The problem is much bigger: first, nobody believes McKinsey’s version that it was by misfortune, and through an administrative lapse, that it got itself involved in an irregular and unlawful arrangement with Eskom. Picture: REUTERS
The problem is much bigger: first, nobody believes McKinsey’s version that it was by misfortune, and through an administrative lapse, that it got itself involved in an irregular and unlawful arrangement with Eskom. Picture: REUTERS

McKinsey’s announcement on Tuesday that its most serious transgressions in the Eskom-Trillian episode amounted to a lapse in administrative processes and some errors of judgment has not gone down well with the South African public.

It found no one guilty of acting in bad faith, no one was fired, an undisclosed number of people left the firm, among whom the only one named was key figure Vikas Sagar, and an undisclosed, unnamed number were sanctioned.

McKinsey, it seems, intentionally ignored the public mood and did things "the McKinsey way". This included conducting its own investigation and providing only the barest glimpse of how and why it arrived at its findings. It was determined that in an environment where the public wants to see heads roll, it would not bow to the collective desire for retribution.

If this was the only problem with its response, though, then public anger would dissipate and its reputation would be easily recovered. But it wasn’t. The problem is much bigger: first, nobody believes McKinsey’s version that it was by misfortune, and through an administrative lapse, that it got itself involved in an irregular and unlawful arrangement with Eskom.

Second, no one believes that its mega consulting fee – which for the two companies amounted to R13m a day – can, in any world, be justified. If not corruption, this at the very least was greed and profiteering.

On the first matter, what we know is that McKinsey had a relationship with an earlier rendition of Trillian, called Regiments, brokered by Gupta lieutenant Salim Essa from around 2013. By the time McKinsey and Trillian began working together at Eskom, McKinsey already had a firm relationship with a Gupta-linked firm.

McKinsey then landed an enormous, performance-based contract for three years to turn the Eskom business around with a potential contract price of a gobsmacking R9.4bn. While it did not sign any agreement with Trillian, it was nonetheless completely clear that Trillian would be its "supplier development" or black economic empowerment partner to ensure compliance.

In its "eagerness" to help Eskom, McKinsey by its own admission started working alongside Trillian on the project before it had even signed a contract with the Gupta-linked firm. It was only after a routine meeting of the McKinsey global risk committee began to ask questions about three months later that the alarm was raised. By then McKinsey had already scored R900m and Trillian R500m in performance-related fees from Eskom. But all of this is described as nothing more problematic than administrative shortcomings, "eagerness" and lapses in judgment.

Second is the question of the fee. McKinsey is adamant that the work it did for Eskom delivered value and saved Eskom billions. But McKinsey began this project at a point in Eskom’s life where its financial performance could get no worse.

In fact, it was pretty much guaranteed that it would soon get much better.

While Eskom had neglected maintenance in the past, it had begun to intensify it from 2012. While intensive load shedding took place during 2014 and 2015, by August 2015 management under Brian Molefe had begun to improve. Load shedding stopped, the massive expenditure – about R6bn a year — on diesel ended, demand dropped and plant availability had begun to stabilise and turn around.

No doubt McKinsey did improve efficiency through its own interventions, but the bet that it would do so when performance was to be measured against the wild spending and chaotic load shedding of earlier times was a dead cert. There was no way McKinsey could lose; the prospect was that it would win big. It was an opportunity that it grabbed knowing full well that the fee it would earn would be way outside of the ballpark of what could be considered reasonable or fair.

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