McKinsey & Company and Governor’s GO-Biz Ties

According to an August 3, 2023 article in The Fresno Bee, “House Speaker Kevin McCarthy joined other local politicians in sounding alarms about the ties between China and a secret lab that was shut down earlier this year in Reedley, talking with reporters Thursday in Clovis.

News of the lab – run by company Prestige Biotech Inc., whose owners reside in China – broke last week along with concerns about vials of exotic contagions the lab had been illegally storing. A slew of state and federal agencies are investigating, including the Centers for Disease Control and Prevention and the FBI.

The Bakersfield Republican, who met with the media at his newly opened office in Clovis, said he’d spoken to local officials earlier that day about the “disturbing” discoveries out of Reedley. He pledged to take these concerns back to the select committee on China he convened shortly after becoming Speaker of the House this January.

“My concern is to get to the bottom of what happened here,” he said, “but also … where’s this happening in other parts of this country?”

The Speaker also alleged that Gov. Gavin Newsom’s administration provided the lab with state funding.

“Now we’re finding out that the governor of California provided them with $360,000 in this process,” he said.

A spokesperson from the California Governor’s Office of Business and Economic Development (GO-Biz) told The Bee in an email that Universal Meditech, Inc., the predecessor of Prestige Biotech, received a $360,000 tax credit through the office’s California Competes program in April 2019, but the credit was ultimately revoked.

“(Universal Meditech, Inc.) did not achieve any of its milestones and was not approved to claim any of the tax credits. GO-Biz recaptured the entire credit and voided the Agreement with UMI,” the spokesperson said.

The office also said that Prestige Biotech never received any California Competes funding and that it was “never a party” to the agreement.

McCarthy said he plans to follow up with the FBI in light of his discussions Thursday.

“There’s a lot more questions that need to be answered,” he said.

According to a May 2022 press release from The California Office of the Small Business Advocate (CalOSBA) “part of the Governor’s Office of Business and Economic Development (GO-Biz), today announced the formation and leadership team of the 2022 Entrepreneurship & Economic Mobility Task Force (EEMTF), formed to propel inclusive entrepreneurship and to ensure that all California small businesses have access to the resources they need to grow and scale.

“As a business owner and technical assistance provider before my current role, I know all too well the challenges small businesses face. This Task Force will focus on addressing current challenges that include workforce and capital access constraints to support a continued sustainable recovery from the COVID-19 crisis as well as look forward to opportunities for innovation and entrepreneurship on a broad scale,” said Tara Lynn Gray, Director of CalOSBA.

Lenny Mendonca, owner of the Half Moon Bay Brewing Company, has accepted the Chairmanship of the 2022 EEMTF. Serving alongside Mendonca as Task Force Vice Chairs are Gurinder S. Ahluwalia, Member of the Board of Hightower Advisors and InspereX and Maria S. Salinas, President & CEO of the Los Angeles Area Chamber of Commerce.

Mendonca is the former Chief Economic and Business Advisor to Governor Gavin Newsom. He is also a Senior Partner Emeritus of McKinsey & Company, a lecturer on inequality at the Stanford Business School, and Founding Chair of the Coastside News Group. Over the course of his career, he has helped dozens of governments, corporate, and nonprofit clients meet their most difficult management challenges.

Mr. Mendonca stated, “I’m excited about the goals of this Task Force! And I know that with the assistance and experience of our Vice Chairs Ahluwalia and Salinas, we will work together to improve the success rates of California’s entrepreneurs and improve economic mobility in California.”

Mr. Mendonca formerly held the title of Chair Director, Governor’s Office of Business and Economic Development as referenced within the California Competes Tax Credit Program Committee Meeting agenda dated Thursday, April 11, 2019. On this date, the Committee approved a tax credit for Universal Meditech, Inc.

GO-Biz’s spokesperson ultimately stated to the Fresno Bee and the Globe that the credit to UMI was revoked, however the revocation did not take place until June 15, 2023, more than 6 months after the Reedley Bio Lab was shut down.

The original agreement stated:

“Reporting Requirements. On or before the first day of the fourth month after the close of each taxable year as referenced in Exhibit A, and prior to claiming the Credit on its tax return, Taxpayer shall complete a worksheet provided by GO-Biz to verify successful achievement of the applicable Milestones for the prior taxable year. If Taxpayer successfully achieved the Milestones for the prior taxable year, Taxpayer shall retain the worksheet pursuant to section 16 and submit the worksheet to GO-Biz or the FTB upon request. If Taxpayer did not achieve the applicable Milestones for the prior taxable year, Taxpayer shall submit to GO-Biz the worksheet and a written description of any issues or challenges in achieving the Milestones and any corrective actions being taken or anticipated to be taken in subsequent years. Such submission shall be due to GO-Biz by the first day of the fourth month after the close of each taxable year as referenced in Exhibit A.

Franchise Tax Board Review

(a) In addition to the reporting requirements in section 6, Taxpayer agrees to comply with the FTB’s review of the books and records for purposes of determining if Taxpayer has complied with the requirements of this Agreement.

(b) For any business other than a Small Business, Taxpayer acknowledges that the FTB shall review the books and records of all taxpayers allocated a Credit pursuant to this Agreement to ensure compliance with the terms and conditions of this Agreement and agrees to cooperate with the FTB in such a review. In the case of a taxpayer that is a Small Business, Taxpayer acknowledges that a review of the books and records of a taxpayer shall be made when, in the sole discretion of the FTB, a review of those books and records is appropriate and agrees to cooperate with the FTB in such a review. If the FTB exercises its discretion to review the books and records of a Small Business taxpayer, the review will be conducted to ensure compliance with this Agreement. The guidelines and procedures for these reviews are outlined in the FTB’s Notice #2014-2 dated November 7, 2014.

(c) These reviews will not constitute an audit of the tax return under Part 10.2 (commencing with section 18401) of the RTC and the regulations thereunder, and will not preclude the FTB from auditing any issue in any taxable year, including a taxable year included in the term of this Agreement.

(d) If during the review of the books and records, the FTB determines there is a potential material breach of this Agreement by Taxpayer, and notwithstanding RTC section 19542, the FTB shall notify GO-Biz and provide, in writing, detailed information regarding the basis for that determination.

Assignment/Transfer. The Credit (or a portion thereof as earned) under this Agreement may be assigned to an “Affiliated Corporation” in accordance with RTC section 23663. As stated in RTC section 23689(i)(1), this Agreement shall not restrict, broaden, or alter the ability of Taxpayer to assign the Credit in accordance with RTC section 23663. In order to transfer this Agreement as a result of a sale or merger, prior written consent of GO-Biz must be obtained or the transfer will be void. Such transfer shall be permitted if GO-Biz determines that the transfer would further the purposes of the CCTC program and benefit California. Prior to GO-Biz consenting to the transfer, the new entity must disclose to GO-Biz the number of California full-time employees it employed at the time of acquisition or merger and any other information GO-Biz requests that applicants for a CCTC provide pursuant to a CCTC application.

I was unable to locate a statement of economic interest for Mr. Lenny Mendonca online. His position as Senior Partner Emeritus of McKinsey & Company may potentially be a conflict of interest. McKinsey & Company is a global management consulting firm founded in 1926 by University of Chicago professor James O. McKinsey, that offers professional services to corporations, governments, and other organizations. As referenced from The Cambridge Consultant, some of Mcinsey’s top 8 clients include: the U.S. Defense Department, Microsoft, U.S. Postal Service, U.S. Department of Energy and the Bill and Melinda Gates Foundation.

A June 2023 article by California Globe Editor Katy Grimes elaborates on Governor Newsom’s No-Bid Covid Contract with McKinsey & Co.:

“In 2021, the Washington Post published an alarming article about California Governor Gavin Newsom’s no-bid contracts with Blue Shield and McKinsey & Company, how he outsourced much of California’s vaccine rollout during the Covid crisis, and how “private contractors cost taxpayers millions of dollars, while demonstrating few clear results and papering over weaknesses in the country’s public health system.”

These no-bid contracts with private sector companies and non-profits make it impossible for taxpayers and journalists to hold government agencies and politicians accountable because there is no way to uncover exactly what we are receiving because the internal documents of private companies are not subject to the state’s public records laws.

McKinsey & Company was also named as a significant player in the nationwide opioid crisis when in early 2021, 49 State Attorneys General, five territories and the District of Columbia reached settlement with McKinsey, related to the firm’s work for opioid manufacturers. McKinsey was ordered to pay approximately $600 million, which the states would use to address the impact of the opioid epidemic in their communities.

In March 2022, California Attorney General Rob Bonta announced a $6 billion settlement with Purdue Pharma and the Sackler family, estimated to bring approximately $486 million to California to fund opioid addiction treatment and prevention.

The AG’s office gave more detail: “In addition to today’s up-to-$6 billion settlement with Purdue and the Sackler family, the Attorney General’s Office has helped secure up to $32.5 billion in relief nationwide, including a $26 billion settlement with opioid manufacturer Johnson & Johnson and distributors Cardinal, McKesson, and AmerisourceBergen; as well as a $573 million settlement with McKinsey & Company. These settlements will bring up to $2.6 billion to California communities.”

While California continues to have a wicked Fentanyl crisis, the state continues to work with McKinsey & Company, despite their past work with Purdue Pharma: California Health & Human Services, the California DMV and Dept. of Social Services continue to work with McKinsey, according to verified sources.

During the Covid lockdowns, California Governor Gavin Newsom granted McKinsey a no-bid contract to push out vaccines, even though state and local agencies have the budgets and staff for disseminating critical public information.

Curiously, this was going on while Newsom simultaneously fought off his recall election.

WaPo reported in August 2021:

“When Gavin Newsom outsourced key components of California’s vaccine rollout to the private sector during the pandemic’s darkest days last winter, the Democratic governor promised the changes would benefit the most vulnerable.

His “number one” reason for handing the reins to Blue Shield of California, an Oakland-based health insurance company, was “equity” —delivering vaccine doses to those at greatest risk, many in communities of color, he said in February.

But the $15 million contract with Blue Shield, plus another $13 million for McKinsey, did not deliver on that promise, according to state and county officials, as well as public health experts.”

Despite the state’s settlement with Purdue and McKinsey, local governments said they had their own set of issues to address. In December 2022, 30 locally elected officials from around the state sent a letter (below) to Gov. Newsom and the California Legislature asking the state to cease all contracts with McKinsey & Company:

“We need to make a stand against corporate giants like McKinsey by reviewing and rejecting all contracts with local governments,” they wrote.

Why? The officials said that with more than half a million Americans having died from an opioid overdose, “no family has escaped the pain and suffering that opioids have wrought on our country.”

They continued:

“The opioid epidemic was not a mistake. It was not an accident, or a natural disaster. It was not the result of a bad economy. It didn’t just come out of nowhere. We know now that the opioid crisis was planned. It was branded. It was packaged and sold and marketed.”

“According to New York Attorney General Letitia James, ‘the taproot’ of the opioid crisis in America was a decision by Purdue Pharma to aggressively market their deadly drug Oxycontin despite their full knowledge that their drug was highly addictive, medically questionable, and was killing and addicting scores of Americans. And thanks to the efforts of Massachusetts Attorney General Maura Healey, we now know that the company that wrote the strategy and profited from Purdue’s deadly drug was a management consulting firm called McKinsey & Company.”

These public officials requested:

1) We are asking the Governor and state legislators to review all contracts involving
McKinsey and review to determine if there are other conflicts of interest.
2) Before a new contract to McKinsey is awarded, demand that McKinsey reveal their
clients and conflicts of interest.
3) Publicly support the local governments rights to file lawsuits to receive justice for
their communities and residents.

Yet McKinsey continues to work with state agencies.

It wasn’t just state and local government impacted: A Law360 article, McKinsey, Plaintiffs Spar Over Picking Opioid Bellwether Tribe, reported, “The White Mountain Apache Tribe, which on Jan. 25 hit McKinsey with a Racketeer Influenced and Corrupt Organizations Act suit over the firm’s alleged role in the tribe’s opioid epidemic.”

That’s a RICO lawsuit.

The Globe sent a request to Gov. Newsom’s office asking why, even after AG Rob Bonta’s participation in a massive settlement against the company, the State of California continues to work with McKinsey & Co; what the contracts cover; and if the CHHS contract is still involved in the campaign drive to push out COVID vaccines? We have not received a reply from the governor’s office, but will report when we do.

For more information about McKinsey’s involvement in California’s Covid vaccination push, the opioid crisis and the settlement:

The Washington Post article: Private Consultants Vaccination Drive Outsourced

A New York Times article: Behind the Scenes, McKinsey Guided Companies at the Center of the Opioid Crisis

Another NYT article about the settlement: McKinsey paid a 600 million dollar settlement for their role in the opioid crisis

According to Mr. Mendoca’s biography cited from New America, “He founded McKinsey’s U.S. state and local public sector consulting practice. He also oversaw their knowledge development, Chairing the McKinsey Global Institute and the Firm’s communications, including the McKinsey Quarterly. He served for a decade on the McKinsey Shareholder Council (its Board of Directors).”

In summary, were Governor Newsom’s “no-bid” contracts with McKinsey considered a conflict of interest given that Mr. Lenny Mendonca is the former chief economic and business advisor to the Governor?

“Dishonest money dwindles away, but whoever gathers money little by little makes it grow” (Proverbs 13:11)