POLITICS

How McKinsey Played Fast And Loose With Black Empowerment

Global consultancy ditched its long-time black partner for a Gupta front.

16/10/2017 09:40 SAST | Updated 16/10/2017 09:40 SAST
Letsema
Derek Thomas, CEO of Letsema, South Africa's foremost black management consultancy, and the firm's founder, Isaac Shongwe.

Letsema is buzzing when I ring its bell on a visit last week.

South Africa's oldest black-owned management consultancy is headquartered in Melrose Arch and purposeful looking executives stride its corridors.

Letsema was McKinsey's black economic empowerment (BEE) partner on a contract at Transnet where it got on track to learn its rail speciality. "In the Transnet partnership, McKinsey was good to us. We got to work on big projects," says CEO Derek Thomas.

The company's got game in rail corridor management and this expertise has taken its footprint Pan-African. It is contracted in Kenya to help with rail infrastructure management, says Thomas.

Consultancy musical chairs

Then Letsema was iced out of the Transnet contract in favour of a more politically connected management consultancy called Regiments. In a story of consultancy musical chairs first reported by the Financial Mail, Regiments was replaced by Trillian which is majority owned by the Gupta lieutenant Salim Essa.

While Letsema is back up at full steam, the loss of the Transnet contract was tough. "I've had to keep costs down. There has been no increase for the C-suite for four years and no bonuses. There have been no dividends to shareholders," says Thomas.

Letsema

Started by the black business legend Isaac Shongwe, Letsema set out to be a high-end, black-owned boutique consultancy. It hires highly qualified professionals with the median qualification being a master's degree. The company actively seeks out consultants with PhD's and its professional staff of 40 is majority black.

"Without a McKinsey as a partner, you wouldn't see the cool projects," says Thomas about the experience of small, black-owned consultancies. For these partnerships to work, he says: "You need size, sophistication, ambition and strategic intention on both sides."

From empowerment to fronting

Somewhere along the line, McKinsey changed tack on how it chose and treated its partners in supplier development programmes.

Supplier development is also known as enterprise development and is a key component of black empowerment law. "One of the purposes of a supplier development programme is that the local service provider should gain experience and develop skills, and should benefit from part of the contract," said Geoff Budlender, the advocate who investigated Trillian on behalf of its former chairperson Tokyo Sexwale.

Budlender first drew attention to McKinsey's conduct of its relationship with Trillian and suggested that the contracts the two companies had signed with Eskom needed further investigation. From a relationship of mutuality with a partner like Letsema, the company's relationship with Trillian at Eskom was a far more cynical fronting arrangement.

The former Trillian executive turned whistleblower, Bianca Goodson, provides ample evidence of this.

Eskom paid Trillian R525-million in 2016 for work that cannot be accounted for on a contract the utility itself now says was illegal. McKinsey earned double that.

As these sky-high fees were earned, Trillian's management consultancy arm was little more than a few employees and a fax machine – it did not have anything approximating the skills or experience of a company like Letsema.

Trillian - with its partner company, Integrated Capital Management- is represented by white men.

The cast of lead characters in Goodson's statement and who clearly called the shots are Eric Wood, Clive Angel, Marc Chipkin and Stanley Shane. They all reported to Salim Essa who is a well-known proxy for the Gupta family. Trillian was in it for the money and McKinsey knew this.

Goodson constantly complained about how Trillian was being treated by McKinsey – they were not included in decision-making; they were treated as "baggage". A McKinsey partner said that: "Trillian as the development partner is simply a necessary, but unwanted piece of baggage in the awarded (Eskom) contract."

On another occasion, Goodson says Lorenz Jungling of McKinsey said that "the current McKinsey sentiment is that TMC (Trillian Management Consulting) is not motivated by delivery and growth towards independence, but rather is in this partnership purely to receive revenue for not much work".

McKinsey's Faustian pact with Trillian scored the front company over half a billion Rand.

The thing about Trillian's millions

Thomas belly-laughs at what Trillian earned.

Letsema is the oldest, most experienced black management consultancy in the country. At their height, individual contracts with public companies amounted to between R10-million and R15-million in revenue. "An excellent year for a small independent consultancy is between R15-million and R30-million on a single large client," says Thomas.