🔒 Financial Times perspective: Bain cannot simply distance itself from its role in SA state capture

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FT’s Editorial Board: Bain cannot simply distance itself from its role in SA state capture.

Europe’s most influential publication says multinational firm’s clients should reconsider whether reputational risk of being associated with Bain is worth it.

By the Editorial Board of the Financial Times

An inquiry into “state capture” in South Africa has confirmed what was long suspected: the former president, Jacob Zuma, presided over “a scarcely believable picture of rampant corruption” of the most critical state-owned entities.

The systematic plundering detailed in the first of three reports is still shocking in its brazenness. But it was not executed in isolation by Zuma or the Gupta brothers, the entrepreneurs who allegedly held the president in their pocket. Rather, it was facilitated by some of the most well respected companies on the planet, paid handsomely for their services.

The scandal has claimed many corporate scalps. More may yet follow. KPMG, McKinsey and SAP all were tainted. Bell Pottinger, long the favoured spin-doctor of despots, was not able to survive.

The latest cautionary tale is Bain & Co, the management consultancy. The lessons it imparts for advisory firms apply not only to South Africa, but to any developing market rich in political intrigue but poor on governance, and where firms must weigh their ability to make a quick buck against the potentially ruinous reputational risks such work can carry.

Two inquiries have concluded that Bain was instrumental in the hobbling by a Zuma consigliere of the previously esteemed revenue service; an entity that the Zuma regime’s corrupt actors required weakening. The most recent commission concludes that Bain’s revenue-service contract should come under investigation with a view to potential prosecution, and that all its public contracts be reviewed. Peter Hain, the British peer who pushed UK regulators to probe banks’ ties to the Guptas, has urged Boris Johnson’s government to blackball Bain.

Bain says the commission has “mischaracterised” its work with the tax authority. It maintains that it never wilfully or knowingly supported state capture. The commission disagrees.

Generally, Bain’s strategy smacks of legalism rather than contrition. It says it worked with a whistleblower when the scandal broke. The commission concluded it tried to buy his silence. Bain has paid back the fees it earned from the contract but that is paltry compared to the overall economic consequences of decimating the revenue service.

The firm says that some responsibility should lie with Vittorio Massone, the former head of its South African office, who gained entry into Zuma’s inner circle and on to a contract advising the revenue service. The commission report found Bain then advised the authority on an unwarranted root-and-branch overhaul, necessary only to remove opponents. But Bain has not detailed on what terms Massone left. Unlike its rival McKinsey, Bain did not send its global leadership team to South Africa to answer for its actions.

Trying to distance the global brand from its South African office will not wash. By the firm’s own admission, it was blinded by the healthy revenues of its Johannesburg office, where Massone’s fiefdom ran unchallenged. The firm did not act on concerns that an events-management company operated by Zuma’s cronies — and Bain’s entrée into political circles — was its second-highest paid external adviser worldwide. It beggars belief that a company with no trading history was paid $400,000 a year to consult one of the world’s pre-eminent consultancies.

Despite this sordid record, Bain has been embraced back into South Africa’s business community. Potential clients must now balance whether the benefits of Bain’s services outweigh the reputational risk. The benefits in taking costly advice from a management consultancy that could not properly manage its own staff seem negligible.

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