Bain; “we should have walked away,” from SARS capture

CAPE TOWN — Corporate apologies don’t come much stronger than Bain’s for its accounting complicity in the Zuptoid SARS capture. While they’ve fired their point man who met some dozen times with Zuma and gave Tom Moyane a crash course in revenue collection and administration to prepare him for his strategic SARS deployment, Bains denies all culpability for having knowingly damaged SARS. On the face of it their press statement is an authentic attempt to come clean, apologise profusely and make good to the South African taxpayer. Yet as you read it, there’s a sprinkling of evidence that points to growing profits having blinded proper diligence – and some astounding lack of oversight. One has to ask how they corporately failed to discern Moyane’s nefarious agenda. The red flags were everywhere, but then their point man seems to have operated on a strict ‘need to know’ basis – and like his principle client Msholozi – chose exactly who knew what. Perhaps most worrying is Judge Nugent’s finding that Bain failed to co-operate with the commission’s work. Interestingly, that’s exactly what Bain now most regrets. One has to ask what they would have done had the Nugent Commission never been appointed. An absolutely fascinating read. – Chris Bateman

Bain & Company corporate statement

The past few months have been a highly challenging and sobering period for Bain South Africa and Bain globally. Through public testimony and documents submitted at the Commission of Inquiry headed by Judge Nugent, it has become painfully evident that the firm’s involvement with the South African Revenue Service (SARS) was a serious failure, for South Africa and SARS, and clearly for Bain too.

The Commission’s hearings, and the final report published last week, have laid bare the disarray in which SARS now finds itself, with both morale and performance severely damaged. Contributing to that outcome was not the intent of the Bain project and we clearly made significant errors of judgement in taking on this work.

As a firm, we have been shocked and saddened by our involvement with SARS. We let down our clients, our people, our alumni and our firm. Most of all, we have let down South Africa.

We accept that through various lapses in leadership and governance, Bain South Africa became an unwitting participant in a process that inflicted serious damage on SARS. We understand the justifiable anger felt by South Africans and are deeply sorry for what has happened to SARS and for our involvement.

Bain does not, however, accept that its representatives knowingly participated in an effort to damage SARS. Bain made many mistakes in relation to SARS, but the firm had no motive, monetary or otherwise, to damage SARS, and did not set out to do so.

Background to the SARS assignment

Mr. Massone, Bain South Africa’s former managing partner, was introduced in August 2012 to South African President Jacob Zuma and met with him a total of 12 times over the following two years. We were aware that Mr Massone was meeting with the President in order to build Bain South Africa’s Public Sector practice, but were surprised to discover the frequency of their meetings.

It would appear that most of these meetings involved other senior and well-respected South African business leaders and were aimed at supporting the government to formulate and execute policy over a broad range of areas, such as ICT policy, energy, infrastructure deployment, entrepreneurship, and supporting delivery of the government’s National Development Plan.

In October 2013 Mr. Massone was also introduced to Mr. Tom Moyane, later to become the Commissioner of SARS, by Mr. Duma Ndlovu, an external advisor to Bain at that time. It would appear that Mr. Massone understood that Mr. Moyane was the President’s intended appointee to be SARS Commissioner well before it happened.

Over the course of the following year, leading up to Mr. Moyane’s appointment as Commissioner of SARS, Mr. Massone had numerous meetings that focused on coaching him for this role, including preparation of a “First 100 Days” document.

Following Mr. Moyane’s appointment in October 2014, SARS ran a formal procurement process in December. Bain won this process and was appointed in January 2015 to perform a rapid diagnostic and make high-level recommendations on organisation restructure.

It is clear from our investigations that Bain’s participation in this procurement process may have been irregular as the firm had prior knowledge of the RFP.

Project Delivery

When Bain commenced work with SARS, we acknowledged that it was a well-performing institution, but we felt there were some areas in which it could be improved.

In our execution of the assignment, however, we made three significant mistakes.

First, we overstated the case for change by talking about the requirement for a “Profound Strategy Refresh” of SARS. Although there was scope for improvement, this did not justify the proposal of such a fundamental overhaul of the business.

Second, when Mr. Moyane disregarded our proposed organisational structure changes and developed his own answer, we should either have walked away, or at least ensured that our scope for the next phase of work was broad enough to ensure a workable operating model was put in place. Instead we consented to a scope of work which we knew impaired our ability to deliver appropriate results.

Third, it is also clear that while we started the work in good faith (still believing misguidedly that everybody’s intention was to improve SARS), by late 2016 we either knew, or should have known, that Mr. Moyane had a different agenda. It was a mistake not to walk away also at this point, instead seeing out our contract through March 2017.

Acknowledging the faults

In addition to these specific mistakes, there are further lessons that Bain has learned from the SARS engagement.

Bain SA's former managing partner Vittorio Massone
Bain SA’s former managing partner Vittorio Massone answering questions at the Nugent Commission of Inquiry.

Clearly some responsibility should lie with Mr Massone who displayed poor judgement in drawing us into the SARS assignment in the first instance, and then did not adhere to some core Bain leadership values, especially around transparency, as the problems at SARS unfolded. It is for this reason that Bain and Mr Massone separated permanently in November.

But as a firm we also recognise that we must accept culpability for allowing an environment in which this could take place. These faults include:

Failures of governance

When an individual in charge of an office (Office Head) is also the lead advisor to a client (Client Head), as it was in the case of Mr. Massone, the combination calls for more active global oversight than in other situations where either the Office Head or Client Head can perform degrees of oversight/challenge. In the case of South Africa, Bain also allowed dissenting voices to be ignored or side-lined. The commercial success and continued rapid growth of the South Africa office encouraged Bain global to trust Mr. Massone and not to question his decisions and actions closely enough.

Absence of public sector protocols

Only a small proportion (~5%, since 2010) of our work in South Africa is for the public sector. As a result, there was a lack of strong public sector capability or understanding of public sector protocols. In hindsight, there is evidence to suggest that Mr. Moyane was pursuing a personal political agenda at SARS. Proper due diligence on Mr. Moyane may have identified this risk.

Naïve on South African politics

We entered into this work for SARS without a full appreciation of the political environment and the agendas that individuals were pursuing. While our local knowledge of South Africa was deep, the SARS experience has been a cautionary reminder that we are at risk if we do not adequately understand the domestic political environment when engaging in public sector work.

Seeking the truth

Since the fuller picture came to light through testimony to the Nugent Commission of Inquiry, Bain’s mission has been to seek the truth of what happened, to make amends for behaviours which fell short of what was expected, and to make the necessary changes so that they can never happen again.

After Mr. Massone’s initial testimony, it became clear that he was not being fully transparent with the Commission or with Bain, and so we hired global law firm Baker McKenzie to conduct a thorough, independent, forensic investigation. The work of Baker McKenzie identified almost 1,000 potentially relevant documents which were immediately submitted, unfiltered, to the Commission.

We also mandated Athol Williams, a respected academic, social advocate and Bain Alumnus, to provide his own opinion on the independence and adequacy of the investigation by Baker McKenzie.

Bain regrets the Commission’s assessment that we failed adequately to co-operate with its work. We committed to be transparent with the Commission and believe we have made every reasonable effort to live up to that commitment.

Making amends

We owe it to South Africa, our clients, our alumni and our people to learn the appropriate lessons from this episode and implement suitable remedies to prevent repetition. We have already returned to SARS all of the fees plus interest that we received for our engagement with them.

Our proposed fixes acknowledge that our errors at SARS go beyond individual actions and must also address broader failings. These include:

Public Sector Working Group

The Bain Board has launched a Public Sector Working Group, tasked with improving how we govern and approach public sector work globally, including South Africa, and developing a set of protocols to guide any future work in this sector. The working group will also recommend how oversight should be provided prior to and during any future public sector projects.

Public Sector Risk Function

We also envisage establishing a public sector risk function independent of line leadership and accountable to our Board, which would undertake risk assessments across countries, offices, clients and opportunities, establish a whistle blowing function, and participate in regular risk reviews. In parallel we plan to strengthen our capability in working within the public sector, including stricter protocols in how we engage and contract with our clients. We envisage this review will narrow the range of both the projects we undertake and the clients with whom we work.

Changing Bain South Africa

To ensure a re-set of the leadership and the culture of our business in South Africa, we have appointed a permanent office head from outside the Bain South Africa leadership team. Mr. John Senior, a highly experienced Bain partner and a global leader in our Digital, Telecoms, Media & Technology practice, will assume the role of head of Bain South Africa from January 2019. John has spent the past eight years as a senior partner in Bain’s New York and Sydney offices.

We have also decided to create a South Africa Advisory Board, which will comprise experienced local and global partners, legal counsel as well as external advisors, to guide our future work and ensure that local governance practices are adhered to in South Africa.

Conclusion

SARS has been a humbling episode for Bain. We have let South Africa and ourselves down, and it is our earnest desire to make good our wrong. This will take time, but we are determined to show again the better face of the firm. This includes participation in any further government or judicial investigations into SARS as appropriate. We will also do everything in our power to ensure that Bain itself learns the right lessons.

While highly regrettable, the SARS assignment is in no way representative of the firm’s activities in South Africa where it has a track record of being a valued partner across several different clients and assignments.

We hope that by acknowledging our failings in the SARS process, and ultimately making amends for them, we will in time again be considered a trusted and high-quality partner for change oriented businesses in South Africa.


Bain calls its South African tax-body work `Serious Failure’

By Renee Bonorchis and Roxanne Henderson

(Bloomberg) – Bain & Co., the Boston-based consultancy company that was hired to assist in restructuring South Africa’s tax agency in 2015, said it has become “painfully evident” that the firm’s involvement with the authority was a “serious failure.”

Not only was Bain’s hiring potentially irregular, but it overstated the need for change at the South African Revenue Service, allowed the former SARS head Tom Moyane to influence its work and didn’t walk away when it became clear Moyane “had a different agenda,” Bain said in a statement on its South African website.

The consultancy showed failures of governance, an absence of public-sector protocols and naivety about South African politics, Bain said, adding that it regrets that a former partner did not adequately co-operate with the Nugent Commission of Inquiry into SARS. “We have let South Africa and ourselves down,” the company said.

Bain is one of several multinational companies accused of helping politically connected individuals allegedly plunder state resources in South Africa. The local units of McKinsey & Co. and KPMG LLP have also come under fire, with KPMG retracting a misleading report it compiled for SARS. Both firms have issued apologies and repaid fees in an attempt to regain the trust of the South African public.

Bain didn’t have full appreciation of the political environment the tax service was operating in when it started at SARS, it said. The firm has returned all of the fees it earned for work done for the agency with interest. It has also changed the management and structure of its South African office.

President Cyril Ramaphosa is studying recommendations made in the Nugent Commission of Inquiry’s final report, his office said. The commission said the National Director of Public Prosecutions should consider prosecutions relating to the award of contracts to Bain.

Ramaphosa suspended Moyane in March, soon after replacing Jacob Zuma as president with a pledge to end graft in the government and state companies. Moyane, who was fired last month on the recommendation of the commission, was closely allied to Zuma, whose almost nine-year tenure was marred by scandal. The agency repeatedly missed revenue-collection targets after Moyane took over in 2014. Moyane has denied wrongdoing.