McKinsey admits lapse in judgement, but denies corruption

Protesters want a full probe into McKinsey's actions in South Africa.
Protesters want a full probe into McKinsey's actions in South Africa.

Johannesburg - Global consultancy firm McKinsey has admitted that it found violations of its professional standards, as its probe into the firm neared completion. But it denied that the firm was involved in any acts of bribery or corruption, or had made payments to Trillian.

In a statement on Tuesday, McKinsey said it has never made payments directly or indirectly to secure contracts, nor had it aided others in doing so. It also stated the firm did not introduce Trillian to Eskom, nor vice versa.

Tom Barkin, McKinsey’s global chief risk officer, said McKinsey rejected the notion that it was involved in any acts of bribery or corruption related to its work at Eskom, and through its interaction with Regiments or Trillian.

“But we were not careful enough about who we associated with, did not understand fully the agendas at play, and should not have worked alongside Trillian, even for a few months, before completing our due diligence.”

Last week the firm announced it would pay back in full a R1bn fee to Eskom if a court determines that the power utility had acted unlawfully.

This comes after Eskom earlier stated that it was seeking the cooperation of McKinsey and Gupta-linked company Trillian in returning R1bn and R564m respectively, “which appears to have been unlawfully paid out in 2016 and 2017”. 

READ: Pay back our R1.56bn, Eskom tells McKinsey and Trillian

Vikas Sagar

Vikas Sagar, the partner who drafted a letter that authorised Eskom to pay Trillian directly for services rendered, has left McKinsey. Others have been sanctioned or have left the firm.

McKinsey said Sagar’s 9 February 2016 letter did not provide authorisation for Eskom to pay Trillian as the conditions set out in the letter had not been met.

Barkin also said the behaviours of some individuals fell short of its standards. “Some of our processes were inadequate and we have acted to reinforce compliance and improve them.”

He admitted the firm did not communicate appropriately to Advocate Geoff Budlender, in his investigation on Trillian, in which McKinsey was also implicated.

Due diligence

McKinsey admitted it should not have started working alongside Trillian in December 2015 before it had completed its due diligence  with answers to critical questions.

It said that even though it never had a contract or supplier development partnership with Trillian, McKinsey 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,” McKinsey said.

As a result, McKinsey said it terminated all discussions with Trillian and informed Eskom that Trillian would not be its supplier development partner.

But the firm also believed that it never served the Gupta family or any companies publicly linked to the Gupta family.

Scrutinising 2.4 million emails

The firm stated that over the past four months its global general counsel, Jean Molino, assisted by Norton Rose Fulbright, conducted a thorough investigation into the claims of wrongdoing levelled against McKinsey & Company.

It launched the probe after it became aware of a letter on 9 February 2016 “that inaccurately characterised our relationship with Trillian”.

The probe focused on the work McKinsey had done for Eskom since 2015, which involved Regiments Capital and Trillian. 

The investigation included collecting 2.4 million emails, reviewing hundreds of thousands of documents, including contracts, invoices, payments, telephone, personal email, and financial records, as well as conducting over 60 interviews.

Barkin said the allegations had been painful to McKinsey.

“We have been focused for the last four months on getting the facts straight. This has taken longer than we had hoped because we wanted to be thorough.”

Apology

Dominic Barton, McKinsey & Company’s global managing partner, said McKinsey took the issues seriously. He apologised to South Africans, as well as other McKinsey stakeholders for the distress the matter has caused and said McKinsey was “embarrassed.”

“We deplore corruption and we will cooperate fully with relevant authorities and any official inquiries and investigations into these matters,” he said.

“We acknowledge that there are more than just legal issues at stake, and that many have raised – sometimes with significant emotion – concerns about our broader practices in, and commitment to, South Africa. We assure you that we hear you.”

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