![]() The extent of that global influence is difficult to evaluate because, as a matter of policy, the firm will not reveal clients or the advice it gives.Įven so, by examining government records, along with McKinsey publications and other company documents, The Times found that the firm shapes everything from education, transportation, energy and medical care to the restructuring of economies and the fighting of wars. But in recent years, it has created an increasingly powerful unseen presence as counselor to governments across the globe. McKinsey built its brand as the ubiquitous adviser to businesses great and small. More broadly, the scandal in South Africa - which has ensnared several other overseas companies - underscores the risks that arise as governments increasingly turn over responsibilities to consultants who operate mostly in secret, with little or no public accountability. Indeed, the harm to the McKinsey brand is more profound than the fallout from the epochal Galleon hedge fund case almost a decade ago, in which McKinsey’s former managing director and a senior partner were convicted on charges related to insider trading. Barton has made six trips there to assess the damage and make amends, and McKinsey has asked its 2,000 global partners to repay South Africa, where it is under investigation. Since the Eskom disclosures, much of McKinsey’s business in South Africa has evaporated. ![]() And having poorly vetted its subcontractor, McKinsey was less than forthcoming when asked to explain its role in the emerging scandal. Supervisors who might have vetoed or modified the contract were not South African and lacked the local knowledge to sense trouble ahead. The firm also missed warning signs about the possible involvement of the Guptas, and only belatedly realized the insufficiency of its risk management for state-owned companies. While the changes helped McKinsey nearly double in size over the last decade, they introduced more reputational risk. ![]() But an investigation by The New York Times, including interviews with 16 current and former partners, found that the roots of the problem go deeper - to a changing corporate culture that opened the way for an aggressive push into more government consulting, as well as new methods of compensation. Two senior partners, the firm says, bear most of the blame for what went wrong. McKinsey admits errors in judgment while denying any illegality. Yet despite extensive coverage of the scandal by the local news media, one question has remained largely unanswered: How did McKinsey, with its vast influence, impeccable research credentials and record of advising companies and governments on best practices, become entangled in such an untoward affair? Zuma’s ouster and a moment of reckoning for post-apartheid South Africa. International corruption watchdogs call it a case of “state capture.” Lawmakers here call it a silent coup. The Eskom affair is now part of an expansive investigation by South African authorities into how the Guptas used their friendships with Jacob Zuma, then the country’s president, and his son to manipulate and control state-owned enterprises for personal gain. 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.Īnd a bitter irony: While McKinsey’s pay was supposed to be based entirely on its results, it is far from clear that the flailing power company is much better off than it was before. Then there was the lavish size of that payout. The contract turned out to be illegal, a violation of South African contracting law, with some of the payments channeled to an associate of an Indian-born family, the Guptas, at the center of a swirling corruption scandal. It was also the biggest mistake in McKinsey’s nine-decade history. In late 2015, over objections from at least three influential McKinsey partners, the firm decided the risk was worth taking and signed on to what would become its biggest contract ever in Africa, with a potential value of $700 million. Could McKinsey fix the problems? Would it get paid? Would it be tainted by South Africa’s rampant political corruption? McKinsey & Company, the godfather of management consulting, thought it could help, but was not sure that it should, according to people involved in the debate. And a major boiler exploded, threatening the national grid. The state-owned power company, Eskom, was on the verge of insolvency. ![]() ![]() JOHANNESBURG - The blackouts kept coming. ![]()
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