NEWS
03/05/2018 04:51 SAST | Updated 10/05/2018 08:40 SAST

McKinsey Execs Will Personally Pay Back Eskom's Money

The firm’s no longer doing business with state-owned companies

Arnd Wiegmann / Reuters

ANALYSIS

The mission statement sandblasted onto the doors of McKinsey's elegant new offices in Sandton, Johannesburg is like a cautionary tale of all that has gone wrong at the firm.

It promises transparency, value to clients and ethical practice. But the global advisory firm, with a reputation for hiring the world's best consultants, is floundering in South Africa after it transgressed each of these principles in dealings with Eskom.

It has lost clients left, right and centre after it got caught in the drama of state capture.

McKinsey partnered with the Gupta front company, Trillian, to forge a billion-rand turnaround contract with an almost bankrupt Eskom in 2016.

It signed a contract type that is outlawed by the National Treasury because it is outcome-based and paid on savings. Treasury prefers fee-based contracts paid when a job is done. How McKinsey came to earn the R1-billion is anybody's guess – Eskom is still bleeding cash and it still threatens the national balance sheet; nobody you ask can spot the value achieved for the amount it earned.

It has lost clients left, right and centre after it got caught in the drama of state capture.

After the investigative portal, amaBhungane, revealed how this had happened, there was an exodus from McKinsey and it attracted bad publicity across the globe.

The money's still in a London bank account after each of McKinsey's 1,500 global partners paid an equitable share back from their bonuses to mitigate the impact of the scandal. The money has been frozen by South Africa's Asset Forfeiture Unit, pending an investigation, but cash-strapped Eskom wants its money back.

McKinsey no longer works with state-owned enterprises as it undergoes a complete overhaul in how it does business in South Africa. Its internal investigation revealed multiple transgressions and lapses in judgement. Senior partner, Vikas Sagar, is "no longer a member of the firm", says McKinsey. This seems to be the corporate equivalent of being voted off the island in an episode of "Survivor".

He quit, along with several others, while the company's professional standards committee was midway through an investigation.

McKinsey no longer works with state-owned enterprises as it undergoes a complete overhaul in how it does business in South Africa.

McKinsey has made serial changes to its operations in the light of what happened at its office in South Africa and it has scrutinised 9-million documents to understand what went wrong in its operations. By comparison, Steinhoff's audit investigators have gone through 3-million documents on a much more serious loss. There is now greater scrutiny of contracts – from "four eyes to eight eyes", says a spokesperson. Trillian was a "supplier development partner". According to black empowerment laws, foreign contractors such as McKinsey must partner with local companies. he firm now says it will not allow state-owned companies to choose its partners as it did with Trillian.

McKinsey's taken a knock and so have its people who were not party to the Eskom contract.

In future, it will also treat the country as the client and not the state-owned companies and it will align its work much more closely with the national treasury. And, McKinsey has also put all its partners through rigorous training in South African Public Finance Management Act as well as the US Foreign Corrupt Practices Act. The two pieces of law are the most powerful pieces of anti-corruption legislation in South Africa; yet, they were allegedly violated in the course of the McKinsey operations with Eskom.

McKinsey's taken a knock and so have its people who were not party to the Eskom contract. With a usually stellar reputation, they seem chastened by the censure and the bad publicity.

Says one: "To think we would be regarded as being part of looting is heartbreaking."