Gavin Newsom’s go-to consultant: Why he keeps calling McKinsey on California government

Gov. Gavin Newsom turned at least four times to global consulting firm McKinsey & Co. over the past year when he wanted to bring a private sector perspective to California government.

He hired a former McKinsey executive as his top economics adviser, and put him in charge of the state’s business department and its $79 billion high-speed rail project.

The Newsom administration sought McKinsey’ help with separate contracts for guidance on fixing problems at the DMV and improving education opportunities in Fresno. McKinsey won a $1.5 million contract for its DMV work and earned $600,000 for its education study, according to state records.

The governor tapped a current McKinsey executive to lead a commission on the future of work. Newsom also relied on expertise from McKinsey during his 2018 campaign and while he was lieutenant governor.

It’s not unusual for a governor to turn to a private consultant, but California policy experts say Newsom’s approach is distinct.

Seeking outside consulting from a firm like McKinsey is typical in business and Republican administrations, but is rare for a Democratic governor, said Thad Kousser, a political scientist at UC San Diego.

“Chief executives often rely on consultants, but it’s often part of the Republican playbook,” Kousser said.

New York-based McKinsey has a decades-long record advising industries and government. Newsom’s connections with the company are detailed in calendars The Sacramento Bee obtained through the California Public Records Act, recently updated public disclosure forms and press releases touting his advisers’ experience in the private sector.

Rob Stutzman, a Republican strategist who served as a top aide to Gov. Arnold Schwarzenegger, said seeking help from a private consultant like McKinsey is a good thing.

“I think prevailing upon that type of expertise holds great promise,” Stutzman said. “It’s exactly what Fortune 500 companies do.”

McKinsey is considered a “gold standard” in consulting, Kousser said.

But McKinsey has been under scrutiny this year amid federal investigations into the firm’s bankruptcy practice. The New York Times has reported on how the firm became embroiled in corruption scandals in foreign countries, including South Africa. McKinsey has denied wrongdoing.

The New York Times and ProPublica have also reported that McKinsey helped the Trump administration implement immigration policies, which Newsom has harshly criticized.

McKinsey has said the New York Times’ and ProPublica’s reporting “fundamentally misrepresents McKinsey’s work.” McKinsey said it never recommended reducing the “quality of food or healthcare for detainees,” in response to reporting that it called for cutting the food and health budget for detainees.

McKinsey declined to comment on its work for the Newsom administration beyond a general statement about its qualifications to advise government agencies.

The governor views McKinsey’s reported recommendations to cut costs for border operations, including by recommending slashing food budgets for migrant detainees, as “abhorrent,” Newsom spokesman Nathan Click said in a statement.

Click did not directly answer questions about why Newsom has relied on McKinsey expertise so frequently, but said the governor often seeks outside advice to improve government.

“The governor has long sought new ideas for how government can work better for the people it’s meant to serve (he even wrote a book about it.)“ Click said, referencing Newsom’s 2013 book “Citizenville.”

A source of top advisers

A few days before he was sworn into office, Newsom announced hiring former McKinsey executive Lenny Mendonca as his top business and economics adviser.

Mendonca founded McKinsey’s U.S. state and local public sector consulting practice before retiring from the firm in 2014 and is now a senior partner emeritus at McKinsey.

Newsom also appointed Mendonca to run his Office of Business and Economic Development and to chair the High-Speed Rail Authority, which oversees the state’s biggest infrastructure project.

Newsom charged Mendonca with cleaning up the authority, which has been under scrutiny for its own reliance on outside consulting. State Auditor Elaine Howle in November 2018 criticized the project’s heavy reliance on a network of consulting firms.

“There’s been too little oversight and not enough transparency,” Newsom said during his February State of the State speech when he announced Mendonca’s high-speed rail appointment. “We’re going to hold contractors and consultants accountable to explain how taxpayer dollars are spent.”

Mendonca was a top executive in McKinsey’s San Francisco offices when Newsom was mayor, and Newsom has long valued Mendonca’s opinion.

“I don’t know what he hasn’t done for California: Everywhere I go, there’s Lenny or his footprint, his point of view, his involvement, his interest, his insight,” Newsom told the San Francisco Chronicle in 2015. “He is remarkable in this respect: He has this unique ability to navigate in disparate places, both traditional and nontraditional.”

Newsom has also picked a current McKinsey executive, McKinsey Global Institute director James Manyika, to advise him on the changing economy.

Calendar records show Newsom met privately with Manyika in August to discuss the future of work. Two weeks later, Newsom appointed Manyika to co-chair his Future of Work Commission, which is tasked with advising the governor on how best to prepare workers for a changing economy and continue California’s economic growth. The position doesn’t receive a salary, but does come with $100 per diem compensation.

Improving education in Fresno

Earlier this year, Newsom asked the nonprofit College Futures Foundation to fund work “in support of the Governor’s Council on Post Secondary Education,” according to public records that show charitable donations made at the behest of elected officials.

The foundation has paid McKinsey $600,000 for that work, said Jackie Khor, who served as vice president for programs at the foundation during the project.

Governors and other elected officials must report payments they solicit from outside groups for charitable or governmental causes because so-called “behested payments” could be used to influence them.

Newsom has reported about $14 million in behested payments since he was elected governor, including for his inauguration, the California Fire Foundation and the College Futures Foundation’s payments to McKinsey.

The College Futures Foundation hired McKinsey to help develop a plan for Fresno schools to prepare workers for critical industries in the region as part of the DRIVE initiative, a project to spur the Central Valley’s economy, Khor said. It chose McKinsey to help organize the research and analyze data because of the foundation’s previous work with the company on similar projects, she said.

The College Futures Foundation, a nonprofit that aims to make higher education more accessible to people from marginalized backgrounds, began working with the governor’s office on higher education under former Gov. Jerry Brown and has continued to do so under Newsom, Khor said.

Mendonca serves on the College Futures Foundation board of directors and on the governor’s education council. He reported being paid between $10,001 and $100,000 by the College Futures Foundation for his work as a director, according to his financial disclosure form.

Mendonca was not involved in choosing McKinsey for the job, Khor said.

Fixing the DMV

Early in his administration, Newsom pledged to give Californians a better experience at the DMV, where outdated technology prevented customers from using credit cards and the department struggled with a new voter registration program.

Newsom acknowledged problems at the DMV were eroding Californians’ confidence in government.

“The DMV is the retail face of government,” he said at a news conference in July. “There’s a reason people don’t like government. They say government cannot do its job.”

To address the issues, Newsom appointed a DMV “strike team,” which in turn hired McKinsey. The firm was chosen through a competitive selection process to make the department more efficient and reduce wait times.

The company helped the strike team develop new training for DMV employees and advised the department on how to better communicate with the public through its website.

The DMV’s $1.5 million contract with the firm has since ended, according to a copy of the contract The Bee obtained through a Public Records Act request.

Bay Area business

Before going into politics, Newsom opened a wine shop in San Francisco that has grown into a sprawling hospitality business called PlumpJack Group.

Choosing McKinsey likely reflects Newsom’s business and Bay Area roots, resulting in a “fusion of Silicon Valley culture with political leadership in California,” Kousser said.

Harnessing private sector expertise to improve government has long been a key interest of Newsom’s, one he wrote about extensively in his book “Citizenville.”

When he wanted to make a name for himself as lieutenant governor, he turned to McKinsey to develop a report on jobs. He relied on a separate McKinsey report during his gubernatorial campaign to set his housing production goals.

Although Newsom moved to the Sacramento area when he became governor, he often touts his Bay Area and Silicon Valley connections, including recently when he convinced several big tech companies to spend billions on affordable housing.

“Gavin Newsom brings in the approach of Bay Area business,” Kousser said. “That’s something that comes naturally to him, even though it’s something that his Democratic predecessors haven’t done.”

Nate Ballard, a Newsom ally who served as his spokesman when Newsom was San Francisco mayor, said the governor’s relationship with McKinsey reflects his data-driven approach to governing.

“He is a stickler for the numbers and doesn’t like to make too many decisions without a spreadsheet in hand,” Ballard said in an email. “It dates back to his days running a wine shop and restaurants — he doesn’t like to wing it, he likes to know exactly how many dollars and cents are available for any project.”

This story was originally published January 6, 2020 at 5:00 AM with the headline "Gavin Newsom’s go-to consultant: Why he keeps calling McKinsey on California government."