How McKinsey Lost Its Way in South Africa
nytimes.com
nytimes.com
This is a bad meme.
First - don't trust McKinsey or any consultants to implement anything unless it's been done before and clear. They're smart people who make slides. Sometimes they have specific knowledge.
Second - it seems as though they were a little aggressive on pricing, who can blame them? It's not their fault - whoever was on the procurement and oversight side on the fence is definitely the guilty/stupid/corrupt party on that one. There doesn't seem to be any indication that McKinsey cheated on that, I mean, literally they are even admitting 'maybe we could have charged less' like a self-aware faux pas? Would we expect that of any business anywhere?
It seemed they knew there was some risk and tried to investigate it legitimately, and then backed away ultimately when things were known. So that's not so bad.
And yet - it looks like there were obvious corrupt actors in this - Gupta's - surprise (!) who where knowingly and specifically trying to screw over the system!
--> So why isn't this article about the Guptas?
Shouldn't the headline be: "Indian-South African Gupta family swindles South Africa yet again?"
The evidence in the article doesn't really indict McKinsey of anything other than 'knowing maybe they shouldn't have been getting into something risky'. Sure. But they're clearly not the bad guys, and not even 'knowing enablers'.
The problems in this area have little to do with McKinsey.
- Partnered with a local provider (Trillian) after minimal/token due diligence (despite ample reason to be extraordinarily suspicious, and in contravention of internal policy), to win an unprecedentedly lucrative contract;
- Even when the Gupta ownership connection to Trillian was revealed internally, refused to amend the terms of the engagement;
- Only dropped Trillian when forced by public scrutiny;
- And then tried to cover up the entire debacle, actively misleading investigators and journalists.
What part of this has "very little to do" with McKinsey, exactly? It's quite clear that ethical and/or legal scrutiny was lessened, no doubt given the size of the potential prize on the other side.
South Africa is different because their very liberal post-apartheid constitution gives journalists and whistleblowers a large amount of protection. They also have a good culture of investigative journalism, thanks to the anti-apartheid movement.
That's the long and short of it. I read that article twice now and all comes down to 'South African law forced them to get a local partner' - a partner which turned out to be not so great - and 'The contract which was in objective terms great for the client (you only pay if you get a benefit) didn't look great because people in SA didn't like that a foreign company got so much money' -- that's about 99% of what this is about: We do not like the outcome of what we brought upon ourselves, so lets blame someone else. And if that someone happens to be from the West - even better.
Yes, it is true that the South African law forced them to get a local partner. During the apartheid years black people were limited in where they were allowed to work, and this law is an attempt to rectify the past. Unfortunately this law is also abused by well connected politicians to enrich themselves and their cronies.
Where things went wrong for McKinsey here is that the local partner they chose, Trillian, had a shareholder that was a well known associate of the Gupta brothers, and the Gupta brothers had a relationship with the president, Zuma, and his son. It also later emerged that the CEO of Eskom and his CFO had a relationship with the Gupta brothers.
[1] https://www.dailymaverick.co.za/article/2017-09-14-scorpio-a...
On it's face, that's extremely rational and normal behaviour.
The less transparent a government is, the more this is a necessity. Basically outside the Western world, and many places within, it's a given.
Try getting a snow clearing contract from the Montreal City Hall ... and then find out 'who knows who' ...
Mckinsey was pivotal in enciting racial tensions, among many other things, to try to obfuscate what the president and Gupta's were responsible for in terms of corrupting the state, by blaming other parties namely "White captial".
They were part of a notably diverse group. Given South Africa’s historic battle against apartheid, it was a point of pride at McKinsey that more than 60 percent of the office’s 250 employees were black South Africans.
This doesn't seem like a bad thing? Should they not have hired so many non-whites? It seems unlikely that ANC would have needed to hire management consultants to identify racial inequality as a political issue.
But a great way to convince white people that it's an issue
What happened was that the Gupta brothers and the president received a lot of negative media attention for a series of very serious corruption allegations, so they hired UK-based PR firm Bell Pottinger.
Bell Pottinger spun a story that they were victims of rich white people who spread these stories because their wealth was being threatened. They also hired mobs for protests and ran twitter campaigns.
This did agitate some racial tensions, but fortunately they weren't successful thanks to the dedication of investigative journalists and some heroic whistle blowers.
Here are two relevant links: * https://www.dailymaverick.co.za/article/2017-06-06-scorpio-a... * https://www.dailymaverick.co.za/article/2017-07-10-analysis-...
I know some McKinsey types and they are the last people on earth to really grasp populism, field marketing, branding, perception etc..
You don't hire McKinsey to do 'online twitter / Instagram' campaigns.
I'm sorry I don't agree.
I don't see the evidence for this - marketing, PR, communications is not something McKinsey has any core competencies in - moreover, in the long run it works fundamentally agains their interests, after all they basically represent the interests of highly vested, oligarchic, Western interests.
"have been responsible for corruption of the previous president Zuma"
Fully disagree.
---> Zuma is responsible for Zuma's corruption
And Gupta is a party to that.
McKinsey is the most peripherial player, and it seems they got kind of duped and eventually bailed.
If S. Africa wasn't so corrupt, they simply would not have paid McKinsey.
This is is the story of a corrupt and dysfunctional region - not a story about McKinsey.
Any organization at any scale doing business in such a place will get caught in these tentacles.
This!
These 'management consultancy' firms are essentially programming libraries in real life: they recycle and reuse proven methods from other companies (that they worked for) and use it at yours so you don't have to reinvent the wheel.
Don't hire consultants for something your organisation can (and should!) do itself and don't ask them for advise on something that can't be realistically quantified in excel.
And watch out for managers using consultancy firms to outsource decision making.
Shouldn't the headline be: "Indian-South African Gupta family swindles South Africa yet again?""
1)A corrupt transaction requires the cooperation of at least two parties. If the Guptas could not find any co-conspirators, their ability to extract money from the South African government would have been reduced.
2)There are enough articles about the Guptas; there hasn't been enough coverage of the companies that enabled their corrupt transactions.
"But they're clearly not the bad guys, and not even 'knowing enablers'."
They aren't good guys, and they most certainly were enablers, the fact that they didn't do enough due diligence to 'know' is on them, and they will need to account for this and/or suffer the consequences.
The Gupta's are known crooks. That's where the ultimate blame lies. That doesn't stop this from being a great cautionary tale for consulting companies who work in countries where this type of thing is more likely.
>The #GuptaLeaks includes emails between Essa and Sagar dating back to August 2014 https://www.dailymaverick.co.za/article/2017-09-14-scorpio-a...
That was a couple of years before "McKinsey hired a private investigative firm to dig into Trillian’s background" and found to their shock Essa ran it.
Some more on Sagar https://www.biznews.com/sa-investing/2017/07/14/vikas-sagar-...
One finds this nugget more than halfway through longish TFA. This really buries the lede. Without a competitive bid process, a public organization is at the mercy of its stupidest and most corrupt officials. When a tiny town in the middle of nowhere wants an abandoned building torn down, they don't call the mayor's cousin. They open an RFP, and the only way the mayor's cousin gets the job is if her bid is the least expensive for the town. Perhaps developing nations can't be expected to have any officials who know how such things should work (!), but every McKinsey employee damn well ought to have known that a giant secret contract is necessarily corrupt.
In coding terms: if you can do it waterfall then you can probably tender it, otherwise I’m not so sure.
Of course for more involved requirements it may be good to break the process into more than one step. It's possible that no one knows what's wrong with the public power utility. If you have to hire McKinsey because corruption, negotiate a simple fee for them to run an actual RFP process for an actual management consulting engagement for you. One of the requirements for that RFP will be that theirs cannot be the only viable bid. If they can't get a bid from another firm that has consulted for publicly-owned utilities, they don't get their RFP fee either.
https://www.cnbc.com/id/41853809
Many McKinsey partners were consumed by greed and exposed during the 2008 banking meltdown and aftermath. This NYT piece is essentially a pr whitewash despite all the details and acceptance of failings. There are plenty of good people lower down at McKinsey but people like Rajat Gupta did a lot of damage to McKinsey's credibility worldwide imo.
This claim is correct, but I think we can reference better sources . The SEC complaint [1] "alleges that, among other things, Rajat K. Gupta tipped his business associate Raj Rajaratnam, Galleon Management’s founder and managing general partner, to confidential information Gupta learned in the course of his duties as a member of the Board of Directors of The Goldman Sachs Group, Inc. The complaint alleges that Gupta disclosed material nonpublic information concerning Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs in September 2008, and concerning Goldman Sachs’s financial results for both the second and the fourth quarter of 2008. Rajaratnam used the information he learned from Gupta to trade profitably in certain Galleon hedge funds" [2]. Somewhat pertinently, Gupta did not violate his responsibilities to Goldman Sachs as a McKinsey officer, but as a GS Board member.
[1] https://www.sec.gov/litigation/complaints/2011/comp22140.pdf
[2] https://www.sec.gov/litigation/litreleases/2012/lr22582.htm
It is not that McKinsey could be blamed for Eskom's general inefficiencies but rather that it shares responsibility in the lack of a managerial and efficiency turnaround at state companies like Eskom.
The general rhetoric is to blame the government (perhaps correctly), but the present article I think does not attempt to singly shoulder responsibility on McKinsey. It shows how government inefficiency may lead to a general free-for-all or at least a atmosphere of being exempt from justice in the private sector as well.
My summary on the matter would be that many South Africans have the desire to build towards a more economically competent country and that complications in bureaucracy and malevolent actors complicate this. This is a country where anyone rather easily can weaponise different kinds of racism or partiality that degenerates into a debate about whom we should blame. In preventing this particular counter productive and frequent exercise perhaps it is useful to remain as objective as one may be in identifying responsible parties, letting them be held accountable in the corresponding legal framework, and from there focusing on actual problems such as the state of disrepair of Eskom run power stations. It may well be that action by private companies would catalyse the process towards an efficient and economically sound South Africa. However, what this articles shows is how an internationally respected private firm fell into the same traps that local politicians do.
Fast forward 7 to 8 years and the US was hit with one of the biggest financial crises ever. Caused by what? Sub-prime debt. UBS had some of the biggest debt writeoffs - maybe 2nd to Citi.
Source: There is a post-mortem report that UBS released after the financial crises that explains how they got there.
Now ICE need the consultants for that! I wonder whether McKinsey had anything to do with that risk assessment software update discussed today?