McKinsey is a global strategy consultant for the world’s largest firms and for governments, employing over 9,000 consultants. Its vast experience and global reach give it unique insights into influential companies and entire industries. Its alumni often assume prominent positions in government and corporations.

Management consultants themselves are not necessarily subject to regulation. MIO is not secret as it has a website and its EU arm is regulated by the Financial Conduct Authority. According to the FT, McKinsey says, “MIO is managed independently, and all its activities are separate from McKinsey’s consulting operations.”

Running an internal fund is one way of rewarding and retaining top people and utilising all of the firm’s knowledge and experience. However, the entire setup is riddled with conduct risk. It is especially surprising after Raj Gupta, McKinsey’s one-time managing director, was sentenced to two years in prison in 2012 for insider trading and fined $5 million.

In today’s competitive hiring environment, recruiting and retaining top consultants will often boil down to money – lots of money. There is no way that even senior consultants can be paid more than investment bankers or hedge fund, private equity or venture capital managers.

Judge Jed Rakoff said Gupta’s behaviour was “disgusting.” Gupta was so eager to use his inside information that he called his trading partner less than a minute after the board of Goldman Sachs approved a $5 billion investment from Warren Buffett during the financial crisis. The incident significantly damaged McKinsey’s reputation.

Other management consultants such as Bain operate their own investment operations, but that doesn’t mean it is the right thing to do. Either you are an independent consultant or you are an investor with a vested interest in a competitor or competitive situation. It’s really hard to separate both. Venturing down that road as an organisation means you will be confronted with moral dilemmas that will overtake you.

McKinsey faces the same fundamental conflict that faced Goldman Sachs in the early 90s. When proprietary trading or investing on your own account is more lucrative than servicing clients, then a whole new world of self-entitlement opens up. Clients become counterparties.

Then, a firm once known for great client service redefines client service as having professionals who produce impressive results for clients, but who may not entirely be looking after a client’s best interests.

Might Chinese walls, ring fencing and self-control work? They are as effective as banks’ models for “self-regulation.” It looks like McKinsey also conveniently forgot about its former partner Gupta. I have spoken to friends of Gupta and all of them were completely shocked at his conduct. It appeared completely out of character and unknown to even those who were close to him. Greed is a well hidden and intoxicating temptress.

Conduct risk culture best works when temptations are completely removed. McKinsey has established rules stating that individual employees cannot trade on stocks of McKinsey clients. Given such a policy McKinsey already acknowledges that investing in current clients creates a conflict of interest for its employees. A third party not connected with the firm should have been engaged at arms length to manage McKinsey’s investments.

Indeed, accounting or law firms can set up similar funds using their collective professional knowledge to fuel superior return performance. The fact that other firms are doing it doesn’t mean the practice is acceptable. The practical answer is to enforce maximum transparency and let all these internal funds trade. Just make them publish their trades before they are executed.

If it has the potential for conflict of interest, then there probably is. What a way to make people start to question your integrity, even if you have done nothing wrong.