Business 17.10.2017 10:41 am

McKinsey ‘embarrassed’ by findings of internal probe into Trillian, Eskom

Eskom update

Eskom update

McKinsey has apologised to the people of South Africa for violations of its professional standards.

Global management consulting firm McKinsey on Tuesday announced it had suspended all work for state-owned companies until further notice.

In a statement, the local consultancy said it was embarrassed by the findings of internal investigation by its global general counsel, Jean Molino, into the claims of wrongdoing levelled against McKinsey & Company regarding its work at Eskom since 2015 that involved Regiments Capital and Gupta-linked company, Trillian Capital Holdings.

The local consultancy firm said the probe had found “violations of our professional standards”, but did not uncover any acts of bribery or corruption related to its work at Eskom and interaction with Regiments or Trillian.

McKinsey also announced it had disciplined individuals “in line with our procedures and made improvements to our processes”. It said Vikas Sagar, a partner, had decided to leave the firm.

“Others have been sanctioned or have left the firm. We became aware of one other potential professional standards issue, unrelated to Eskom, which we are in the process of investigating. We will take action as appropriate,” the statement read.

In September, Eskom admitted that Gupta-linked Trillian and McKinsey were paid R1.6 billion between April 2016 and February 2017 for joint consultancy work done in 2015 and 2016. This was after New York-based management consultancy firm Oliver Wyman raised suspicions about the payments and recommended a legal review.

The power utility initially claimed the payments were above board after the release of a damning report into Trillian by advocate Geoff Budlender. However, in its statement, McKinsey said it had never worked with the Gupta family and did not have a contractual relationship with 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 consultancy firm said.

“The behaviours of some individuals fell short of our standards. Some of our processes were inadequate, and we have acted to reinforce compliance and improve them. We did not communicate appropriately to Advocate Budlender. We are embarrassed by these failings, and we apologise to the people of South Africa, our clients, our colleagues, and our alumni, who rightly expect more of our firm.

“Our investigation was based on the information to which we had access; we would ask that anyone who may have additional relevant facts to contact our General Counsel so we can further enhance our understanding of these events and take all appropriate actions.”

Eskom wants McKinsey to pay back the money

Last week, McKinsey said it would repay all fees received from Eskom if a high court review found that its contract with the power utility was unlawful.

This after Eskom wants the consultancy firm and Trillian to respectively return R1 billion and R564 million in consultancy fees, which the utility said appeared to have been “unlawfully paid out in 2016 and 2017”.

In a statement, McKinsey said Eskom had been its client since 2005 and “we stand by our work at the company.”

“To provide reassurance to the citizens of South Africa, we will support a review by the High Court of the validity of the turnaround program contract. We invite Eskom and Trillian to submit themselves to this process too.

“We plan to set aside the full fee McKinsey earned on the turnaround programme in a ring-fenced account ready to comply with the court’s decision,” McKinsey said.

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