The world is changing fast and to keep up you need local knowledge with global context.
JOHANNESBURG — After keeping their heads down for weeks, top bosses at US-headquartered consultancy McKinsey & Company are discovering the Gupta Curse crosses oceans with ease. The corruption scandal in which its South African unit is deeply implicated, has started to hit the international media. It was the anchor story on the second section of this morning’s London Financial Times. This follows yesterday’s bombshell report by global news agency Reuters highlighting how top McKinsey executives knew all about the Gupta-created front companies that demanded a hefty bribe to secure contracts at SA state owned enterprises. Another report by amaBhungane today on how McKinsey “ripped R1.6bn” from Eskom is certain to have deeper ramifications. So far, it is only McKinsey’s partnership with Gupta-linked Trillian Capital to fleece Eskom which has come under the spotlight. But after two months of engagement, we are now able to publish disclosures by a Transnet insider who knows the gory details of McKinsey’s long history of working with this parastatal where Gupta front companies harvested facilitation fees. In his explosive personal account, the Transnet insider – who we will not name to avoid putting him at personal risk – explains how McKinsey operated at Transnet from as far back as 2006. By joining the dots, the Transnet insider further argues that McKinsey failed to help improve operations at Transnet and rather became an impediment to progress. But that did not appear to matter as there was a darker agenda at work. The insider believes it is time for SA’s state-owned utilities to develop their own internal capabilities and rid themselves of consultants. If ever there were a motivation for that approach, McKinsey has provided it. – Gareth van Zyl
Can you tell us briefly why you’ve approached Biznews.com? You have some interesting background information for us, especially relating to Transnet.
Ever since the release of the Public Protector’s report on State Capture which named the firm Regiments , I asked myself what about McKinsey? It is my opinion that Regiments came into Transnet on the back of McKinsey.
It sounds like you’ve started to ‘connect the dots’ as Pravin Gordhan urged us to so…
Regiments would not have been able to get work at Transnet without a connection to a prominent consulting company.
Working at Transnet, when did you first come across McKinsey?
In 2006. At the time they were working with a local company called Letsema. The Letsema consultants worked on their own projects mostly around procurement. There wasn’t an integrated approach.
What kind of work did they carry out at Transnet?
The program was called Vulindlela. There were different programs focussing on the Operating Divisions [ODs at Transet] – these being Transnet Freight Rail (TFR), Transnet Engineering (TE), Transnet National Ports Authority (TNPA), and Transnet Ports Operations (TPO). Also some corporate programs like Procurement.
How big was the McKinsey team on this program?
During the Vulindlela phase the team was very big. The program was lead by David Fine* and Vikas Sagar** was also quite prominent. Initially, they had industry experts mostly from overseas. Many Germans and some Dutch people too.
Editor’s note: *David Fine is currently based in London where he is Senior Partner and global leader of McKinsey’s Public and Social Sector Practice. According to a bio of him on the McKinsey & Company website, he also led the Public and Social Practice in the Eastern Europe, Middle East, and Africa regions from 2014 to 2016, and led the company’s Johannesburg office from 2010 to 2014. Fine was the first South African to join McKinsey’s Johannesburg office when it opened in 1995. Interestingly, Fine is also mentioned in the Gupta email leaks: The controversial immigrant family invited him to their much publicised 2013 wedding extravaganza at Sun City, effectively paid for by South African taxpayers. Fines further says he didn’t attend the wedding and says he’s never met the Guptas (see comment from McKinsey at the bottom of this story).
**Vikas Sagar is a McKinsey South Africa director who was suspended earlier this year after it emerged that he misrepresented McKinsey in a transaction involving Gupta-linked Trillian Capital Partners and Eskom. A leaked February 2016 letter indicated that Sagar had instructed Eskom to pay Trillian whom he described as McKinsey’s subcontractor.
What did you make of McKinsey’s approach to the work at Transnet?
What I noticed at the time was that McKinsey’s focus was not so much on value-add to the customer but on growth of their consultants. After six months the program leads were changed. The frustration from our side was that you had just managed to get them to understand the business and were working as a team and then the team would be changed and we had to start all over again. As time went by, they sent in fewer industry experts and more bright young consultants but with very little experience.
Brian Molefe became CEO (2011) at Transnet along with Anoj Singh as CFO (from 2012-2015) – they later moved together to Eskom where they are implicated in substantial corruption. What changed with the McKinsey relationship after Molefe and Singh came in ?
By the time that Brian Molefe was appointed, the focus had changed from a purely OD [Operating Division approach] to a corridor approach especially in TFR [Transnet Freight Rail]. There were corridors setup for NatCor, CapeCor, Iron Ore and Coal Line. Each one had a General Manager with support from Transnet people as well as McKinsey people. Very soon after his appointment, Molefe disbanded the corridor approach and the people at the Corporate Centre were deployed to the ODs or given different positions at the Corporate Centre. According to my knowledge he also terminated the McKinsey contract. There were a couple of them still around in Strategy but I had no contact with them.
Who is David Fine and why is he an interesting character in this story?
David Fine was heading up the Transnet Account. Vikas [Sagar] was prominent but not the main guy.
Regiments Capital then came onto the scene. What exactly were they contracted to do?
During 2011, Transnet Freight Rail (TFR) set up its own internal re-engineering department called Organisational Development and Performance (ODP). There were quite a few external appointments made to set up this department. They mostly came from SAB (South African Breweries) where they had done this kind of work at SAB. They were competent, very driven young people. They met with massive resistance within TFR but eventually were starting to get traction within the ODP. Company wide training was done in Lean as well as Lean Six Sigma***. It is my opinion that ODP was starting to make inroads into the operational problems at TFR.
Suddenly in 2015 McKinsey re-appeared with Regiments. In TFR we were not even aware of their mandate other than it was to “improve tons”. In hindsight, McKinsey and Regiments did not work as a team. My personal experience with the consultants from Regiments was that they were poorly equipped for the task at hand.
***Editor’s note: Lean Six Sigma is a methodology that relies on a collaborative team effort to improve performance by systematically removing waste and reducing variation. It combines lean manufacturing/lean enterprise and Six Sigma to eliminate so-called eight kinds of waste.
Did it strike you as strange how this whole relationship was carried out?
It was only after I read the Public Protector’s report (State of Capture) that I put two and two together. They wanted to bring Regiments in but could only do so if McKinsey was also brought in. I cannot believe that McKinsey were unaware of that condition.
Interestingly, Brian Molefe and Anoj Singh went to Eskom together. McKinsey became embroiled in scandal at Eskom as well, thisn time with another Gupta-linked company called Trillian. Do you see similarities to what you experienced at Transnet?
Absolutely. The strategy had to have been exactly the same. Regiments then became Trillian****. It was done soon after Brian Molefe moved to Eskom. It looks like they used exactly the same template as the one deployed at Transnet.
****Editor’s note: A group of Regiments Capital staff previously split from Regiments in 2015 to form Trillian Capital. Trillian has strong connections to the crony capitalist family through Gupta lieutenant Salim Essa. Earlier this year, Essa announced he had sold his shares in Trillian as controversies around the company grew.
What do you make of the drama unfolding at Eskom currently regarding Trillian and what advice would you give those trying to clean up the mess?
My advice is that they should get rid of the consultants. All that McKinsey ever did was find out from the people on the ground what the problems were and what the solutions were. This was then packaged as their own ideas. The ODP department at TFR started having a good understanding and were starting to make progress. I would suggest a similar approach. When they McKinsey suddenly appeared at Transnet again in 2015 they actually detracted from the work that was already being done and slowed the process down.
After our interview, we got in touch with McKinsey to get their right of reply. Below is the comment that McKinsey sent us regarding this story:
“We hold ourselves to the highest professional standards. One of our cores values is to put our clients’ interests ahead of our own. We work with clients when we are confident we can make substantial and lasting improvements to their performance.
“David Fine does not know the Guptas and did not attend the event [the 2013 Sun City wedding] you refer to”.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.