🔒 McKinsey’s South African mea culpa bombs as it claims “no corruption”, critics reject apology as too little, too late

JOHANNESBURG — I enjoyed a front row seat at the first public engagement by Kevin Sneader, new global managing partner of the world’s largest consulting firm, McKinsey & Company – the business in the vortex of South Africa’s State Capture scandal. Sneader, who has been in the post for exactly a week, accepted an invitation from GIBS, a leading South Africa’s business school. A scathing riposte to his 20 minute speech was delivered by the other panelist, Bonang Mohale, CEO of Business Leadership South Africa. Mohale, who is as eloquent as he is outspoken, was formerly chairman of Shell South Africa. The temperature rose even further when the floor was opened to questions where former Competitions Tribunal’s chairman David Lewis and Forensic Investigator Paul O’Sullivan kept up the pressure. A must listen. – Alec Hogg

This is The Rational Perspective I’m Alec Hogg. In this episode McKinsey’s mea culpa on South African state capture.

Our latest visit to Johannesburg, the fifth this year was well-timed. It coincided with the first public engagement by Kevin Sneader. He’s the new global managing partner of the world’s largest consulting firm, McKinsey & Company, a business that’s in the centre of South Africa’s State capture scandal. Sneader, who lives in Hong Kong and has been in office for exactly a week, accepted an invitation from GIBS. That’s a leading South African business school whose dean, Nicola Klein, hosted the event.

The local repost to a twenty-minute speech that the McKinsey boss gave, was provided by Bonang Mohale, Chief Executive of the 86-member Business Leadership South Africa. Mohale, who is as eloquent as he is outspoken, was formerly chairman of Shell South Africa. The floor was then opened to questions. What followed was fascinating as McKinsey’s new boss did his best to apologise. He offered a mea culpa on the day that his firm physically repaid almost a billion rand in fees that it had received from what was then a Gupta-captured Eskom. The high point for Sneader was the way that he started.

Let me begin with one word and that word is “Sorry”. It’s the theme of the speech. I really hope that it’s the message that you take away because I’m very sorry personally and on behalf of McKinsey & Company for the fact that we’ve had anything to do with any of the issues surrounding state capture. State capture has had a horrible effect on South Africa, its economy and its people.

He then went on to list what he said were three big mistakes made by this blue chip of global consulting firms.

First, our government’s process has failed. Secondly, our commercial approach led to a fee that was too large. Three, we did not admit where we were wrong and worse, we did not say sorry quickly enough and clearly enough.

Kevin Sneader, McKinsey’s global managing partner

Potentially even worse, he admitted that McKinsey’s attitude left a lot to be desired.

We came across as arrogant or unaccountable; we were unduly reassured for having terminated our discussions with Trillian, we failed to address the different questions. We were not appropriately engaged or responsive. It was not our intention to come across like that, but we did. We’ve apologised, we’ve apologise again, and I am personally very sorry. We did not fully appreciate the significance of what was happening. We were too focused on our legal obligations and ourselves. To be brutally honest, we were too distant to understand the growing anger in South Africa. This is my third visit, we understand now.

So far so good; at this point you almost got the feeling that Sneader had a chance to win over what was obviously a hostile audience. McKinsey, as you’ve just heard him say is sorry, so is he personally and the firm understands the anger of South Africans. Does it really? After such a promising build-up, it was as though Sneader started reverting to corporate legalistic type. There was no grand gesture of reparation. Instead the McKinsey chief dropped in something that few in the audience had expected.

We’ve examined all the evidence we could find about our work with Eskom, hundreds of thousands of documents including telephone logs, personal emails and financial records and we conducted a variety of interviews. The facts are we find no evidence our firm engaged in corrupt activity. Should we repeat this? This is important. We found no evidence that our firm engaged in corrupt.

In other words, McKinsey is sorry, it’ll pay back the money and it’s taken disciplinary action against errand staffers, but it’s not admitting that anything corrupt actually happened or certainly not yet.

Should the pro forma Committee of Public Enterprises report contain any less interaction for us, we will act and we will act with speed. If we are asked to appear before the commission, we will be willing. If the commission finds fault with any of our people, we will address those faults. We will examine and can only examine the facts we have access to. I encourage anyone here with any new information or evidence to come to us. It will be pursued fully and if new findings should require any external processes, we will act on that decisively and properly. If we can find some way to be advised, South Africa, that we do stand ready to assist.

We are willing to commit resources at a no cost basis in the country’s priority, such as job creation, economic growth, and attracting good investment. This situation should never have happened. The fact that it did is a source of enormous regret. With that in mind, I repeat, we are deeply sorry as a firm and I am truly sorry as its leader. More than this, we are committed to learning the lessons that will ensure that it does not happen again. Indeed, I hope that you’ll allow us to earn back the trust we have lost and in doing so regain our ability to contribute to the future development of South Africa. Thank you for listening and let me end as I began with one word, “Sorry”.

Before he traveled to Johannesburg, Sneader surely knew that this approach was a gamble, but even in his worst scenario the measured Scotsman would not have expected what was to follow. South Africa after all is well-known around the world for its warm hospitality, but not this time, not this day. Business Leadership’s Bonang Mohale got the ball rolling.

Not only did McKinsey steal from one of the 54 African countries, but also in a country where there are more people on social security than those that are gainfully employed,17 million versus 15 million, where in 2018 we are still talking about the intersectionality between class, race and gender. There are more women in this country than men, but companies like yours still pay women 73% of what they pay men for work of equal vail, where unemployment is 35%, but more than 50% amongst young people.

Therefore, how in a country like that could McKinsey have allowed itself to not only be in the centre, but to aid and abet state capture? It’s nice to give it a name because for the last ten years somebody could say, “Maybe I did not know”. When in France people bribe, steal and cheat, it might be lost in malfeasance, in South Africa it is what it is, state capture, so now you’ll return the money to Eskom. This is the Eskom that when it was chaired by Dr Reuel Khoza, had a rating agency higher than Sovereign. Today Eskom, as a direct result of the actions of McKinsey et al, now has to borrow money, not to service their capital debt, but to pay interest.

That legacy is going to be with us maybe for another ten years, five years to repair, and another five years just to get to where we were before, so you can see that the ramifications have been deep and wide. It’s not just about being sorry, it took McKinsey inordinately long to get to where you are, but we’re happy that eventually you did. Context in South Africa is everything; you are part of a business community that after 350 years didn’t even ask for forgiveness, just took forgiveness. After taking it you still behaved in the manner that you did, so I’m hoping that you’ll begin to understand not only the frustration, but also the bone deep anger at state capture because it has raped the resources of this country at the time that we needed the most.

Next came some rather interested parties in the audience, starting with David Lewis, Head of Corruption Watch, which had played a critical role in uncovering the malfeasance for which McKinsey is now apologising.

We’ve been engaged in this matter from the beginning, the principle whistleblower came to us first, and we took her to the Public Protector and we took her to the Govender Enquiry and ultimately, we’ve referred McKinsey, as I’m sure you know, to the US Department of Justice. We’ve done so because we are absolutely convinced that McKinsey were complicit in paying a huge bribe to Eskom. There’s no other way to coat it to you. As far as we are concerned, you’re guilty of offences in terms of ‘The Foreign Corrupt Practices Act’ and the SA Legislation, and you had a bizarre situation, where not only were Eskom bribed but it was Eskom money that was used to bribe Eskom officials. They effectively paid Trillian R600m, a part of which went into the Gupta’s offshore accounts and part of it which went into, I don’t doubt, in the offshore accounts of Eskom executives. Do we have the ability to prove that last mile? No, we don’t. That’s why you need the US Department of Justice or institutions with policing powers but I have absolutely no doubt that all the inferences point in that direction. Frankly, you don’t get to say ‘you’re sorry’ and give back the money in situations like this. When you steal large amounts of money, you go to jail and you give back the money.

David Lewis is deeply respected in SA. He’s the former Head of the Country’s Competitions Tribunal. He continued with some questions.

I want to ask three questions. The first is that when this thing first hit the fan you made a much to play about it by calling in a reputable law firm to do an independent inquiry, which you paid for, that was the Govender Enquiry. As far as I know, you’ve never released the report and if not, why not? When is it going to be released? The second thing is would you share with us what Vikas Sagar, (I think his surname was), the partner in SA who everybody recognises was the principle point person in this relationship? What were the conditions of his departure? When The New York Times report that he left with full benefits. Did he leave with an additional bonus? Is there a non-disclosure agreement in place with Sagar, and has he been punished in any way or has he actually been rewarded for all his ‘rain-making’ in effect? Then the third question is, when did senior global management at McKinsey know about this contract? When did Dominic Barton know about this contract, and your executive board know about this contract? Because I don’t, for one minute believe that suddenly, out of the blue they came to know that they were selling R1bn’s worth of advisory time in SA?

We have found no evidence to support the first part of your statement, none. So, I just have to say that to you. I recognise you talked about inferences – I’m not in the world of inferences. You might be. I’m not. We have not found evidence to support what you say. We’ve not found it. If we had, we would share it. We have not. So your inferences do not match up with the evidence that two law firms, not one, have been through – Norton Rose Fulbright and Morrison & Foerster, so I cannot engage in a dialogue in that because we simply disagree. Vikas Sagar has not been rewarded, period. I wish I could have a full conversation with the why’s and wherefores but the reality is, I can’t. But I will say is this, he has not been rewarded. He did leave before our Disciplinary Procedure concluded, but he has not been rewarded. I actually can’t answer that question. I wish I had some papers and I could sit back and try figure it out, but inevitably I would have to say to you that I don’t want to make something up on the spot and say, ‘this is when somebody knew’ and ‘this is when somebody didn’t.’ But I can assure you that as soon as we started to pick up issues here, we started to act. We didn’t act fast enough, we didn’t move clearly enough. We didn’t get to this place in a way that I would have liked and I recognise all of that. But I’m not in a place to start putting dates on who knew what and when.

After Lewis, the McKinsey chief may well have relaxed a little because a softball question followed, but then into the fray came the country’s famous forensic investigator, a man whose efforts have seen the firing of not one, but two corrupt SA Police Chiefs.

I’m Paul O’Sullivan from Forensics for Justice. Kevin, I don’t feel good for you because you’re in a very difficult position. I understand you’ve come all the way from Scotland where the weather is rubbish. I mean there it’s your mid-Summer and here is mid-Winter. Kevin, I’ve gone through your notes. First of all, I’d want to record the following. While McKinsey and Trillian, and all the Guptas were banking all those billions of rands, myself and others working in my organisation were being kidnapped by corrupt cops, dragged off planes, jailed, tortured, and all this was going on to suppress the investigations that we were engaged in, which not just aimed at the Guptas but at the corrupt police officials that were helping to suppress the opening up of these investigations. If we hadn’t had a captured Criminal Justice System, the capture of Eskom and the capture of Transnet, and SA Airways, and all the other SOEs, and government positions would not have been possible. But I just want to take issue with a little bit of what you said. You said the following, ‘Firstly, we acknowledge our mistakes.’ I don’t think there’s any doubt about that. You wouldn’t be here if you weren’t acknowledging your mistakes. But then you say the following, ‘We have examined all the evidence we could find about our work for Eskom. The facts are, we found no evidence our firm engaged in corrupt activity.’ I have to say that commissioning your own investigation through a law firm, and the law firm in question I have no issue with, but we do know there are plenty of law firms out there that will give you the report that you’re looking for. Now, I met with your senior management team in SA a couple of months ago and I asked Saf, ‘Why didn’t you open a criminal docket against the people involved, at McKinsey, for what has gone on?’ The answer I got was very bland and is probably the reason why I wasn’t invited to be here today, but I had to gate-crash. Is that we couldn’t find anything that we’d done wrong.’ I’m asking you today, ‘Why won’t you open a criminal docket with the evidence that you do have, or allow somebody else to look at that evidence and open a criminal docket?’ So, the people not McKinsey, the people involved at McKinsey can be held to account?

Well, look, first of all thanks for the question and thanks for being here. I’m glad you’re here, so I’ve no issue with who’s here and who’s not here. The honest answer is, at this point in time, we stand by everything that’s in that statement. I’ve looked at the evidence, we’ve looked at the evidence, we’ve had two law firms look at the evidence, and we are where we are. We don’t believe there’s evidence of corruption. In the event that there’s new information that people have that says, ‘that’s wrong,’ give it to me and I will take that very seriously. But I’m not about to sit here and start saying, ‘we’re going to do this, we’re going to do that, and criminal charges.’ That’s a very difficult and complicated subject, which I’m not going to go into. But what I will say is, based on the evidence we’ve got, we’ve not found evidence of corrupt behaviour of the kind that you seem to think that there is.

So, McKinsey gambled and from the mood of 165 people in the GIBS Auditorium, it lost. To be fair though, Kevin Sneader has been trying to make the best of what rugby players call a hospital pass. To his credit, he stepped into a fire that other global firms that have been involved in SA State Capture, like KPMG, SAP, Hogan Lovells, HSBC, and a Chinese locomotive manufacturer, have just not engaged with. They’ve decided to keep their heads below the parapet. After watching the roasting that McKinsey received today, you have to wonder whether the CEOs of any other multinational have the bottle to follow Sneader’s example or indeed, whether McKinsey itself will continue on its current course of owning up, taking the hits, and sticking around for the long-term. Perhaps now that it’s paid back the money the firm will think twice about staying involved in a SA that quite obviously is not in a forgiving mood.

This has been The Rational Perspective – until the next time, cheerio.