A federal bankruptcy judge has authorized McKinsey & Co. to devise industry conflict-of-interest guidelines, even as the firm recently has paid $32.5 million to settle allegations that its undisclosed conflicts tainted its own bankruptcy work.

The surprising move by Judge David Jones of Houston will allow the big consulting firm to craft a conflicts protocol that will be used in a current chapter 11 case, Colorado coal miner Westmoreland Coal Co., and could serve as a model for all bankruptcy practitioners, including law firms...