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McKinsey ignored staff warnings in South Africa Gupta scandal- Ex-employees say

by Editor

September 13, 2017 | 12:55 pm
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Global consultancy McKinsey, facing parliamentary hearings in South Africa over payments to a firm controlled by a billionaire family, ignored suspicions raised over several years by local senior staff that companies it worked with were set up to steer state contracts, two former employees said.

South Africa’s parliamentary committee on public enterprises is investigating whether McKinsey knowingly let funds from state utility Eskom be diverted to a Gupta company as a way of securing a $78 million contract to advise Eskom. McKinsey denies wrongdoing and says it intends to cooperate with the authorities if evidence of any impropriety emerges.

The accounts by the two former employees, who spoke to Reuters separately on condition of anonymity because their present jobs do not permit them to speak to the media, could provide fodder for lawmakers who say they have questions about the timeline McKinsey has given of when it learned of potential problems.

McKinsey says it carried out a due diligence review on its partner in the Eskom deal beginning in January 2016, and cut all ties with the local firm two months later after it concluded the company was unfit.

““We hold ourselves to the highest professional standards wherever we work and stand firmly against corruption. We are committed to ascertaining the facts and swiftly taking any and all appropriate action,” spokesman Steve John told Reuters.

We carry out checks on suppliers and partners when we work with them and address issues and concerns when they arise. When concerns were raised we undertook due diligence,” john said in a written response to questions.

But the ex-employees said they had attended meetings in Johannesburg where problems with that firm and a precursor company employing the same principal staff had been discussed much earlier: as far back as 2013.

The ex-employees said they would have expected such concerns to have been escalated to managers outside South Africa, although they did not know if that had happened.

Ultimately, McKinsey accepted the Eskom account in spite of the warnings, the sources said.

“We turned a blind eye,” said one.

Since July, when new information emerged about McKinsey’s flagship South African contract, the consultancy has been under increasing scrutiny in a widening corruption scandal over the influence of the Gupta family, businessman friends of President Jacob Zuma.

McKinsey has hired law firm Norton Rose Fullbright to assist in an internal investigation. Norton Rose said it would not comment while its probe is under way.

McKinsey spokesman John said he could not comment on meetings that may have taken place without knowing the names of the participants.

Natasha Mazzone of the opposition Democratic Alliance, a member of the parliamentary committee investigating the affair, said the committee would be looking at what McKinsey knew, and when, about the intentions of its local partners.

“If McKinsey is found to have been deliberately misleading South Africa and assisting in state capture, they will certainly be held to account and recommendations will be made to the portfolio committee.”

“STATE OF CAPTURE”

McKinsey’s Eskom contract was huge for the consultancy, accounting for more than half of its South African revenue, according to the two ex-employees. The deal coalesced even as a number of other business services firms were curtailing their work for South African state firms in the wake of an anti-corruption watchdog’s report into the Guptas.

The 355-page report by the constitutionally-mandated Public Protector watchdog, entitled “State of Capture”, accused the government of improperly steering hundreds of millions of dollars in state contracts to Gupta-controlled firms.

According to the ex-employees, McKinsey partners in South Africa told managers in the country that they thought both Regiments and Trillian had few capabilities, and were valuable mainly for political connections necessary to secure contracts.

“At least two (Johannesburg-based) partners raised concerns about using Regiments as a sub-contractor back in 2013. It seemed clear Regiments was a way of us winning the contract and if we caused a fuss we would lose business,” one of the ex-employees said.

“We had several meetings between 2013 and 2016 at top level locally about Regiments and Trillian, where it was asked: how are these unqualified companies winning us contracts? Why are the contract amounts so favourable? Why do we have to use them to get business?”

According to the ex-employees, as the Eskom deal was coming together in 2015, there was strong resistance within McKinsey’s South Africa office to working with Regiments personnel and their new vehicle Trillian on the Eskom bid.

They said a McKinsey partner approached an Eskom board member in September 2015 to say that McKinsey did not want to work with either Regiments or Trillian, due to concerns over the ownership of those companies and their capabilities. A former Eskom executive, who also spoke to Reuters on condition of anonymity, confirmed that conversation took place.

The McKinsey ex-employees said the partner who made the overture to the Eskom board member was shifted off the project and replaced by Sagar, who was promoted to the rank of director. Sagar then wrote his letter to Eskom describing Trillian as McKinsey’s subcontractor and instructing Eskom to pay it.

The Eskom deal was too big to jeopardise by looking too closely at the role of the Guptas, the ex-employees said.

“Losing a contract of that size would have serious implications for the business and staff in South Africa,” said one. “It was considered a risk worth taking.”

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by Editor

September 13, 2017 | 12:55 pm
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