McKinsey accused of complicity in cement industry cartel
McKinsey & Co has been cast into the centre of the probe into cartel conduct in the cement industry, with evidence emerging that the global consultancy advised cement producers to undermine competitors by secretly conspiring.
The startling admissions by a former MD of cement producer AfriSam at the Competition Tribunal’s hearings into alleged cartel conduct are the latest allegations about McKinsey’s questionable conduct.
The firm is already under fire for allegedly facilitating corrupt deals between the Gupta family and state-owned entities.
McKinsey denied that it had advised its clients to collude.
The Competition Commission’s submission in the long-running cement industry case included a witness statement by former AfriSam MD Mike Doyle. In his statement, submitted to the Competition Tribunal last Monday, Doyle alleged that in 1998 McKinsey told AfriSam that it needed "to cartelise the industry by adopting a strategy which was known as co-opetition" — an act of co-operation between competing companies.
Doyle has since passed away.
The referral to the tribunal followed the commission’s investigation between 2008 and 2012 of collusive conduct in the cement industry against the four main producers, Natal Portland Cement Cimpor (NPC), Pretoria Portland Cement (PPC), Lafarge and AfriSam.
The commission granted PPC conditional immunity, while AfriSam and Lafarge settled and paid fines of R128.8m and R148.7m, respectively.
As part of their consent agreements with the commission, AfriSam and Lafarge pleaded guilty to contravening the Competition Act.
The tribunal last week held hearings on a case of indirect price-fixing and market division brought against NPC. The hearings were adjourned on Friday until 2019.
In its submission to the tribunal, the commission alleged that AfriSam briefed McKinsey in 1998 to develop a business strategy after it lost market share when the cement companies engaged in a price war.
"McKinsey proposed that AfriSam adopt the strategy of co-opetition, which was based on three core principles of predictability, transparency and a credible threats system — essentially the core elements of a cartel," advocate Anthony Gotz of the commission told the tribunal.
McKinsey allegedly offered the advice two years after the government disbanded the so-called legal cartel practice in SA. The legal cartel existed until September 1996. It was managed through the Cement Distributors of SA, a distribution arm of all the cement makers.
In response to questions, McKinsey on Friday denied the allegations made in Doyle’s affidavit the commission submitted to the tribunal.
"McKinsey would never advise any client to take such action. We actually advised AfriSam to become more competitive in the market by improving their performance across a range of business functions," the company said in a statement.
"We’d be more than happy to explain our work to the Competition Commission and discuss any information they wish to cover."
The commission alleged that the companies engaged in cartel conduct between 1995 and 2009. Referring to Doyle’s statement, the commission said that the cement makers had secretly decided to share the market because they viewed the break-up of the cartel as a threat.
In terms of a 1995 agreement, AfriSam, Lafarge and PPC agreed to share the market, with AfriSam getting a share of between 35% and 36%. Lafarge’s share was between 22% and 23%, while PPC had between 42% and 43%.
Until 2002, the three companies were equal shareholders in NPC, with each owning one-third of the KwaZulu-Natal-based cement company.
The government gave the cement industry until September 1996 to terminate all cartel arrangements.
Gotz said NPC did not contest Doyle’s statement and admitted to it "in its totality".