McKinsey ’embarrassed’ by failings in South Africa scandal

by Reuters 0

McKinsey said on Tuesday it was embarrassed by errors it made while working with South African utility Eskom on a 1.6 billion rand ($120 million) contract that is being investigated by parliament and police over allegations of fraud.

Privately-held McKinsey, the world’s largest management consultancy, said it had parted ways with some staff involved in its work at Eskom in 2016 with Trillian, a local consultancy controlled at the time by members of the Gupta family, billionaire friends of President Jacob Zuma.

The Gupta brothers, who work with Zuma’s son, Duduzane, were accused by South Africa’s anti-corruption watchdog last year of using control over state agencies to siphon public funds.

Zuma and the Guptas deny wrongdoing.

In McKinsey’s first admission of wrongdoing since the scandal broke in July, it said an internal investigation had found “violations of our professional standards” but did not uncover any acts of bribery or corruption.

“The behaviors of some individuals fell short of our standards. Some of our processes were inadequate and we have acted to reinforce compliance and improve them,” Tom Barkin, McKinsey’s Global Chief Risk Officer, said in a statement.

“We are embarrassed by these failings and we apologize to the people of South Africa.”

McKinsey said it never worked with the Gupta family and did not have a contractual relationship with Trillian.

A February 2016 letter written by one of McKinsey’s directors, Vikas Sagar, authorizing Eskom to pay Trillian as a McKinsey subcontractor “inaccurately characterized” their relationship, McKinsey said.

Sagar has decided to leave McKinsey while other employees have been sanctioned or left the firm, McKinsey said in its statement on Tuesday, without naming the other staff. Sagar did not respond to calls for comment.

Georges Desvaux, McKinsey’s Africa head, and Saf Yeboah-Amankwah, the firm’s South Africa chief, remain at the company.

CORRUPTION

South Africa’s political opposition Democratic Alliance says McKinsey steered funds to Trillian in order to secure an inflated contract with Eskom that could have totaled 9.4 billion rand ($705 million) over four years, a draft McKinsey-Trillian partnership document, seen by Reuters, showed.

McKinsey ended up earning around 1 billion rand and Trillian 564 million rand for a “Turnaround Plan” carried out at Eskom between January and July 2016.

McKinsey says it has put aside its fee and will repay it if the contract with Eskom is found to be illegal.

McKinsey says it stopped working with Trillian after the company failed due diligence in March 2016. McKinsey said on Tuesday it now regrets ever working alongside the Gupta-firm.

The size of the contract – $120 million for six months of advice – has also been heavily-criticized.

U.S. business advisory Oliver Wyman found in a December 2016 report commissioned by Eskom that McKinsey’s contract with the utility was “very unusual” and charged fees at more than double market rates.

McKinsey says it is proud of its work at Eskom and the fees it charged were in-line with some of its other contracts.

McKinsey’s global head Dominic Barton said the consultancy would now work to rebuild its reputation.

“We are sorry for the distress this matter has caused the people of South Africa,” Barton said in a statement.

“We are taking a hard look at all of our practices in the country.”

(This story corrects contract amount in paragraph 12 to 9.4 billion rand not 9.6 billion rand)

Editing by David Evans