Tainted com­pany with a trail of bro­ken dreams

Post - - Opinion - BRIJ MA­HARAJ Brij Ma­haraj is a ge­og­ra­phy pro­fes­sor at UKZN. He writes in his per­sonal ca­pac­ity.

AS THE in­ter­na­tional fall­out over the Gupta em­pire, whose pro­lific ex­pan­sion was aided and abet­ted by el­e­ments and fac­tions in the ANC lead­er­ship and boards of state-owned en­ter­prises, un­rav­els and the ex­tent of state cap­ture is re­vealed – “things fall apart; the cen­tre can­not hold”. And there is a po­ten­tial for “Mere anar­chy” to be “loosed upon” the rain­bow na­tion (apol­ogy to WB Yeats!).

With Bell Pot­tinger hov­er­ing on bank­ruptcy and KPMG in the dol­drums, the spot­light turns on McKin­sey.

McKin­sey, an in­ter­na­tional global man­age­ment con­sult­ing firm, has been around for nine decades. In 2013 it earned $7bn in rev­enue. It re­ceives about 235 000 job ap­pli­ca­tions an­nu­ally, em­ploys 2 500 peo­ple in­ter­na­tion­ally and “ad­vises ev­ery­one from chief ex­ec­u­tives to heads of state”.

Its founder, Pro­fes­sor James O McKin­sey, em­pha­sised “a com­mit­ment to rig­or­ous re­search and train­ing”. He was later joined by Marvin Bower, who stressed that a core value was the “con­sul­tant’s obli­ga­tion to ad­vo­cate for what he or she be­lieves to be true” with clients as well as within the firm.

Ac­cord­ing to a com­pany blurb: “McKin­sey opened its first African of­fice in Johannesburg in 1995, soon af­ter South Africa’s new democ­racy brought Nel­son Man­dela to power… The sense of pos­si­bil­ity was pal­pa­ble. We were the only top man­age­ment con­sult­ing firm in the coun­try, and we went knock­ing on CEOs’ doors. Be­fore long, we were help­ing sev­eral of the largest com­pa­nies re­think their strate­gies and re­shape their op­er­a­tions.”

How­ever, the demo­cratic “gov­ern­ment had in­her­ited a stag­nant econ­omy with high lev­els of un­em­ploy­ment and pub­lic debt. In busi­ness, South African com­pa­nies fi­nally had ac­cess to in­ter­na­tional mar­kets af­ter decades of iso­la­tion. Yet they also faced an in­flux of global com­peti­tors, mak­ing mod­erni­sa­tion es­sen­tial.”

Twenty years later, there were 200 McKin­sey con­sul­tants in South Africa, who have “worked with gov­ern­ment de­part­ments on every­thing from in­dus­trial pol­icy to pub­lic fi­nance, and helped to tackle ur­gent so­cial is­sues such as strength­en­ing pub­lic ed­u­ca­tion sys­tems and de­vel­op­ing strate­gies to com­bat HIV/Aids”.

For the next 20 years McKin­sey will fo­cus on de­vel­op­ing lead­er­ship and “ca­pa­bil­ity-build­ing” and train “a new gen­er­a­tion of man­agers, pro­fes­sion­als and en­trepreneurs from all hues of the rain­bow na­tion”, and es­pe­cially pro­mot­ing women in man­age­ment and lead­er­ship. McKin­sey’s goal is to “help the next wave of South African com­pa­nies win on the global stage, and to work with gov­ern­ment to achieve ex­cel­lence in pub­lic ed­u­ca­tion and other na­tional pri­or­i­ties”.

Sul­lied

How­ever, out­side the PR sound bites, McKin­sey’s record of ac­com­plish­ment is sul­lied in South Africa and be­yond.

McKin­sey had an Eskom con­tract that ac­counted for over 50% of its busi­ness in SA. It also con­sulted for Transnet. There is a very se­ri­ous al­le­ga­tion that “McKin­sey and their lo­cal Gupta-linked coun­ter­part Tril­lian ex­tracted R1.6 bil­lion in fees for ‘turn­around’ ad­vice given to Eskom”. McKin­sey claimed to have “helped Eskom with its turn­around pro­gramme to sta­bilise its fi­nances and re­duce load shed­ding, which has con­tributed to a sig­nif­i­cant im­prove­ment in the com­pany’s per­for­mance”.

Ac­cord­ing to Eskom, Tril­lian, a Gupta-linked com­pany, was a sub­con­trac­tor to McKin­sey, which the global com­pany sub­se­quently de­nied. Vikas Sa­gar, McKin­sey’s di­rec­tor in South Africa, con­firmed in a let­ter dated Fe­bru­ary 16, 2016 to Eskom that Tril­lian be paid for its ser­vices. Sub­se­quently, Tril­lian was paid R495m (but there was no ev­i­dence of ser­vices ren­dered), and McKin­sey re­ceived R900m for con­sul­tancy ser­vices, which was fa­cil­i­tated by Eskom chief fi­nan­cial of­fi­cer Anoj Singh, widely be­lieved to be a Gupta agent.

The firm’s global spokesper­son‚ Steve John‚ said: “McKin­sey has never served the Gupta fam­ily or any com­pa­nies known to be linked to the Gup­tas. We have not made pay­ments to the Gup­tas or any com­pany pub­licly linked to them. We have cat­e­gor­i­cally not paid bribes in ex­change for con­tracts. We have se­cured all our work for state-owned com­pa­nies on the ba­sis of our demon­stra­ble im­pact for our clients.”

Sa­gar was sub­se­quently placed on com­pul­sory leave.

The NGO Cor­rup­tion Watch wanted the US Jus­tice De­part­ment to in­ves­ti­gate McKin­sey’s con­duct, which was viewed as a “gross con­tra­ven­tion of the US For­eign Cor­rupt Prac­tices Act”. The DA in­tended to re­quest the Se­ri­ous Fraud Of­fice in Lon­don to in­ves­ti­gate “McKin­sey’s deal­ings in terms of the UK’s Bribery Act”.

McKin­sey’s shenani­gans in SA should not be sur­pris­ing, as the firm has a tar­nished im­age glob­ally.

Ac­cord­ing to fi­nan­cial com­men­ta­tor and eco­nomic jour­nal­ist Barry Ritholtz, McKin­sey “cre­ated du­bi­ous strate­gies for all man­ner of com­pa­nies, rang­ing from En­ron to Gen­eral Elec­tric”, and this can be il­lus­trated with a few ex­am­ples:

Ad­vo­cat­ing side pock­ets and off-bal­ance-sheet ac­count­ing to En­ron, it be­came known as “the firm that built En­ron”.

Gen­eral Elec­tric lost more than $1bn af­ter fol­low­ing McKin­sey’s ad­vice in 2007 – just be­fore the fi­nan­cial cri­sis hit.

Bank­ruptcy

Ad­vis­ing AT&T (Bell Labs in­vented cell­phones) that there wasn’t much fu­ture to cell­phones.

Swis­sair went into bank­ruptcy af­ter im­ple­ment­ing a McKin­sey strat­egy.

Bri­tish rail­way com­pany Rail­track was ad­vised to re­duce spend­ing on in­fra­struc­ture, lead­ing to a num­ber of fa­tal ac­ci­dents and the sub­se­quent col­lapse of Rail­track.

Ra­jat Gupta (not re­lated to the South African fam­ily), the first for­eign-born man­ag­ing di­rec­tor of McKin­sey, be­tween 1994 and 2003, was con­victed of in­sider trad­ing by a New York court.

McKin­sey is re­spon­si­ble for the widen­ing pay gap be­tween CEOs and work­ers. A study by McKin­sey con­sul­tant Arch Pat­ton about ex­ec­u­tive com­pen­sa­tion, pub­lished in the

Har­vard , re­vealed Busi­ness Re­view that “from 1939 to 1950, the pay of hourly work­ers had more than dou­bled, while that of top man­age­ment had risen only 35%”. This McKin­sey find­ing set in mo­tion the de­mand and mo­ti­va­tion to in­crease ex­ec­u­tive ben­e­fits by cor­po­ra­tions.

It was amaz­ing that McKin­sey con­tin­ues to op­er­ate with im­punity af­ter be­ing re­spon­si­ble for so many fi­nan­cial dis­as­ters. It has been ar­gued that, like Gold­man Sachs, McKin­sey could be de­scribed as a “great vam­pire squid wrapped around the face of hu­man­ity, re­lent­lessly jam­ming its blood funnel into any­thing that smells like money”.

Veteran jour­nal­ist and au­thor Duff McDon­ald con­tended that McKin­sey had “a blind spot re­gard­ing things like the hu­man im­pli­ca­tions of im­por­tant cor­po­rate de­ci­sions”. A ma­jor moral con­cern is whether con­sul­tants take re­spon­si­bil­ity for the con­se­quences of their ad­vice or rec­om­men­da­tions. Or is it just an­other day in the of­fice?

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