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.”
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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.
<h3>CORRUPTION</h3>
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 &#8211; $120 million for six months of advice &#8211; 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)
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Editing by David Evans
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McKinsey ’embarrassed’ by failings in South Africa scandal

McKinsey will repay fees it earned for six months’ work last year at South African state utility Eskom if a high court finds the deal was unlawful, the global consultancy said on Tuesday.
Eskom had given McKinsey and its local partner Trillian until Tuesday to repay 1.6 billion rand ($117 million) in consultancy fees for a contract that the state firm says was illegal.
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Reporting by Joe Brock, editing by Louise Heavens
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McKinsey says will pay back fees if S.African court finds Eskom deal illegal

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According to the letter of demand sent last week Wednesday by Law Firm, Bowman Gilfillan on behalf of Eskom today is D-day for Gupta-linked Trillian and global consultancy, McKinsey to pay back the R1.6bn.

D-day for Mckinsey, Trillion to pay back Eskom’s R1.6bn

South Africa’s Eskom has asked consultancy firms McKinsey and Trillian to pay it back 1.6 billion rand ($117 million), saying that an internal inquiry had found that the state power utility’s decisions to make the payments were unlawful.
“The interim findings from Eskom investigations into the circumstances surrounding payments made to both the companies point to certain decisions by Eskom, and resultant payments, as being unlawful,” Eskom said on Thursday.
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The utility said in a statement it has written to both companies requesting their cooperation in returning the money.
McKinsey, the world’s largest management consultancy, said it was reasssured by initial findings of the Eskom inquiry that showed the consultancy did not authorise any payments to Trillian.
Trillian was not immediately available for comment.
A third of the money was paid to Trillian, a company at the time connected to the Guptas, a trio of Indian businessmen who South Africa’s anti-graft watchdog has alleged used their links with President Jacob Zuma to win government contracts.
The Guptas have denied any wrongdoing, saying they are pawns a plot against Zuma, who has also denied any wrongdoing.
McKinsey is under parliamentary investigation in South Africa for fraud over a $130 million contract to advise Eskom.
A U.S. risk management firm advised Eskom last year to withhold tens of millions of dollars in payments for advice from McKinsey, because the global consultancy’s “very unusual” payment model allowed it to charge fees in excess of market rates.
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Reporting by Tiisetso Motsoeneng; Editing by Alexander Smith and Edmund Blair
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South Africa’s Eskom asks McKinsey, Trillian to return $117MN

A U.S. risk management firm advised South Africa’s state energy utility last year to withhold tens of millions of dollars in payments for advice from McKinsey, because the global consultancy’s “very unusual” payment model allowed it to charge fees in excess of market rates.
Despite the warning by U.S. management consultancy Oliver Wyman, Eskom continued to make payments to McKinsey, two sources with direct knowledge of the matter told Reuters.
Privately-held McKinsey, the world’s largest management consultancy, is under parliamentary investigation in South Africa for fraud over a $130 million contract to advise energy utility Eskom from late-2015 until July 2016.
A third of the fees were paid by Eskom to a firm called Trillian, controlled at the time by members of the Gupta family, billionaire friends of President Jacob Zuma who were accused by South Africa’s anti-corruption watchdog last year of using control over state agencies to siphon public funds.
Eskom says it paid the fees to Trillian at McKinsey’s request, but McKinsey says it only worked alongside Trillian and they never had a subcontractor relationship.
Trillian, a junior local management consultant, said it supported McKinsey with its work.
McKinsey says a letter written by one of its directors authorising Eskom to pay Trillian as a McKinsey subcontractor “inaccurately characterised” their relationship.
McKinsey says it is cooperating with the authorities and has ordered its own investigation into the operations of its South African office. The Guptas and Zuma deny wrongdoing.
The full payment terms of McKinsey’s contract with Eskom have not previously been made public.
They were examined last year by Oliver Wyman, which was commissioned by Eskom to investigate the deal. Reuters has reviewed the Dec. 15 report containing the findings and recommendations.
Oliver Wyman told Reuters it was not legally permitted to comment on the contents, but it “stands by the findings and recommendations contained in the report”.
McKinsey said it was aware Oliver Wyman had carried out a review of its work at Eskom, but it had not been told there was any dispute over the impact of its work or what it was paid.
“The fees we charged at Eskom are in line with similar projects we, and other firms, undertake in South Africa and elsewhere around the world,” spokesman Steve John said.
Eskom said it would not comment further, pending its own investigation into the affair.
Trillian told Reuters it was not involved in the commercial negotiations between McKinsey and Eskom and had not seen the Oliver Wyman report.
“VERY UNUSUAL”
When Oliver Wyman drafted its report in December, 950 million rand of McKinsey’s billings of nearly 1.8 billion rand ($130 million) had already been paid to McKinsey and Trillian, according to the report.
Of the outstanding balance, Oliver Wyman advised Eskom to withhold payment of 45 percent, equivalent to nearly $30 million, and subject the rest to a legal review and closer analysis to see if it could be reduced.
They described the basis for payments to McKinsey as “not transparent” and “poorly documented”.
Two sources familiar with the case said Eskom made the remaining payments to McKinsey and Trillian for the full amount anyway, despite Oliver Wyman’s advice to withhold the funds.
Why these payments were made will make up part of Eskom’s investigation, the utility says. Eskom suspended its chief financial officer Anoj Singh last week and said it would carry out a disciplinary hearing over his possible role in the payments.
Singh could not be contacted for comment.
McKinsey was hired by Eskom to carry out a ‘Turnaround Plan’ which involved saving the utility money through improving efficiencies, including at power stations.
Under the terms of the deal, McKinsey worked 100 percent “at risk”, meaning it was not paid a flat fee but received a percentage of savings Eskom achieved as a result of its advice.
Oliver Wyman criticised this model, saying it resulted in Eskom paying far more for work than industry norms.
“Projects where fees are 100 percent at risk are very unusual, particularly of such contractual magnitude,” the report said, recommending a legal review of the deal.
“An uncapped incentive fee could mean Eskom ends up paying for a theoretical value instead of true bottom line impact.”
Some of the incentive fees paid were based on targets that assumed that performance at power plants would deteriorate, which meant that McKinsey and Trillian would earn payments even if there was no improvement, the report said.
“Terms of the contract appear to favour the supplier,” the report said, referring to McKinsey and Trillian.
In one case it found that McKinsey and Trillian appeared to have double billed for improvement at one plant, and then to have billed again for estimated future improvements at the same plant after the contract was terminated.
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Reporting by Joe Brock; Editing by Peter Graff and Mike Collett-White
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US risk managers advised Eskom to stop paying McKinsey

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This content piece was supplied to CNBC Africa by Standard Bank
After scouring the store for a new pair of sneakers, Paballo Molahlehi finally lands on the one that catches her attention. She stares at it excitedly, swooning over the fresh pair of purple Reeboks. “It’s precisely the one I was looking for, I knew I was going to find it here” she nods as she adds the shoes to her shopping basket. Thrilled with her latest addition to her growing sneaker collection, she navigates her way to the pay point. Molahlehi is doing all this while reclining comfortably on her couch, enjoying the convenience of online shopping. “I stopped going in-store after discovering online shopping. It makes more sense because my purchases get delivered to me for free, and I usually get discounts.”
Molahlehi is among Africa’s growing middle class who have money to spend and whose shopping habits have changed. With the surge of internet penetration on the continent, many Africans are easing into the habit of shopping online. According to a McKinsey’s Lions go digital report, online shopping could account for up to 10% of retails sales (with a value of around US $75 billion) by 2025, as more Africans gain access to the internet.
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The increasing access to the internet is seeing a rapid emergence of e-commerce sites eager to tap into the continent’s growing online consumerism. The likes of Nigeria, Kenya, and South Africa are at the forefront of this evolution. Companies such as Jumia, a Lagos-based online retailer, are dipping their finger in almost all major markets on the continent, cutting themselves an enviable piece of every pie. Jumia is also among Africa’s best-funded e-commerce sites, having raised US $150 million in funding in 2014.
As more people take to the internet to do their shopping, the demand for devices such as smartphones also increases. The 2017 Accenture Digital Consumer Survey finds that in countries such as South Africa, smartphone acquisition increased from 52% in 2016 and 63% in 2017. Some of the more technologically advanced nations like Kenya and Nigeria boast a smartphone uptake of more than 44% and 30% respectively. Across the continent, the number of smartphone users saw a nearly twofold increase, reaching more than 226 million. This spike in smartphone penetration is steering a digital revolution on the continent, exposing users to the endless opportunities the internet provides.
Here are some of the top e-commerce platforms in Africa that are reaping the benefits of the booming internet penetration on the continent.
JUMIA
With a mission statement and ethos for connecting African consumers and entrepreneurs to do better business together, Jumia is blazing the trail of e-commerce sites in Africa.
The company is creating a platform where small, medium and large African companies link with their potential market, thus creating a new-age ecosystem that bypasses the middle man.
Launched in 2012 in Nigeria, the site has solidified a footprint in over 23 African countries, with a network of over half a million sellers since its inception. Jumia has managed to create a stellar reputation for being a hub for products and services spanning across the retail, food and hospitality, talent recruitment, concierge and the hotel and catering industries. Apart from servicing the needs of consumers and businesses, Jumia has also been upskilling and aiding employment for many Africans who are qualified in areas such as Engineering, IT and online marketing and web development.
TAKEALOT
South Africa’s Takealot is the go-to online retailer for the shopper that seeks a convenient and simplified online buying and user experience. The site has been around for over a decade, having been established in the year 2002. Its broad catalogue and variety of products in entertainment gives it an impressionable edge. Customers can shop anything from books to games, computers and TVs.
Part of what makes Takealot an e-commerce success story is that the online retailer strives to provide its customers with the very latest products in the market, coupled with up-to-date product specification.
In April 2017, Takealot scored a significant investment of over US $69 million from Naspers, one of Africa’s biggest digital companies. This came after the online retailer received US $100 million investment from investment firm Tiger Global Management in 2014. Naspers boasts a 53,5% stake in Takealot, while Tiger Global owns about 34%.
KILIMALL
Kenya’s largest online shopping mall, Kilimall is relatively new in the e-commerce space but has remarkably managed to create an inter-continental mark since its launch in 2014. The site, now established in other countries such as Nigeria and Uganda, has a retail customer base that continues to boom.
Kilimall is known for providing electronics such as phones, computers and gadgets, stocking top brands such Samsung, Huawei, Lenovo, and Phillips. The site also offers other products such as home appliances, clothes, books, health and beauty products, and more. All its services are accompanied by a 7-day free return policy on their premium range of goods, making it an attractive choice for consumers.
KONGA
Konga has come a long way since its humble beginnings in 2012 as a Lagos-only e-commerce site that specialised in baby and beauty care. The online platform has morphed into a major online retailer, often dubbed “The Amazon of Africa.” In 2015, Konga joined forces with leading Nigerian banks to launch KongaPay, a safe and convenient online payment method to tackle the issue of trust in Africa when it came to online payments.
The online marketplace was one of the first in Africa to create a system of payment that was integrated with world banks – an innovation that uses click system that eliminated the sharing of sensitive information during payments.
With a backing from the South African media giant, Naspers, Konga is now a major player in the e-commerce space. In 2014, Naspers, which has a 50% stake in Konga, invested US $50 million in the online store.
BIDORBUY
Established in 1999, South Africa’s online store Bidorbuy is one of the oldest online marketplaces in Africa. What makes the site unique is that buyers don’t only get to purchase what they want, but they can also make a bid for products, functioning as an online auction. The site provides a platform to facilitate trade between buyers and sellers. Previously owned items such as antiques and collectables are some of the most popular on Bidorbuy, making up 40% of all items sold. Other second-hand products shoppers prefer include high-end DSLR cameras and lenses, laptops, books, as well as video games.
Over the years, Bidorbuy has made several acquisitions of South African online businesses. These include popular sites such as online jobs portal, Jobs.co.za and e-commerce company uAfrica.com.
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Africa’s e-commerce boom is giving rise to a sophisticated African digital consumer

Global auditor KPMG cleared out its South African leadership on Friday after damning findings from an internal investigation into work done for the Guptas, businessmen friends of President Jacob Zuma accused of improperly influencing government contracts.
KPMG’s investigation did not identify any evidence of illegal behaviour or corruption but it did find that work done for Gupta family firms “fell considerably short of KPMG’s standards”, the auditor said in a statement.
It became the third global firm to be damaged by work carried out for the Indian-born brothers after public relations agency Bell Pottinger &#8211; whose British business collapsed this week &#8211; and consultancy McKinsey.
Both Zuma and the Guptas deny wrongdoing and say they are victims of a politically motivated witch-hunt. The Guptas and their companies have not been charged with any crime.
“This has been a painful period and the firm has fallen short of the standards we set for ourselves, and that the public rightly expects from us,” new South African CEO Nhlamu Dlomu said.
“I want to apologise to the public, our people and clients for the failings that have been identified by the investigation.”
KPMG said it would donate the 40 million rand ($3 million) it earned in fees from Gupta-controlled firms to charity and refund 23 million rand it earned compiling a controversial report for the South African tax service.
South African chief executive Trevor Hoole, chairman Ahmed Jaffer, chief operating officer Steven Louw and five senior partners all resigned.
“I absolutely understand that ultimate responsibility lies with me,” Hoole said in a statement.
KPMG is also seeking to take disciplinary action to dismiss Jacques Wessels, the lead partner on audits of Gupta-linked firms, it said. Wessels did not answer a call to his mobile phone seeking comment.
Andrew Cranston, former CEO of KPMG in Russia, has been appointed as interim chief operating officer.
“GOOD RIDDANCE”
The three Gupta brothers, Atul, Ajay and Rajesh, came to South Africa in the early 1990s and built a commercial empire stretching from computers to mining and media. The family has employed Zuma’s son Duduzane as a director of one of its subsidiaries.
The brothers have rejected accusations by a public watchdog of corruptly influencing Zuma, in one of many scandals that have damaged his presidency.
The turmoil at KPMG follows the placing into
the placing into administration of the British arm of Bell Pottinger on Tuesday, after clients deserted it because of a backlash over a racially charged political campaign it ran for the Guptas.
Global consultancy McKinsey is also being investigated by South Africa’s parliament over whether it knowingly let funds from state power utility Eskom be diverted to a Gupta company as a way of securing a $78 million contract to advise Eskom.
McKinsey is carrying out its own investigation, but has denied wrongdoing.
The Gupta scandals have piled pressure on Zuma and opened a deep divide in the ruling African National Congress, the party that has ruled since Nelson Mandela swept to power at the end of apartheid in 1994. It is due to elect a new party leader in December.
David Lewis, chief executive of Corruption Watch, an NGO that has been at the forefront of efforts to expose alleged wrongdoing by the Guptas and those around them, doubted that KPMG had really turned over a new leaf.
“Good riddance &#8211; it’s great they’ve gone,” he said. “But it’s got to go to the culture of the firm, quite frankly. I doubt that people of that seniority were conducting themselves in a manner that doesn’t reflect the culture of the firm.”
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Reporting by Joe Brock, Ed Cropley, TJ Strydom, Olivia Kumwenda-Mtambo, Mfuneko Toyana and Nqobile Dludla; Writing by Joe Brock; Editing by Mark Trevelyan
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KPMG South Africa shakes out top management over Gupta scandal

South Africa’s opposition Democratic Alliance (DA) called on Thursday for global consultancy McKinsey to answer questions at a parliamentary inquiry following a Reuters story about the firm’s alleged involvement in a corruption scandal.
McKinsey has been under scrutiny in recent months in a scandal over the alleged influence businessmen friends of President Jacob Zuma, the Guptas, have over the allocation of state contracts worth hundreds of millions of dollars.
Parliament’s Committee on Public Enterprises is investigating whether McKinsey knowingly let funds from state power utility Eskom be diverted to a Gupta company as a way of securing a $78 million contract to advise Eskom.
McKinsey has denied any wrongdoing and says it will cooperate with the authorities if evidence of any impropriety emerges.
Reuters reported on Wednesday that McKinsey ignored suspicions raised over several years by senior staff that companies it worked with &#8212; one of which was controlled by the Gupta family &#8212; were set up to steer state contracts.
Shadow minister of public enterprises Natasha Mazzone said the demand for McKinsey to appear before the committee was as a result of the story.
“This follows the explosive revelations that McKinsey allegedly ignored warnings from senior South African staff regarding the risks accompanying the Gupta-linked company, Trillian Capital, in order to secure a multi-billion rand deal with Eskom,” Mazzone said in a statement.
“The truth is that an Eskom-Trillian contract was far too profitable for McKinsey to lose, which is potentially the reason why they chose to ignore these red flags,” she added.
“We will cooperate fully with any official inquiries and investigations,” McKinsey spokesman Steve John said in response to Mazzone’s statement.
McKinsey is one of several global firms to be dragged into the Gupta scandal.
The British arm of Bell Pottinger collapsed this week after the global public relations agency’s clients deserted it over a racially-charged political campaign it ran for the Guptas.
“The DA and the South African public took on Bell Pottinger, and we will not hesitate to take on McKinsey,” Mazzone said.
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Reporting by Joe Brock; Editing by Catherine Evans
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S.African opposition calls for McKinsey to appear at parliament inquiry

Global consultancy McKinsey, facing parliamentary hearings in South Africa over payments to a firm controlled by a billionaire family, ignored suspicions raised over several years by local senior staff that companies it worked with were set up to steer state contracts, two former employees said.
Since July, when new information emerged about McKinsey’s flagship South African contract, the consultancy has been under increasing scrutiny in a widening corruption scandal over the influence of the Gupta family, businessman friends of President Jacob Zuma.
South Africa’s parliamentary committee on public enterprises is investigating whether McKinsey knowingly let funds from state utility Eskom be diverted to a Gupta company as a way of securing a $78 million contract to advise Eskom. McKinsey denies wrongdoing and says it intends to cooperate with the authorities if evidence of any impropriety emerges.
“We hold ourselves to the highest professional standards wherever we work and stand firmly against corruption. We are committed to ascertaining the facts and swiftly taking any and all appropriate action,” spokesman Steve John told Reuters.
McKinsey has hired law firm Norton Rose Fullbright to assist in an internal investigation. Norton Rose said it would not comment while its probe is under way.
The accounts by the two former employees, who spoke to Reuters separately on condition of anonymity because their present jobs do not permit them to speak to the media, could provide fodder for lawmakers who say they have questions about the timeline McKinsey has given of when it learned of potential problems.
McKinsey says it carried out a due diligence review on its partner in the Eskom deal beginning in January 2016, and cut all ties with the local firm two months later after it concluded the company was unfit.
“We carry out checks on suppliers and partners when we work with them and address issues and concerns when they arise. When concerns were raised we undertook due diligence,” spokesman John said in a written response to questions.
But the ex-employees said they had attended meetings in Johannesburg where problems with that firm and a precursor company employing the same principal staff had been discussed much earlier: as far back as 2013.
The ex-employees said they would have expected such concerns to have been escalated to managers outside South Africa, although they did not know if that had happened.
Ultimately, McKinsey accepted the Eskom account in spite of the warnings, the sources said.
“We turned a blind eye,” said one.
McKinsey spokesman John said he could not comment on meetings that may have taken place without knowing the names of the participants.
Natasha Mazzone of the opposition Democratic Alliance, a member of the parliamentary committee investigating the affair, said the committee would be looking at what McKinsey knew, and when, about the intentions of its local partners.
“If McKinsey is found to have been deliberately misleading South Africa and assisting in state capture, they will certainly be held to account and recommendations will be made to the portfolio committee.”
“STATE OF CAPTURE”
McKinsey’s Eskom contract was huge for the consultancy, accounting for more than half of its South African revenue, according to the two ex-employees. The deal coalesced even as a number of other business services firms were curtailing their work for South African state firms in the wake of an anti-corruption watchdog’s report into the Guptas.
The 355-page report by the constitutionally-mandated Public Protector watchdog, entitled “State of Capture”, accused the government of improperly steering hundreds of millions of dollars in state contracts to Gupta-controlled firms.
The Guptas and President Zuma deny wrongdoing and say the scandal has been manufactured to undermine Zuma’s leadership.
While McKinsey was working for Eskom in 2015-2016, Eskom paid 30 percent of the deal’s value to a firm called Trillian, which was controlled at the time by a Gupta family ally. The three parties, McKinsey, Eskom and Trillian, have given contradictory explanations for the payments to Trillian.
Eskom says it paid because it was told by McKinsey that Trillian was McKinsey’s subcontractor. The utility declined to answer further questions for this story.
Trillian, in response to Reuters questions, said it “was the partner of McKinsey and was paid its proportionate share of what McKinsey and Trillian billed against work done.” It said it was no longer controlled by the Guptas, as longterm Gupta family business partner Salim Essa had sold his shares this year. Essa did not respond to requests for comment.
McKinsey has long said it was not responsible for the payments, never had any contractual relationship with Trillian and had severed all ties with the company in March 2016.
But in July this year, several South African newspapers released a leaked Feb. 2016 letter by a McKinsey director instructing Eskom to pay Trillian and describing Trillian as McKinsey’s subcontractor.
McKinsey says the letter “inaccurately characterised” its relationship with Trillian. The McKinsey director who wrote it, Vikas Sagar, has been placed on leave pending the outcome of McKinsey’s internal investigation.
Sagar did not respond to attempts to reach him on social media, and McKinsey declined to make him available for comment.
Mazzone of the opposition Democratic Alliance said: “We need to establish why a firm like McKinsey agreed to a 30 percent share of work with Trillian in the first place, when exactly they realised that siphoning to Gupta companies was taking place and if they alerted the Minister of Public Enterprises to possible concerns.”
<h3 data-reactid="69">TIMELINE</h3>
The two ex-employees said McKinsey’s South African office had been wrestling for years with the question of whether it was working with local companies that were little more than window-dressing to get contracts.
Trillian was formed in 2015 by directors from another firm called Regiments, and employed many of the same principal staff. Regiments had already been McKinsey’s local partner on another contract since 2012, and the ex-employees said McKinsey’s office considered the new company to be a spin-off of the older one, intended to play a similar role in future deals.
According to the ex-employees, McKinsey partners in South Africa told managers in the country that they thought both Regiments and Trillian had few capabilities, and were valuable mainly for political connections necessary to secure contracts.
“At least two (Johannesburg-based) partners raised concerns about using Regiments as a sub-contractor back in 2013. It seemed clear Regiments was a way of us winning the contract and if we caused a fuss we would lose business,” one of the ex-employees said.
“We had several meetings between 2013 and 2016 at top level locally about Regiments and Trillian, where it was asked: how are these unqualified companies winning us contracts? Why are the contract amounts so favourable? Why do we have to use them to get business?”
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In a statement to Reuters, Regiments strongly rejected the suggestion that it was employed by McKinsey solely to win contracts. Regiments had received “numerous client and McKinsey acknowledgements of our value add and delivery,” it said. “Regiments was never involved in the procurement process, except to provide our profile to McKinsey on a few occasions.”
According to the ex-employees, as the Eskom deal was coming together in 2015, there was strong resistance within McKinsey’s South Africa office to working with Regiments personnel and their new vehicle Trillian on the Eskom bid.
They said a McKinsey partner approached an Eskom board member in September 2015 to say that McKinsey did not want to work with either Regiments or Trillian, due to concerns over the ownership of those companies and their capabilities. A former Eskom executive, who also spoke to Reuters on condition of anonymity, confirmed that conversation took place.
The McKinsey ex-employees said the partner who made the overture to the Eskom board member was shifted off the project and replaced by Sagar, who was promoted to the rank of director. Sagar then wrote his letter to Eskom describing Trillian as McKinsey’s subcontractor and instructing Eskom to pay it.
The Eskom deal was too big to jeopardise by looking too closely at the role of the Guptas, the ex-employees said.
“Losing a contract of that size would have serious implications for the business and staff in South Africa,” said one. “It was considered a risk worth taking.”
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Editing by Peter Graff
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McKinsey ignored staff warnings in South Africa Gupta scandal, ex-employees say

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Corruption Watch has asked the US Justice Department to probe McKinsey&#8217;s role in alleged corruption at Eskom due to the failure by South Africa&#8217;s law enforcement authorities to probe state capture and corruption.

Corruption Watch asks US Justice Dept. to probe McKinsey

Mills Soko | University of Cape Town
South Africa is reeling from a string of scandals involving state owned enterprises and the Guptas, a family with close ties to President Jacob Zuma. A trove of recently leaked Gupta emails exposed the involvement of prominent businesses in the extensive corruption networks. Sibonelo Radebe asked Mills Soko to explain the implications of the scandals.
What do you make of the situation?
If nothing else, the Gupta leaks have shown us how perilously close South Africa is to losing everything so many people fought so hard for. Not only does corruption divert capital allocated for public services away from the poor, it hollows out important state institutions and, ultimately, frays the social and economic fabric of the country. It threatens the hard won democracy and political stability.
The ongoing revelations around state capture and patronage are giving South Africans an unprecedented and frightening glimpse into the machinery of corruption. The most unnerving element of the emails is how many of the transactions appear blatant and almost casual. The absolute cynicism and lack of ethics revealed in this correspondence is breath taking.
What we do with this knowledge as a country is going to count for everything. As a business community we can look away and call these tales of corruption isolated incidents – or we can step up to ensure that our organisations hold themselves to a higher standard. Most critically the law must take its course.
What does it tell us about the role of business?
The emails remind us that in any corrupt interaction it takes two to tango. And while governments and public money are so often at the centre, the enablers of corruption are not in government but in the private sector.
With the Gupta’s at the centre of the rot, prominent international companies like accounting firm KPMG, consulting giant McKinsey, ICT player SAP, engineering company Liebherr and capital equipment manufacturer Shanghai Zhenhua Heavy Industries have been implicated in the mounting scandal. It’s worrying to see that companies of such calibre can be involved in such nefarious activity.
Corruption is, of course, not a new phenomenon – and nor is it unique to South Africa, as the Global Corruption Index shows. But certainly, the scale of what is going on in South Africa right now is unprecedented.
How do you rate the responses by the implicated businesses?
Companies have scrambled to distance themselves from the reputational firestorm that the Gupta leaks have unleashed. McKinsey acted promptly to suspend Vikas Sagar, a director in its South African office, to allow an internal investigation to proceed. For its part SAP, which originally denied the allegations, has similarly suspended South African staff while launching a full anti-corruption investigation , which is to be carried out by a multinational law firm and overseen by its executive board member Adaire Fox-Martin.
It’s convenient to blame these incidents on bad apples. But this doesn’t get below the surface of what is really going on. The scale of the corruption and the apparent ease with which it has been unfolding speaks to the fact that something is very wrong with the system. And it highlights an utter lack of business ethics and governance failures. This isn’t something the country can afford.
What should be done to root out the corruption?
While all of this may seem overwhelming, what is unfolding also presents the business community with an opportunity for some introspection. Calls have been made for greater purpose and responsibility on the part of South African leaders.
But how can we make sure these fine words and intentions are internalised? How do we make sure as a country that our business as well as our state institutions are committed to not allowing this to happen ever again?
Educational institutions, business schools in particular, are positioned as a first-line duty in making sure that graduates are equipped to recognise and reject corruption in any form. The country needs business leaders who are committed to building sustainable and profitable businesses but who are also mindful of their social and ethical obligations.
Citizens as workers and consumers also have a significant role to play. As individuals working in companies and purchasing goods and services from companies, they can condemn unethical behaviour from companies. This was partly reflected in how the general public put pressure on Bell Pottinger the UK based public relations firm which did work for the Gupta’s.
By rounding on Bell Pottinger, effectively causing the company to lock its Twitter account and issue a formal and unprecedented apology to the country (even though they also blamed the fiasco on bad apples rather than the system), South Africans have shown the power they can wield when united against wrongdoing.
But the country needs to go further. While government and business have not enjoyed the best relationship in recent times, they need to bury the hatchet and come together to fix the inequalities in this country. Deep divisions have laid South Africa open to the kind of racist exploitation that Bell Pottinger unleashed.
Until the country rights this situation, it will continue to remain vulnerable to these kinds of nefarious influences. South Africa needs to be united in the spirit of building a country that works for everyone – not just a select few. Things are broken, yes – but it’s not impossible to repair the damage.

South African business must own up to its part in the corruption scandals

If we were to think of Silicon Valley, and our own innovations and start-ups, as countries, we might be able to capitalise on the kind of thinking that makes Silicon Valley so successful, writes Nnamdi Oranye.
California, where Silicon Valley resides, has a bigger economy than most nations of the world. In fact, the World Bank in 2016 rated it as the sixth biggest economy on the globe. That’s one State in all of America. And within this State resides states of their own, if you will – countries, nations that cross borders, generate revenue in almost every border of the world, and connect people across geographic regions in new, unthinkable ways. These are the countries of Silicon Valley, and the big five of them are undoubtedly Facebook, Google, Apple, Uber and Amazon.
If you were to think of Facebook as a country, it would be the most populous on earth, with 1.86 billion people logging onto the network each month. We could think of that as 1.86 billion living, active users &#8211; effectively, Facebook’s citizens. That’s more than China’s entire population (about 1.4 billion). It’s more than India’s (about 1.3 billion).
Facebook’s users are more than the U.S. population itself, which comes in at about 0.3 billion, where the company comes from. Facebook’s biggest problem is that there will eventually not be enough people in the world who will actually log on and use it, so how will it grow? It’s still banned in China, but who knows for how much longer?
<h4>Facebook&#8217;s Free Basics for African users</h4>
To get Africans on board and increase its user base, Facebook is, therefore, finding ways to help us all get online. Through a partnership with Eutelsat, it’s looking to offer a connected experience that it calls Free Basics (see internet.org), which already operates in several countries across the globe and has partnered with MTN and other telecommunications in Africa. This has come with some controversy.
Its plan is clearly to get everyone on the planet logged on and connected &#8211; and at 1.39 billion users logging on every month, it doesn’t seem as if it is just dreaming. If you consider Facebook’s earnings of USD $8.81 billion (Q4 2016), and you compare this to other country GDP’s, you see it’s richer than many of the countries of the world!
Google isn’t far behind. If it were a country, it would probably be the third biggest in the world. In 2016, it reported that it has now more than one billion active users on Gmail. YouTube, Maps, Google Play, and Chrome also have more than one billion active users. And this doesn’t account for active users on the Google search engine or users of its other products. In the same year, it reported it had reached 3.3 trillion searches in a year.
<h4>Only 60 countries&#8217; GDP beat Google&#8217;s revenue</h4>
There are more than 1.6 billion Android devices in the market (2017). Alphabet, the holding company of Google, reported USD $21.33 billion in revenue in 2016; 24.8 billion in the first quarter of 2017. It outstrips even more nations than Facebook if you had to compare GDP with Google’s revenue. In fact, only just over 60 countries in the world beat it &#8211; while the rest trail behind.
In 2015, its revenue for the year was better than 33 of the world’s poorest countries combined, meaning – as reported by Investopedia – that its wealth exceeded roughly 18 percent of the global GDP. It’s not the biggest multi-national corporation there is, and that in itself is saying something.
Where does Whatsapp sit in all this? The messaging app boasted 1.2 billion active users a month in January 2017. If you consider that Whatsapp is owned by Facebook, you can begin to see just how much Facebook would dominate if it were a country. And then let’s not forget Instagram with 600 million users at the end of 2016 &#8211; which is also owned by Facebook.
<h4>Totally different to how we normally do things in an African context</h4>
These are nations within all of our nations. Realising this stark fact puts things in an interesting perspective. It’s a good thought exercise to think beyond the stats and consider the philosophy behind this, consider what it means to have nations of this size within your own nation, linked to your next-door neighbours and across the world. When you think of these innovations as countries you can see the type of service they provide, and the way they provide their service, is totally different to how we normally do things in an African context. The regulatory framework is different. The approach to technology is different. The way they view themselves, and their citizens, is different. What this means is if we were to
The regulatory framework is different. The approach to technology is different. The way they view themselves, and their citizens, is different. What this means is if we were to try compete with the likes of Uber, for example, we can&#8217;t compete in the way we usually do with other countries: with borders and regulation and certain security approaches, and so on. We have to start to think of things like VISA-less borders and we have to come to grips with what our response to that sort of thing is — what our regulatory framework will actually be. This regulatory framework has to be totally new, it can’t just incorporate a ‘business-as-usual’ approach.
<h4>Globalism taken to the next level</h4>
The sheer connected nature of these Silicon Valley companies — the way in which they truly want to connect us — speaks volumes into this, and is truly globalism gone next level. Consider Google / Alphabet’s plans. It has been developing its driverless, ‘smart’ car for some time now, and expects to release this to the consumer market by 2020. It’s investing in healthcare. Android phones and Android watches are telling us about how healthy and active we are being. You can see where Google is going with that. And no doubt, through collecting all the information Google does about you, it will (in my opinion) look to start health insurance or other kinds of insurance too. (Amazon, too, just announced this last week that it’s thinking of going into pharmaceuticals, so this is clearly a market Silicon Valley wants to
And no doubt, through collecting all the information Google does about you, it will (in my opinion) look to start health insurance or other kinds of insurance too. (Amazon, too, just announced this last week that it’s thinking of going into pharmaceuticals, so this is clearly a market Silicon Valley wants to cannibalise). Facebook and Google have plans to get the world online via satellite, or Google’s connected blimps in the sky.
Google along with Levi’s just released a jacket in the last few months to the market with ‘gesture-sensing fabric’ which effectively lets you control your phone by just touching your jacket. Google has been making headway into the ‘connected home’ concept with its Nest products, and others. So the plan is simple: make everything connected, from your watch to your phone to your car to your home to your clothes. Google wants to create a new ecosystem. Facebook wants to, too. Amazon, on the other hand, just wants to own everything.
<h4>How we need to think of our own innovations differently</h4>
“Ecosystem” is the key for me in how we need to think of our innovations, as I’ve argued elsewhere. But more than this, if we are looking at the economies of these companies and thinking of ourselves as African nations in comparison to them, we must realise that we cannot see technology innovations as ‘start-ups’. We have to think of them as more than that.
We have to think of our own innovations, and innovators, as developing nations and ecosystems within our nations. We have to open our borders to them, so they can think Pan-African from the start. We only tend to think of our innovations as ‘tech’, but we have to think consider them as countries all of their own.
Acha Leke, director at McKinsey and Company and a member of the World Economic Forum (WEF) Global Agenda on Africa, represents, in my opinion, one way we need to be thinking about this. He is actively campaigning for visa-less borders in Africa, for the recently launched African Union passport. He believes this will accelerate socio-economic growth; boosting tourism revenue and increasing intra-African trade.
As he said at Oxford in 2015, “We are the second fastest growing continent in the world, and Africa offers the second highest return of investment of any region in the world.” What this means is that if we can make our borders more open, we can make it so much easier for our innovators to expand across Africa and get even more investment with effectively less hassle, and that will benefit us all. We will create a more integrated market, make it more efficient for business, open up opportunities, which all will promote greater stability and investment.
<h4>The kind of prosperity these Silicon Valley companies enjoy is what we really need</h4>
Silicon Valley does not think within borders. It&#8217;s kind of connected thinking that creates a better “working together” and the kind of prosperity these Silicon Valley companies enjoy is what we really need, I believe. You can see the same thinking employed in China’s open-source philosophy that has helped it to innovate so quickly – a philosophy that is highlighted by China’s very different take on patent laws.
If we want to prevent Silicon Valley from not only capitalising on our opportunities but also our current markets, we have to start thinking a bit like them while thinking about our context at the same time. For example, I’ve been saying for some time that Facebook can cannibalise our telecommunications industries. Take a look at the Telecom Infrastructure Project, a consortium led by Facebook and launched at Mobile World Congress last year; and also take a look at its Voyager project; and also just think about the fact that Whatsapp is processing 100 million calls a day. It is poised to sweep the rug under the carpet of every telecoms company in the world, including Africa. The problem is I don’t think we’re ready for it.
We need to be creating a new ecosystem for us as Africans through our own innovations, and working with these Silicon Valley innovations, our way. Along with the tremendous positive the likes of Google and Facebook can bring to help connect us, they can also bring significant negative in the forms of where the revenue generated will all be going, what happens to all the jobs that can be lost, and how it develops our own skills for the future. We have a serious challenge before us and we need to rise up to it now.

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McKinsey

McKinsey ’embarrassed’ by failings in South Africa scandal

McKinsey says will pay back fees if S.African court finds Eskom deal illegal

D-day for Mckinsey, Trillion to pay back Eskom’s R1.6bn

South Africa’s Eskom asks McKinsey, Trillian to return $117MN

US risk managers advised Eskom to stop paying McKinsey

Africa’s e-commerce boom is giving rise to a sophisticated African digital consumer

KPMG South Africa shakes out top management over Gupta scandal

S.African opposition calls for McKinsey to appear at parliament inquiry

McKinsey ignored staff warnings in South Africa Gupta scandal, ex-employees say

Corruption Watch asks US Justice Dept. to probe McKinsey

South African business must own up to its part in the corruption scandals

Op-Ed: If Silicon Valley were a country

News Tips

Advertise With Us

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