‘We did not understand fully the agendas at play’ – McKinsey on Eskom

US global consultancy firm McKinsey said on Tuesday “we made several errors of judgement and process” as it announced that it would suspend work for state-owned companies (SOCs) in South Africa until further notice.

Eskom paid McKinsey and the Gupta linked Trillian for six months of work up to early 2017.

McKinsey received just more than R1-billion‚ while Trillian was paid R600-million‚ Business Day reported. The contract was for McKinsey to train Eskom engineers to develop internal consulting capacity‚ which it said would save it cash. It offered to pay McKinsey and Trillian – with which it had no contract‚ although it had been introduced as a local supplier development partner – a portion of the savings. The power utility has conceded it did not get the required approval from Treasury to deviate from accepted procurement regulations.

Last week McKinsey said it is prepared to pay back the money if a court determines the contract is unlawful.

On Tuesday‚ after a four month international investigation‚ McKinsey said it would not begin any work for state-owned companies 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”.

In addition‚ it said‚ “We will commit‚ as a condition of engaging with SOCs in the future‚ to greater transparency with the National Treasury and relevant shareholder departments‚ so they have a full understanding of the work we are undertaking‚ the value we will bring‚ and our contracting arrangements”.

“We will ask SOCs for detailed documentary evidence that they have all the appropriate approvals in place before we begin work.

“We are improving how we work with supplier development partners. We will only work with our own approved supplier development partners. We will not start work with a supplier development partner until due diligence is complete and a contract is signed.”

The company said it had also instituted a rigorous process to identify and vet potential new supplier development partners for our firm.

“Sixteen firms have been shortlisted for legal and financial due diligence. We will devote significant resources to helping the firms we finally select‚ and others vetted through the same process‚ grow into self-sustaining black-owned consulting firms.”

McKinsey said its investigation‚ by its Global General Counsel‚ Jean Molino‚ probed its work at Eskom since 2015 that involved Regiments Capital and Trillian. She was assisted by two law firms‚ Norton Rose Fulbright in consultation with Morrison & Foerster. The 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.

Dominic Barton‚ McKinsey & Company’s Global Managing Partner‚ said: “In summary‚ our findings from the investigation are that we have never served the Gupta family or any companies publicly linked to the Gupta family; 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. 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”.

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

Tom Barkin‚ McKinsey’s Global Chief Risk Officer‚ said: “There are things we wish we had done differently and will do differently in the future‚ but we reject the notion that our firm was involved in any acts of bribery or corruption related to our work at Eskom and our interaction with Regiments or Trillian”.

“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.

“The behaviours of some individuals fell short of our standards.”

He added: “Some of our processes were inadequate and we have acted to reinforce compliance and improve them”.

Georges Desvaux‚ Managing Partner of McKinsey Africa‚ and Saf Yeboah-Amankwah‚ Managing Partner of McKinsey South Africa‚ said: “We know that we need to rebuild trust in our firm in South Africa”.

Source: TMG Digital.

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