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After being trapped on the Gupta State Capture web, the world’s largest consulting firm, McKinsey, has put tighter controls in place across its global operations to avoid being drawn into corrupt activities in the future, according to senior partner Jean-Christophe. Mieszala, who appeared before the Zondo Commission this week.
Lessons learned from its experience with contracts at Eskom, Transnet and SAA, particularly as State Capture began to peak between 2014 and 2016, have been incorporated into McKinsey’s global operations, the company’s senior partner said Thursday, Jean-Christophe Mieszala.
Mieszala was testifying before the Investigation Commission on State Capture via a video link from Paris.
Mieszala and other senior partners who appeared before the commission on Thursday and Friday claimed that they were unaware that his colleague Vikas Sagar, who headed the South Africa office, was in cahoots with Gupta’s henchman, Salim Essa to bring in Regiments Capital, which later morphed into Trillian’s management consultants, as BBBEE required supply development partners.
This, as evidence before the commission has revealed, resulted in up to 50% of the fees of the regiments of state entities being laundered through shell companies created by Essa. Transnet’s tariffs alone resulted in R 100 million going to shell companies.
McKinsey terminated his contract with what had largely become Trillian, after an internal investigation was launched in 2016 following concerns Sagar was linked to the Gupta brothers.
Thereafter, according to Mieszala, McKinsey (which has a presence in 166 countries), made various strategy and risk adjustments to its global operations.
These included the appointment of a chief risk officer, forcing due diligence on any new clients and regularly updating information on existing clients. The team responsible for due diligence had access to external resources and examined the property of clients and board members.
McKinsey had also decided not to perform certain types of work in “particular geographies” without a thorough review by a risk committee, and had tightened its rules for dealing with the public sector and state entities.
The company had “doubled down” on employee training and awareness in corporate responsibility, as well as “legal and regulatory matters”.
Mieszala said that because of her experience in South Africa, McKinsey employees had to seek the company’s permission to give gifts to customers or accept invitations to events.
He said they had also put a cap on their fees and established a global hotline to report corrupt or suspicious activity to encourage whistleblowers.
Mieszala, along with senior partners Dr. David Fine and Dr. Alexander Weiss, who appeared before Supreme Court Vice President Raymond Zondo on Thursday night and Friday morning, respectively, assured the commission that they did not they knew that McKinsey was involved in the money flows to Gupta’s companies at the time. and their faces were red when they realized that Sagar and the regiments had deceived them.
McKinsey has agreed to return R650m in consulting fees to Transnet and SAA, following its 2017 decision to reimburse R1 billion in consulting fees to Eskom.
Test leader, advocate Matthew Chaskalson SC, repeatedly assured McKinsey partners that he acknowledged that McKinsey was the first company to offer to refund fees to South African state-owned companies, and that they had done so on a voluntary basis. Chaskalson noted that McKinsey had terminated its contracts with Trillian Capital Partners, aligned with Gupta, when it became aware of questionable relationships, and had done so at the risk of losing future business in South Africa.
Still, he asked McKinsey partners some awkward questions. Questioning McKinsey’s corporate culture rather than governance, Chaskalson asked Mieszala why a large number of single source contracts (non-bid contracts for competitive tenders) awarded by Transnet from 2013 to 2015 in line with an increase of approximately 70 % in rates. during the period, he raised no concerns.
“At the time, it seemed like it was very important to attract business in the face of the need not to engage in (question) single source contracts,” asked Chaskalson. “Unless the (company) culture encourages a principled position, governance cannot address it.”
Mieszala said that, with most clients, there were “bursts of activity” that could be driven by unique conditions, and these were often driven by the need to get out of a crisis, and rates could vary for legitimate reasons. The question, he said, was whether McKinsey had added value and had an impact. He believed that despite his unintended involvement with State Capture, his work had added value to his clients.
Fine said concerns about the Regiments began to surface in 2015 when the quality of its work deteriorated, and although it was a supply development partner, its leadership did not reflect South Africa’s demographics. Then, at a meeting of the Transnet steering committee on December 11, 2015 in which the regiment director, Mohamed Bobat, was absent, Fine learned Bobat had become special advisor to the new Finance Minister, Des van Rooyen. As the removal of respected Finance Minister Nhlanhla Nene by former President Jacob Zuma in favor of an unknown MP Van Rooyen had caused international concern and local outrage, he was concerned. Further personal investigations revealed links between Bobat and Gupta associates, and inquiries about Bobat sent to Regiments / Trillian CEO Eric Wood went unanswered. This was the irrefutable evidence that led to an internal investigation into Trillian and the subsequent termination of their relationship by McKinsey in March 2016.
Chaskalson also put Weiss in trouble. Although McKinsey terminated its contract with Trillian in March 2016, it continued to work with Eskom, another Regiments / Trillian supply development partner, until September 2016. Chaskalson asked why Weiss had signed the Eskom contract in “September or October” 2016, but backtracked to look like it was signed in January 2016.
Therefore, Chaskalson insisted, Eskom paid fees to McKinsey during 2016 without a signed contract, and if it had been signed as his actual date, it would have been marked as an irregularity.
Weiss cited context, saying the contract was the result of “lengthy negotiations” and that an acceptance letter was signed in September 2015, which was deemed binding. He said he was requesting a signed contract from Eskom on a weekly basis. Then, he said, in early June 2016 Eskom terminated the contract and the payment was settled in August. It was only in September, he said, that he finally received a printed version of the contract, dated January 7, 2016.
Weiss admitted that the McKinsey team relied too heavily on relationships with Eskom, rather than insisting on proper procedure.
“It is fair to say that we should not have started work before the due diligence process was closed, but this is a process that we have changed,” Weiss said.
Former Free State MEC for Human Settlements, Mosebenzi Zwane, took the stand to testify before the commission later on Friday, while former Eskom CEO Matshela Koko was due to appear on Friday night. DM
