TRACEY DAVIES: Has South Africa learnt its lesson about consultants?

Consulting firm McKinsey & Co has agreed to pay a criminal penalty of about R2bn to settle a New York felony bribery investigation into the company’s work for Eskom and Transnet during the state capture era.

A statement from the US attorney for the southern district of New York has confirmed that “McKinsey Africa participated in a years-long scheme to bribe government officials in South Africa and unlawfully obtained a series of highly lucrative consulting engagements that netted McKinsey Africa and its parent entity McKinsey & Co approximately $85m in profits”.

This is by no means the first time that the firm has been embroiled in allegations of unlawful and unethical conduct — books have been written on the subject.

In the US, McKinsey’s work to “turbocharge” sales of the opioid painkiller OxyContin for the drug’s manufacturer, Purdue Pharma, is the subject of an ongoing federal criminal investigation. The firm has already agreed to pay about $1bn to settle claims relating to its consulting work for opioid manufacturers.

Blatant conflicts of interest also appear to be a regular feature of McKinsey’s modus operandi: this is particularly problematic when the firm advises both government bodies and the private sector actors that they regulate. For example, from 2008 to 2019 it gave consulting advice to both Purdue Pharma and the US Food & Drug Administration (tasked with regulating opioid sales), with many consultants working for both clients.

But here in South Africa, we are wise to all these tricks. We’ve suffered through the debacle of KPMG’s “rogue spy unit” report and Bain & Co’s destructive “advice” to the South African Revenue Service, and we are still confronted daily with the state capture-wrought carnage at Eskom and Transnet. We will never again hand over our future on a silver platter to any consulting firm. We’ve learnt our lesson.

Or have we?

Business for South Africa (B4SA) is an alliance of South African business leaders who have pledged to work with the government “to grow the economy and restore investor confidence”. The initiative is underpinned by the “CEO Pledge”, in which “over 140 of South Africa’s leading CEOs” assert that they are “resolutely committed to being a force for good”.

As I have written here several times before, the B4SA initiative gives business unprecedented, undemocratic access to the highest levels of government. However good their intentions, these CEOs have not been elected to run the country. Everything about this “partnership” should be (but is not) subject to comprehensive public scrutiny to avoid the inevitable creep of vested interests.

Eskom and Transnet are central to B4SA’s energy and transport focus areas. Which is why I was stunned to be told that the project management office for B4SA — in other words, the interface and driver of all its business-government interactions — is being run by McKinsey (see the first paragraph of this column). The information is not in the public domain (it should be) but has been confirmed by several sources who have interacted with McKinsey in this role.

In addition, the Energy Council of South Africa, which has been mandated by B4SA to lead the energy component of the partnership (the National Energy Crisis Committee, or Necom) has appointed Bain to run its project management office — on a pro bono basis.

Bain has been banned from any contracts with the South African government until 2032 because of its involvement in state capture. The Necom work is not a state contract. But it does give Bain priceless, ongoing opportunities to make contacts and gain inside knowledge of the energy sector via access to senior government officials and policy processes. This privileged access will undoubtedly give Bain an enormous competitive edge in securing other clients in the private sector.

How is it possible that none of the eminent business leaders associated with the B4SA initiative appears to have had any qualms about this appointment?

Surely if these CEOs are so committed to the best interests of South Africa they would immediately see the problem in bestowing some of the most powerful roles in this partnership on the same companies that enabled the demolition of institutions during state capture?

McKinsey should be subject to a similar ban on state contracts as has been imposed on Bain. And as the business community seems incapable of grasping the ethical risks of letting these firms run their government interactions, the presidency should impose a blanket ban preventing all the consulting firms that were involved in state capture from any involvement in business-government interactions.

* Davies is director of Just Share