JOHANNESBURG, October 17 (ANA) – Global consultancy firm McKinsey & Company admitted on Tuesday that it made “several errors of judgment” in the way it handled contracts with South African power supplier, Eskom, adding that it was not careful enough about who it associated with when taking such contracts.
Earlier this month Eskom demanded that McKinsey and Gupta-linked firm Trillian Capital Partners’ return R1 billion and R564 million respectively. The money was paid to them “unlawfully” for services without contracts between 2016 and 2017.
Mckinsey has come under the spotlight for business deals with Eskom since 2015 and the way it conducted itself with its empowerment partners Trillian and Regiments Capital. McKinsey faces allegations that it corruptly secured the controversial R1.6 billion six-month contract with Eskom and was paid for little or no work done.
The Gupta family, who are very close to President Jacob Zuma, were named in the the Public Protector’s report last year as the main culprits in “State capture”.
The report alleges the Guptas used their close proximity to powerful politicians to influence issuing of contracts by state-owned companies for their benefit and to siphon public funds.
After the allegations of impropriety in its dealings at Eskom became public, McKinsey launched an investigation into claims of wrongdoing against its partners – Trillian and Regiments Capital.
McKinsey said its investigation included collecting 2.4 million emails; reviewing hundreds of thousands of documents, including contracts, invoices, payments, telephone, personal email, and financial records; and conducting over 60 interviews.
McKinsey’s global managing partner Dominic Barton said that the investigation revealed that the firm has never served the Gupta family or any companies publicly linked to the Gupta family.
Barton also said that they found violations of the firm’s professional standards and disciplined individuals in line with procedures and made improvements to processes.
“We have never had a contract or supplier development partnership with Trillian, although we did work alongside Trillian for several months at Eskom; Trillian failed our due diligence in March 2016 after repeatedly refusing to provide details about its ownership; and we terminated all discussions with Trillian and informed Eskom that Trillian would not be our supplier development partner,” Barton said.
“That said, we should not have started working alongside Trillian in December 2015 before we had completed our due diligence and had answers to our questions.
“As a firm, we take these issues very seriously. We deplore corruption and we will cooperate fully with relevant authorities and any official inquiries and investigations into these matters.
“We are sorry for the distress this matter has caused the people of South Africa, our clients, colleagues, alumni, and others.”
McKinsey also said that it made several errors of judgment and process as some of its administrative processes were not followed.
“For example, a letter sent to Eskom in February 2016, even conditionally authorising invoicing or payment, should not have been issued for a party with whom we did not have a subcontract,” McKinsey said.
“Whilst Eskom has conceded it did not rely on this letter for payment, the letter was inaccurately drafted and insufficiently reviewed. We found no evidence of bad faith in the drafting of this letter.”
As a result, McKinsey said it has set aside a full fee for the Turnaround Programme for repayment and will support a review by the High Court of the validity of the Turnaround Programme contract.
“McKinsey will pay back the fee in full if the court determines Eskom acted unlawfully. We invite Eskom and Trillian to submit themselves to this process too,” Mckinsey said.
“In the expectation it will be repaid, we have already set aside the full fee McKinsey earned on the Turnaround Programme in a ring-fenced account ready to comply with the Court’s decision.”
The firm also said that it has suspended its work for State Owned Enterprises (SOEs) also referred to as State Owned Companies (SOCs) in South Africa until further notice.
“McKinsey will not begin any SOC work in South Africa until it has been thoroughly reviewed and formally approved by a newly formed and independent South Africa SOC Risk Committee. This committee will set a very high bar for impact and the quality of the contracting process.”
– African News Agency (ANA), editing by Moses Mudzwiti
