murders on budget cuts and mismanagement. The critics of the oversight board—or la junta de control, as it is called by people in Puerto Rico who say its powers far exceed oversight—decry both the impact of the cuts and the fact that much of the resulting savings would go to repay creditors, including the hedge funds, many of which bought bonds at a deep discount after Puerto Rico defaulted on its debts.

In D.C., Democrats like presidential candidate Elizabeth Warren were excoriating McKinsey for having “paved the way for many of Puerto Rico’s creditors to receive handsome payouts.” Meanwhile, the Trump

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