McKinsey’s managing director, Dominic Barton. (Getty Images)
  • In a lengthy and critical article, The New York Times has chronicled McKinsey’s disastrous Eskom contract in 2015.
  • The company's MD acknowledged it had a “bit of a tin ear” initially, and said "real work" was done.
  • Despite an earlier undertaking, McKinsey is yet to return the more than R1 billion it was paid.


The New York Times has published a devastating article about the elite consultancy group McKinsey’s work in South Africa, stating its contract with Eskom the biggest mistake McKinsey had made in its nine-decade history.

One of the world’s largest management consulting firms, and almost certainly the most influential, McKinsey earned R1.028 billion for only eight months’ work.

“In the United States, with an economy over 50 times as big as South Africa’s, a contract that size might have gone unnoticed,” the newspaper said. “But in South Africa, millions of dollars flowing out of a struggling public utility and into the pockets of consultants driving Porsches and Ferraris created an unsavory image that required a response.”

“It did not take a Harvard Business School graduate to explain why South Africans might get angry seeing a wealthy American firm cart away so much public money in a country with the worst income inequality in the world and a youth unemployment rate over 50 percent.”

Its contract with Eskom was also illegal and, in addition, McKinsey worked with Trillian, owned by an associate of the Gupta family, as a subcontractor.

The New York Times interviewed McKinsey’s managing director, Dominic Barton, who said the firm had a “bit of a tin ear” in its early response to the crisis. “This isn’t who we are. It isn’t what we do.”

According to the newspaper, he expressed frustration at the "overarching narrative" that McKinsey took money for little work.

“There was real work being done,” he said.

Despite an earlier undertaking, McKinsey still hasn’t paid back the fees. Earlier this month, the National Prosecuting Authority (NPA) filed a lawsuit against the US firm to recoup the money. Talks with McKinsey about voluntarily repaying the money have stalled, Bloomberg reported.

The article places much of the blame on Indian-born McKinsey partner Vikas Sagar, described as “a stylish, Porsche-driving fitness buff in his 40s, known for hugging colleagues when the spirit moved him and fiercely charting his own course. He was assisted by Alexander Weiss, a serious reverse image of Mr. Sagar, who thought little of commuting between his home in Germany and Johannesburg.”

According to the report, Sagar has left the firm with his full benefits in place. “Mr. Weiss has been sanctioned, though McKinsey declined to say what that involved.”

But the newspaper’s investigation, which includes interviews with 16 current and former partners, found that the roots of the problem go deeper than the two partners — “to a changing corporate culture that opened the way for an aggressive push into more government consulting, as well as new methods of compensation. While the changes helped McKinsey nearly double in size over the last decade, they introduced more reputational risk”.

It details McKinsey’s extensive influence among its large client base, which includes more than 40 US government agencies such as the Federal Bureau of Investigation (FBI), the Central Intelligence Agency (CIA), the Defence Department, and the Food and Drug Administration (FDA). The advocacy group Corruption Watch has referred the firm’s conduct to the United States Justice Department for possible violations of the Foreign Corrupt Practices Act (FCPA). 

Reuters previously reported that the Eskom contract is now used by Harvard Business School as a case study for students. The case study asks students to imagine they are a McKinsey employee deciding whether to partner with Trillian to win a contract with Eskom.

 

Receive a single email every morning with all our latest news: Sign up here.

Also from Business Insider South Africa: