EDINBURGH — McKinsey bosses have remained steadfast in their denials of wrongdoing in a major corruption scandal that has erupted in South Africa. But, the global consultancy has moved into the international public spotlight as it fails to convincingly distance itself from the Gupta state capture plot. First the Wall Street Journal highlighted its involvement in graft; now The Economist has underscored that McKinsey should take note of the protest by South Africans against the role of corrupt corporates. McKinsey clients could easily cut loose from the consultancy en masse. – Jackie Cameron
By Thulasizwe Sithole*
Leading business magazine The Economist has focused on the role of McKinsey in the state capture plot being played out in South Africa.
It says that McKinsey, “a global management consultancy known for its discreet profile and rarefied air, is unused to the sort of tub-thumping popular revolt it is experiencing in South Africa”.
“Such is public outrage over the Guptas, an Indian-born business dynasty accused of growing rich off their relationship with President Jacob Zuma, that a few professional-services firms linked to the family, including McKinsey—as well as SAP, a German software giant—have become targets of Twitter storms and protest banners.”
The Economist summarises recent developments, including that:
- Anti-corruption groups and the opposition Democratic Alliance (DA) “have drawn blood in the case of Bell Pottinger, a British public-relations firm accused of orchestrating a racially divisive public-relations campaign on behalf of the Guptas”.
- At KPMG, a global audit firm, eight senior executives in South Africa left in the same month because of the firm’s work for the Guptas.
- The DA has also gone to the police to file a complaint of fraud and racketeering against McKinsey, and written to America’s Securities and Exchange Commission and Britain’s Serious Fraud Office.
- McKinsey and Trillian earned 1.6bn rand ($117m) for work done in 2015 and 2016, and expected to make another 7.8bn rand.
- A second review commissioned by Eskom from Oliver Wyman, another consulting firm, into its contracts with McKinsey, found a “very unusual” fee structure that resulted in costs above industry norms.
- McKinsey worked with Trillian Capital, a local consultancy that until recently was owned by Salim Essa, a Gupta associate, as part of winning contracts from the utility.
- As an international firm requiring a local partner, McKinsey had previously worked with a related company called Regiments
- On October 5th Eskom demanded that McKinsey pay back 1bn rand. McKinsey said it would support a high court review of the contract and repay its fees if the deal were found to be illegal.
- Standard Bank, Africa’s biggest lender by assets, is reviewing its relationship with McKinsey.
The publication cautions: “Such victories have fuelled the mood. On October 5th civil-society groups picketed McKinsey’s Johannesburg offices.”
McKinsey admits no wrongdoing. As The Economist reports: “The firm stands behind its work for Eskom, says Steve John, global director of communications at McKinsey. Neither the Gupta family nor any company publicly linked to the Guptas has ever been a client of the firm, he notes. It has hired a law firm, Norton Rose Fulbright, to carry out a detailed internal investigation.”
Although The Economist sounds the alarm that clients could be tempted to cut loose from McKinsey, the global consultancy “has weathered damage to its reputation before; in 2010 one of its consultants pleaded guilty to passing inside information to a New York-based hedge fund, Galleon Group”.
“McKinsey’s close links with Enron also meant that its reputation was tarnished by the energy company’s collapse in 2001.”