Case_Study_-_McKinsey_and_Co-Facilitating_bribery_in_south_Africa_fGDuJlzfKJ

W20689
MCKINSEY & COMPANY: FACILITATING BRIBERY IN SOUTH

AFRICA1
Morris Mthombeni, Albert Wöcke, and Alvaro Cuervo-Cazurra wrote this case solely to provide material for class discussion. The
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Copyright © 2020, Ivey Business School Foundation Version: 2020-08-25
“The behaviours of some individuals fell short of our standards . . . we are embarrassed by our failings.”
– Tom Barkin, chief risk officer, McKinsey & Company2
On July 1, 2018, Kevin Sneader succeeded Dominic Barton as the global managing partner of the United
States (US)-based global consulting firm McKinsey & Company (McKinsey). As the 12th global managing
partner, Sneader inherited an organization that had doubled its revenues to more than $10 billion3 during
Barton’s nine-year tenure. However, Sneader also received an organization that was grappling with
reputational challenges stemming from a corruption scandal in South Africa that had made international
news headlines.4
Sneader’s first order of business on July 9, 2018, was to address the business community in Johannesburg,
the commercial capital of South Africa, in an effort to confront the scandal head-on. His predecessor,
Barton, had visited South Africa six times to address the crisis.5 Standing in front of a crowd of South
African businesspeople, civil society activists, academics, as well as local and international journalists,
Sneader began his address, “Let me begin with one word: Sorry. It is the theme of this speech. It is the
message I hope you take away. I am very sorry personally and on behalf of McKinsey & Company for the
fact that we have had anything to do with issues surrounding state capture.”6
Was Sneader’s apology enough to enable McKinsey to quell the attack on its reputation? Should McKinsey
do more to enhance its standing within the South African business community, or should it accept that its
reputation had suffered irreparable harm?
MCKINSEY
McKinsey was founded in 1926 as an engineering and accounting consultancy by James McKinsey, then
president of the American Accounting Association and a professor at the University of Chicago.7 During
the 1930s, Harvard graduate Marvin Bower was credited with shaping McKinsey into the formidable
This document is authorized for use only in Prof. Anurag Garg's Ethical Issues in Management at Narsee Monjee Institute of Management Studies (NMIMS) from Jun 2023 to Dec 2023.
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professional management consulting company it had become by 2018.8 Bower emphasized integrity, which
he considered to be underpinned by three values: putting client interests ahead of those of McKinsey,
providing superior service, and maintaining the highest ethical standards, even when at McKinsey’s
expense.9 By 2017, McKinsey had 2,000 partners—of whom 560 were senior partners—as well as
operations in more than 127 cities in 65 countries worldwide. Due to the values-based foundations laid by
Bower, McKinsey’s peers ranked the company higher than its main US rivals, such as the Boston
Consulting Group, Bain & Company, and A.T. Kearney.10 McKinsey claimed that it differentiated itself
from its competitors through its people and its understanding of its clients’ institutional contexts. This was
important in terms of proving the right set of skills in an appropriate team to clients anywhere in the world.11
McKinsey was designed to operate as a single global partnership united by a set of values and a deep
commitment to diversity. McKinsey felt that it was able to achieve this due to its consistent approach to
recruitment and skills development, which was supported by extensive research and capability
development. In 2018, McKinsey claimed to have spent more than $600 million on knowledge
development, learning, and capability building.12 In this way, the company had managed to build a
reputation as a trusted advisor to its many clients.
The 2018 scandal in South Africa was not the first controversy that McKinsey had faced. In 2009, Anil
Kumar, then a senior McKinsey partner and director, and Rajat Gupta, the company’s 10th global managing
partner, were accused and later convicted of insider trading involving a McKinsey client. Their arrests and
subsequent convictions had greatly and negatively affected McKinsey’s staff, partners, alumni, and
clients.13 In response to the scandal, McKinsey took steps to overhaul its risk management practices and
corporate culture, and it implemented measures to prevent the recurrence of such an incident. These steps
included establishing an eight-member crisis management team lead by Barton. The crisis management
team had to address the public relations (PR) problem that resulted from the breach of client trust. The team
also had to address internal operational issues, with the company’s culture, policies, and practices being at
the core of its review. Ultimately, the crisis management team had to take steps to protect and restore
McKinsey’s reputation.14 While the actions of the crisis management team did achieve their immediate
objectives, they did not prevent McKinsey from becoming embroiled in other scandals, such as the 2018
South African state capture scandal.
State Capture in South Africa
As of 2017, South Africa had 55 million inhabitants (the 5th largest population in Africa), a gross domestic
product (GDP) in purchasing power parity of $757 billion (the 3rd largest in Africa), and a GDP per capita
in purchasing power parity of $13,400 (ranked 7th in Africa).15 South Africa was considered to be a middle-
income country with a vibrant parliamentary democracy, well-developed financial and legal systems, and
good transportation, energy, and communication infrastructures. Johannesburg was home to the African
headquarters of many multinational companies, while the Johannesburg Stock Exchange was among the
top 20 stock exchanges in the world, in addition to being the largest in Africa.16
However, South Africa was a deeply divided society that was still struggling with its history of
institutionalized race-based policies that had their roots in the country’s colonial past. The race-based
policies culminated in apartheid, which lasted from 1948 until 1994, when South Africa held its first
democratic elections.17 Since 1994, South Africa had been governed by the African National Congress
(ANC), the former liberation movement turned political party. In 1994, Nelson Mandela’s ANC
government had won the elections with a resounding majority. Jacob Zuma had been elected as the ANC’s
leader in 2007 despite being accused of corruption and facing charges related to his role in an arms
acquisition contract in 1999.18 Zuma became the president of South Africa in 2009 after the ANC won a
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resounding victory in the national elections, receiving 65.9 per cent of the vote.19 In 2018, the ANC was
still the ruling party, although Cyril Ramaphosa had replaced Zuma as its president and, therefore, as the
president of South Africa.20
Corruption had been an issue in South Africa for years, but it reached new heights under President Zuma.
In 2009, soon after Zuma became South Africa’s president, the media reported on a state-funded project to
upgrade the security at his private residence that was initially budgeted to cost $3 million but that escalated
to a cost of more than $20 million.21 The home improvements became a source of anger both in parliament
and within the ANC when it was revealed that the security upgrades included a swimming pool, cattle
enclosure, and amphitheater for Zuma’s personal use. In 2014, the South African Public Protector (an
ombudsman) released a report stating that Zuma had engaged in corrupt activities within months of
commencing his presidency.22 However, the most damning allegations were revealed in a second report
released by the Public Protector in October 2016, in which she exposed the close relationship between
President Zuma and the Gupta family, which was referred to as an example of state capture.23
The Gupta Family and Zuma
The Guptas were an Indian family who had settled in South Africa in 1993, the year before the end of
apartheid. One brother, Atul, had arrived in 1993 and begun a business selling shoes from the back of a car
in Johannesburg. His brother Rajesh, known as Tony, joined him in 1997. By 1998, the Gupta brothers had
successfully established a business known as Sahara Computers (PTY) Ltd. (Sahara), named after the
Gupta’s hometown in India, which assembled and distributed computers to local businesses, government
departments, and state-owned entities. Sahara was also an authorized distributor of Genius, the Hewlett-
Packard Company (HP), Lexmark International, Inc., LG Electronics, Inc., the Sony Corporation, and the
Toshiba Corporation. The business grew from a turnover of approximately $100,000 in 1994 to a turnover
of more than $1 million in 1999.24 Ajay, the eldest of the Gupta brothers, arrived in South Africa in 2003.25
Through various business dealings, the Gupta family gained access and became trusted advisers to top
political figures, including President Zuma.26 The Guptas first met Zuma when he was a guest at one of
Sahara’s annual functions in 2002.27 At the time, Zuma was the deputy president of the ANC as well as of
South Africa. Soon after Zuma’s succession to the presidency of the ANC in December 2007, his 26-year
old son, Duduzane Zuma, was employed by the Guptas as an intern, although he was quickly promoted to
director of several Gupta-related companies.28 Duduzane registered an investment company, Mabengela
Investments (PTY) Ltd., of which he was a co-director with Tony Gupta, and he became a member of the
board of directors of 11 more Gupta companies over the subsequent two years.29 Additionally, within six
months of Jacob Zuma’s election as president of the ANC, Duduzane’s twin sister, Duduzile, was asked to
join the board of Sahara. However, she resigned in 2010 when the media wrote about her appointment.30
By 2017, the Guptas and Zuma had been embroiled in a series of corruption scandals that were dividing the
ANC and uniting the opposition in parliament (see Exhibit 1).31
The relationship between Zuma and the Guptas was central to the growth of the Gupta business empire. It
enabled the Guptas to influence senior ANC politicians in order to access government contracts, while it
also allowed them to influence cabinet members to favour their business or to suppress investigations into
Zuma.32 The Guptas expanded their business interests to mining, media, leisure, real estate, and arms
manufacturing. Many of these businesses were subsidiaries of Oakbay Investments (PTY) Ltd.33 A number
of South Africans, including the country’s president, several members of his cabinet, and other prominent
members of the ruling party, had close links with the Guptas and their business partner, Salim Essa. Essa
was the public face of many of the Guptas’ activities and ventures, and he had become extremely wealthy
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through his association with the family. He was often referred to as “the fourth Gupta brother.” Essa had
got to know the Gupta brothers in 2000, and by 2012, he was deeply involved in their business empire,
having cross-shareholdings and regularly acting on behalf of the Guptas.34
MCKINSEY’S SCANDAL IN SOUTH AFRICA
McKinsey had made the principled decision to not do business in South Africa prior to 1994, as during the
apartheid era the race-based segregation system had benefited the White minority at the expense of Black,
Asian, and mixed-race South Africans.35 In 1995, as apartheid ended and Mandela became president of a
fully democratic country, McKinsey opened its South African offices with five consultants.36 McKinsey
South Africa went on to become the leading management consultancy in the country, with more than 250
consultants, more than 60 per cent of whom were Black.37 McKinsey attracted prestigious clients from the
private and public sectors and, according to Sneader, McKinsey’s global head, delivered on more than 1,000
projects in South Africa.38 Ghanaian-born US citizen Saf Yeboah-Amankwah was the managing partner
responsible for the South African operation, while Georges Desvaux, who had extensive experience in Asia,
was McKinsey’s managing partner for Africa, being responsible for operations in the region.39 While
Desvaux and Yeboah-Amankwah had lots of experience within McKinsey, neither was a native South
African. Despite this, McKinsey had secured lucrative contracts with the two biggest South African state-
owned enterprises (SOEs), namely Eskom, the state-owned electricity provider, and Transnet SOC Ltd.
(Transnet), the state-owned rail and ports company. However, these contracts led to partnerships with firms
implicated in corrupt activities, Regiments Capital (PTY) Ltd. (Regiments) and Trillian Capital Partners
(PTY) Ltd. (Trillian). These partnerships would prove controversial and drag McKinsey directly into
corruption scandals surrounding the Gupta brothers and the issue of state capture.40
MCKINSEY AND REGIMENTS’ WORK AT TRANSNET
The relationship between McKinsey and Regiments began in 2012 through Transnet, South Africa’s state-
owned rail and ports company as well as its second-largest state-owned firm.41 Beginning in 2005,
McKinsey had been appointed to assist Transnet with a turnaround strategy by its then chief executive
officer (CEO) Maria Ramos.42 The initial assignment spanned four years and involved almost 200
McKinsey consultants, 94 of whom were based internationally. The appointment generated significant
operational and financial benefits for Transnet, in addition to handsome consulting fees for McKinsey.43
To help meet its Black economic empowerment obligations, which required companies to address the
historical injustice of the apartheid regime by supporting and promoting Black-owned companies,
McKinsey instituted a supplier development program through which it appointed and developed Black-
owned companies to provide consulting services.44 By law, McKinsey was required to partner with a local
Black-owned company as a condition of any contract with a South African SOE.45 Initially, McKinsey
selected Letsema as its local Black-owned partner firm. McKinsey would do the bulk of the work, while
Letsema would participate in the contract and be paid for the work it did. In practice, McKinsey, as the
main contracting partner, billed Transnet for all the work it did as well as for the work performed by
Letsema, its junior partner. McKinsey would then pay Letsema its share of the fees after Transnet had paid
McKinsey. The partnership with Letsema was highly successful and, over time, Letsema evolved into a
full-fledged Black-owned consulting firm capable of competing with McKinsey for contracts. McKinsey
thus had to find another Black-owned consulting firm with which to partner in order to continue providing
services to Transnet.46
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In 2012, Transnet appointed a new CEO, Brian Molefe, who had previously run South Africa’s largest
public pension fund investment firm. Molefe engaged McKinsey again, this time to modernize the firm and
advise on the proposed purchase of 1,064 new locomotives, which was to be the largest government
purchase in the history of South Africa.47 Transnet’s chief financial officer (CFO), Anoj Singh, suggested
that McKinsey partner with Regiments, a Black-owned consulting firm owned by Eric Wood, Litha
Nyhonyha, and Niven Pillay.48 The founders of Regiments were closely connected to the ruling ANC and
had engaged in fundraising activities for the party for many years. In addition, the Guptas had a minor
interest in Regiments through their close associate, Essa.49
When McKinsey met with Regiments in 2012, Regiments had already been involved in providing limited
consulting services to other commercial state-owned entities. McKinsey would later state that it had
performed a basic due-diligence check on Regiments prior to partnering with the firm, although McKinsey
did not explain how that check was conducted.50 However, a partner at the South African office of
McKinsey, Vikas Sagar, had a history of attempting to partner with Essa in order to gain work for McKinsey
prior to the Transnet contract.51 The agreement between Regiments, McKinsey’s new junior consulting
partner, and Transnet provided for substantial commission to be paid to Regiments, despite Regiment’s
apparent lack of prior involvement in the delivery such services. It would prove to be a very lucrative
arrangement for Regiments, which saw its share of the Transnet contract with McKinsey grow from $1.16
million in 2012 to $50.4 million in 2015 as a result of additional consulting work awarded to the
McKinsey/Regiments consortium.52
A forensic audit commissioned by the South African Treasury Department would later show that McKinsey
had commenced work and received payments prior to the required procurement processes for the consulting
work having been completed. The same forensic report found that Regiments was not only appointed
irregularly but also, with the help of Transnet’s CFO, was allowed to bill Transnet directly and
independently of McKinsey,53 sometimes for work that was either not done or not worth the amount billed.
This was unusual, as it would be expected for McKinsey to bill Transnet on behalf of its junior partner,
Regiments. The forensic report also found that the Transnet locomotive tender was revised to inflate the
costs by more than 21 per cent, and further, that most of this additional cost was siphoned off to unrelated
companies.54 McKinsey, however, withdrew from the Transnet contract before the locomotives were
procured.55
Regiments’ relationship with McKinsey with regard to Transnet began to dominate Regiments’ income and
to cause divisions amongst the three partners. In mid-2015, the Guptas made a formal offer to acquire 50
per cent of Regiments for $14 million, with the promise that Regiments’ shareholders would make massive
profits due to the Guptas’ involvement. Nyhonyha and Pillay refused to sell their shares, although this
refusal did not matter because their partner, Wood, had been in discussions with Gupta associate Essa to
form a new company to replace Regiments.56
The new company was Trillian, which had Essa as the majority shareholder with 60 per cent of shares and
Wood as a minority shareholder with 32 per cent. The original Regiments, which was now under Nyonya’s
leadership, retained the corporate advisory operations, while Trillian acquired the management consulting
operations and ensured that it continued to qualify as a Black-owned company under South African law, a
necessary condition for doing business with state-owned entities.57 The restructuring was welcomed by both
McKinsey and Transnet.58
Investigations would later show that many payments made by Transnet to Trillion, as opposed to
Regiments, were diverted to various accounts controlled by Essa and the Guptas. Much of this money was
then diverted to offshore accounts.59
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MCKINSEY AND TRILLIAN AT ESKOM
Eskom was the state-owned electricity provider that held a monopoly on electricity generation in South
Africa. In 2015, McKinsey was engaged on behalf of Eskom by Molefe, who had left Transnet to become
CEO at Eskom. Molefe was joined by his former CFO at Transnet, Singh.60 Molefe first recruited McKinsey
to assist in developing a corporate plan and later to help in developing and implementing a turnaround
strategy.61 McKinsey proposed that it should be an “at-risk” contract. While an at-risk fee contract
represented a deviation from its standard fee arrangement, it was not unusual. McKinsey had previously
used equity-based payments in other industries, such as the information technology (IT) industry during the
1990s. The contract with Eskom was attractive to McKinsey because it was in a position to generate fees
of up to $700 million, which would be its largest contract in Africa, if it demonstrated value added through
the turnaround strategy.62
The at-risk contract initiated by McKinsey had not been subject to a competitive bid. This was unusual, as
large contracts with state-owned organizations were required by law to be sent out for competitive bids.
Moreover, this particular contract was also illegal because Eskom did not obtain a government waiver
permitting deviation from the usual fee-for-service contracts.63 It appeared that the contract would be 100
per cent at-risk for McKinsey, with no downside for Eskom, and that McKinsey would receive just over 10
per cent of any savings made by Eskom. From Eskom’s perspective, if no benefits were derived from the
contract, McKinsey would not be paid. However, a forensic investigation revealed that as a way to mitigate
this downside risk for McKinsey, Eskom’s board had already agreed in October 2015 that McKinsey would
be paid an initial payment of $34 million within the first six months of the contract, that is, before the
sustainability of any savings could be established.64 This payment would later be declared invalid by the
High Court of South Africa.65
The same law relevant to Transnet, which required McKinsey to work with a local Black-owned partner,
also applied to Eskom. As a condition of securing the lucrative turnaround engagement, Eskom executives
instructed McKinsey to enter into a supplier development agreement with Trillian, the new junior consulting
partner that had spun off from Regiments. McKinsey and Trillian agreed that Trillian would receive 30 per
cent of the contract for its share of the consulting services. On January 29, 2016, in a letter to Singh,
Eskom’s CFO, Trillian announced that it was McKinsey’s preferred supplier development partner. Based
on this, Trillian was able to secure an initial payment of $2.4 million from Eskom (see Exhibit 2). This
payment was unusual because it represented a prepayment for what was supposed to be an at-risk contract.
The partnership was also unusual because Trillian was a three-person operation. Aside from Bianca
Goodson, who served as the CEO, there were only two other employees. Goodson, who was concerned that
she and her team were being used to deceive Eskom into believing they were receiving substantial
consulting services from Trillian, met with McKinsey in January 2016 to seek clarification regarding the
scope of the work her firm should have been providing to Eskom in support of McKinsey, only to be
rebuffed by the partners on the ground.66
McKinsey claimed it was not aware of the January 29, 2016, letter because it was still undertaking due-
diligence checks on Trillian at the time the letter was sent. It also claimed to be unaware of Trillian’s links
to the controversial Gupta family. McKinsey argued that it only became aware of those links in February
2016, following a report by the London-based publication Africa Confidential that exposed the corrupt
relationship. Despite claiming to not have a supplier development agreement with Trillian (see Exhibit 3,
which lists the questions and answers between McKinsey and investigators for the Budlender report, as
discussed below), McKinsey’s Sagar sent a conditional letter to Eskom on February 9, 2016, authorizing
Eskom to pay Trillian 30 per cent of the fees for work completed by McKinsey as part of the turnaround
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engagement (see Exhibit 4). This authorization letter was sent despite the fact that no actual consulting had
been undertaken by Trillian.
On March 30, 2016, following a review of Trillian by McKinsey’s international risk officers, which
revealed its links to the Gupta and Essa businesses (see Exhibit 5), McKinsey South Africa sent a letter to
Trillian terminating their relationship. As the media continued to reveal links to the Guptas, Eskom
terminated its contract with McKinsey, while Molefe resigned in November 2016. The eight months of
work had cost Eskom $100 million, with Trillian receiving almost 30 per cent and the rest being paid to
McKinsey.67 At Eskom, McKinsey deployed about 108 consultants to render services—16 of whom were
specialists and 13 of whom were senior partners, including London-based David Fine, Berlin-based
Alexander Weiss, and South Africa-based Sagar.68
State Capture Becomes Public
The release of the State of Capture report in October 2016 by Thuli Madonsela, the Public Protector of
South Africa, shone a light on the corrupt relationship between the Gupta family, the president of South
Africa, as well as ministers and civil servants loyal to President Zuma.69 The revelations contained within
the report outraged ordinary South Africans and organizations such as the South African Council of
Churches, the State Capacity Research Project, the Organisation Undoing Tax Abuse, and Corruption
Watch, which were all vocal in their condemnation.70 The Gupta family had been in the headlines since
2010 over alleged corrupt activities involving President Zuma and his family, and the report confirmed such
headlines and also revealed the extent of the corrupt relationship.71 The report showed how the Gupta family
had used their influence with President Zuma and his family as well as with high-ranking members of the
ANC to divert funds to themselves and their associates. Their activities even included undermining law-
and-order institutions in order to protect themselves and Zuma from prosecution, while they had hired
international PR firm Bell Pottinger Private (Bell Pottinger) to conduct a race-focused campaign to deflect
attention away from their activities. The final straw for most South Africans came when the Guptas landed
a commercial airplane full of wedding guests from India at a South African Air Force airbase and were
given an official escort to the wedding venue, which was located about an hour away.72
On June 29, 2017, a report by the respected human rights lawyer Geoff Budlender revealed McKinsey’s
involvement in enabling corruption at Eskom.73 Budlender had been appointed by the newly elected non-
executive independent chairperson of Trillian to investigate press reports concerning whistleblower Goodson,
CEO of Trillian’s consulting arm, who was making allegations of corruption between Eskom and Trillian.
Goodson alleged that Trillian had been paid by Eskom despite providing no services. She further alleged that
McKinsey had facilitated the payments by partnering with Trillian so that Trillian could bill Eskom.
Budlender’s report accused McKinsey of having ignored obvious evidence of corrupt relationships within
state organizations and claimed that McKinsey was implicated in a scheme to launder money obtained from
the state for the benefit of the Gupta family, Zuma, and their associates.74 The Budlender report further alleged
that McKinsey partners Weiss and Sagar shared sensitive information with Trillian regarding another 11
potential Eskom projects, which were valued to be worth more than $700 million in consulting fees.75 Such
information would have impacted the integrity of the competitive bidding processes for the projects.
During his investigation, Budlender offered McKinsey the opportunity to respond to the allegations that it
had facilitated the payment of fees to Trillian from Eskom.76 McKinsey first denied that it had had any
dealings with Trillian, although when presented with the letter from its South African director, Sagar
(Exhibit 4), McKinsey refused to cooperate with Budlender and avoided making any further comment on
the matter.77 It later emerged that McKinsey’s South African office had prepared a draft contract with
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Trillian that had been amended during discussions between the firms. However, the contract was never
signed.78 This was followed by the resignation of Sagar, who was the McKinsey partner in charge of its
relationship with Eskom.79
McKinsey denied all the allegations, presenting itself as a responsible corporate citizen that had fallen
victim to unscrupulous business partners. To help bolster this image, McKinsey sought to highlight its
corporate citizenship activities. As senior partner Fine explained:
In 2012, we established the Social Advancement Foundation (SAF), a non-profit organization that
supports disadvantaged communities by providing consulting services and financial donations in
healthcare, education, and welfare. McKinsey’s Johannesburg office contributes 26 per cent of its
annual profits to the SAF.”80
This attempt to deflect attention away from its association with the Guptas did not restore McKinsey’s
image, as the public became more aware of the extent of the corruption within state-owned entities at the
time.
CONSEQUENCES OF FACILITATING STATE CAPTURE
The corruption scandal involving the Guptas and South African SOEs implicated several foreign
multinationals. It led to the demise of the then leading United Kingdom (UK)-based PR company Bell
Pottinger.81 It caused reputational damage to both Deloitte Touche Tohmatsu Limited and KPMG
International Cooperative (KMPG), two of the “Big Four” global auditors.82 Moreover, it prompted the
German software giant SAP SE (SAP) to accept responsibility and apologize.83
The fallout for McKinsey was profound. Among McKinsey’s longest standing, largest, and most lucrative
management consulting clients were Barclays Africa Group Limited, which had a presence in 12 African
countries; Nedbank Group (Nedbank), which had operations in more than 30 African countries; and
Standard Bank of South Africa Limited, which was the largest bank in Africa, with businesses in more than
20 countries. Following the scandal, several banks announced the termination of their relationships with
McKinsey.84 Sasol Limited, Africa’s largest chemical company, which had operations in 33 countries,
informed McKinsey that it would not award it any new contracts. Coca-Cola Beverages Africa, which
marketed Coca-Cola Company products in 11 African countries, indicated that it would not contract with
McKinsey for the foreseeable future.85
Corruption Watch, a South Africa-based anti-corruption organization, threatened to lay criminal charges
against McKinsey in the US under the Foreign Corrupt Practices Act (FCPA). The FCPA allowed US-
based organizations engaged in corruption abroad to be prosecuted for such activities in the US. The US
Federal Bureau of Investigation began investigating various Gupta-linked entities, including McKinsey.86
Corruption Watch alleged that McKinsey’s relationship with Eskom and Trillian appeared to represent
criminal malfeasance due to the manner in which McKinsey secured the contract with Eskom as well as the
role that politically connected Trillian played in awarding the contract.87 Corruption Watch described the
relationship between McKinsey, Trillian, and Eskom as a sham.88 Trillian had been put forward as a supplier
development partner in order to comply with South African tender regulations, although the Budlender
report had shown that McKinsey did not expect Trillian to undertake any work, despite it being paid large
fees.89 Corruption Watch also noted that no McKinsey employees had been penalized for their role in the
scandal, while Sagar, the senior partner involved, had left the firm with full benefits.90
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In October 2017, under the direction of a new board and with a replacement CEO and CFO in place, Eskom
stated that it had conducted an internal inquiry into the McKinsey contract, concluded that McKinsey and
Trillian had been paid unlawfully, and asked McKinsey to repay $73 million in fees. This report followed
a statement by a former Trillian employee in relation to a legal matter that Trillian had used its political
influence to secure contracts with SOEs and, once the contracts were secured, handed over the work to
“internationally recognized companies” by splitting the revenues as a partner.91
On January 17, 2018, the South African National Prosecuting Authority advised McKinsey that it had
obtained a court order against McKinsey and Trillian for $130 million in order to preserve sums they
believed to be the proceeds of a criminal act. On the same date, McKinsey, together with KPMG and SAP,
were accused of criminally breaching the South African Companies Act.92
MCKINSEY’S RESPONSE
McKinsey failed to respond to the findings of the Budlender investigation until October 17, 2017, despite the
report being in the public domain since July 2017.93 McKinsey announced that it would suspend all its contracts
with state-owned entities and also offered to pay back all the fees it had earned during the nine-month period in
which it had provided services to Eskom. It admitted that it was “not careful enough about who [it] associated
with. . . . We are embarrassed by these failings, and we apologize to the people of South Africa, our clients, our
colleagues, and our alumni, who rightly expect more of our firm.”94 However, McKinsey stopped short of
admitting criminality, while Barton indicated that “There was real work being done.”95
The South African corruption scandal compelled McKinsey to reconsider whether the changes it had made
following the Kumar and Gupta insider trading scandal of 2009 had been appropriately implemented. In
response to the South African scandal, McKinsey strengthened its risk management processes by
setting up a local risk committee so that assessments are made by partners who understand the local
context. . . . Globally, we [McKinsey] have undertaken a firm-wide policy review, to identify and
close process gaps where we serve public sector and state-owned clients and where we work with
external clients.96
(McKinsey’s new guidelines for working with state-owned firms are presented in Exhibit 6.)
By the end of 2018, McKinsey’s reputation in South Africa was in tatters, and the company had to try to
rebuild its reputation as a trusted advisor to governments and private companies alike. McKinsey had lost
many important private clients, such as Coca-Cola Beverages Africa and Nedbank. Many of these clients
had a large presence in Africa and so were key to McKinsey’s growth on the continent.97 What could
McKinsey have done to avoid the scandal? Had McKinsey done enough to protect its reputation?
Page 10 9B20M145
EXHIBIT 1: GUPTA SCANDALS 2010–2016, AS REPORTED BY THE MEDIA IN SOUTH AFRICA
The New Age and African News Network 7 (ANN7). In June 2010, the Guptas launched TNA Media
(PTY) Ltd., which was intended to house a newspaper, The New Age, and a television news channel,
ANN7. The New Age was positioned as providing positive coverage of South Africa, and it was to be
supportive of the ruling African National Congress (ANC) as well as of President Jacob Zuma and his
government. Questions were raised regarding circulation figures when it emerged that South African
Airways, the state-owned airline, had been convinced to buy about 63,000 copies of the newspaper a month
in 2012.a Other state-owned enterprises were also persuaded to support The New Age and ANN7. The
New Age and ANN7 hosted breakfast briefing sessions that sold seats at tables to hear government
ministers and Zuma speak. These sessions were televised by the state broadcaster, the South African
Broadcasting Corporation (SABC), free of charge.b Eskom, the state electricity generator and distributor,
paid US$1.7 million to sponsor 10 breakfast business briefings in 2011 and 2012. The contract was
increased to US$6 million to sponsor one breakfast briefing per month for three years.c Similarly, Transnet
SOC Ltd. (Transnet), the state-owned railway company, paid US$2.5 million for 18 breakfast sessions
between 2011 and 2012.d
Guptagate and the Waterkloof Landing. The Gupta family’s activities remained relatively unknown to the
broader public until April 2013, when the Guptas arranged with government departments to land a chartered
Airbus A330 airliner carrying 217 wedding guests from India at a South African Air Force military base. The
wedding guests were then escorted to the wedding venue by an official police cavalcade, which is usually
reserved for government dignitaries and visiting heads of state. The venue for the wedding was the Sun
City resort, which was booked out entirely for the Guptas and their more than 200 guests, primarily
government officials, ANC politicians, and businesspeople.e
Vrede Dairy Farm Project. In June 2013, investigative journalists from amaBhungane broke the news of
another scandal involving the Gupta family.f The Free State (one of South Africa’s nine provinces)
government had launched a community-based project that would empower 80 impoverished local
community members to become partners in a commercial dairy farm. This project was to be a joint venture
between the Free State provincial government and Estina Ltd. (Estina), a Gupta-controlled private
company. Estina was awarded a free 99-year lease on a dairy farm purchased by the Free State
government and promised US$10 million a year for three years. Estina’s sole director was an information
technology salesman with no prior farming experience.g It later transpired that the Guptas had transferred
around US$3.1 million from the Free State provincial government grant to an account in Dubai, which had
then been used to pay for the wedding expenses at Sun City. h
Transnet Locomotive Deal. In 2012, Transnet issued a request for tenders for 1,064 new locomotives
intended to modernize the state railway company’s fleet. Four companies were awarded contracts to build
and deliver the locomotives. The largest contract went to China South Locomotive & Rolling Stock Corp.,
Ltd., which was later revealed to have signed a contract with a Gupta-controlled firm (headed by Gupta
associate Salim Essa) and paid an “advisory fee” of 21 per cent of the value of the contract to Tequesta
Group Ltd. (a Gupta company), which amounted to US$530 million. Regiments Capital (PTY) Ltd. (and
later Trillian Capital Partners [PTY] Ltd.) would generate about $63 million from this deal.i
Eskom and Optimum Coal Mine. Brian Molefe and Anoj Singh were transferred to the state electricity
company, Eskom, soon after the locomotive deals were concluded and the Eskom board had been replaced
with people who had direct associations with the Gupta family.j Eskom was at that time engaged in a dispute
with one of the coal mines that provided coal for its power stations, Optimum Coal Mine (PTY) Ltd.
(Optimum), which was owned by Glencore plc (Glencore). In 2015, the mine was in business rescue due
to rising costs and so wanted to renegotiate its coal price with Eskom. At the same time, Optimum was
facing a fine of about US$116 million from Eskom for providing substandard coal.
Page 11 9B20M145
EXHIBIT 1 (CONTINUED)
In July 2015, Glencore received a letter from Eskom’s auditor saying that an offer had been made to the
Gupta family’s mining company to buy Optimum for about 25 per cent of what Glencore had paid for it in
2012. Simultaneously, Eskom’s board advised Glencore that it was withdrawing from negotiations to save
Optimum from bankruptcy. The Guptas flew to Switzerland in September 2015, accompanied by a cabinet
minister, to negotiate the deal. Eskom agreed to advance payments that covered the shortfall, increased
the price it would pay for coal from the mine, and suspended its fine.k
Sources:
a
amaBhungane, “Parastatals ‘Bullied’ into Supporting the ‘New Age,’” Mail & Guardian, January 25, 2013; b “Telkom, Eskom,
Transnet Spent R37m on Gupta Breakfasts: Report,” MyBroadband, January 20, 2013, accessed May 30, 2018,
https://mybroadband.co.za/news/business/68946-telkom-eskom-transnet-spent-r37m-on-gupta-breakfasts-report.html; c Sam
Sole, “Row Over Eskom’s R43m Gupta Breakfast Deal,” Mail & Guardian, October 24, 2014, accessed December 12, 2017,
https://mg.co.za/article/2014-10-24-eskom-sugars-gupta-breakfast/; d SAPA, “FFPlus Wants Protector to Probe TNA,”
Independent Online, January 23, 2013, accessed December 12, 2017, www.iol.co.za/news/politics/ffplus-wants-protector-to-
probe-tna-1458161; e “Guptagate: What You Need to Know,” News24, January 21, 2015, accessed December 12, 2017,
www.news24.com/SouthAfrica/News/Guptagate-What-you-need-to-know-20150121; Dave Merrill and Liezel Hill, “Gupta
Family Seen as Symbol of Zuma’s Failing Rule,” Fin24, December 17, 2015, accessed March 21, 2020,
www.fin24.com/Economy/gupta-family-seen-as-symbol-of-zumas-failing-rule-20151217; f “‘Gupta’ Dairy Project Milks Free
State Coffers,” amaBhungane, June 7, 2013, accessed December 12, 2017, http://amabhungane.co.za/article/2013-06-07-
gupta-dairy-project-milks-free-state-coffers; g “#GuptaLeaks: Free State Govt Paid for Gupta Sun City Wedding – Report,” The
Citizen, June 30, 2017; amaBhungane and Scorpio, “From the Archives: amaBhungane and Scorpio #GuptaLeaks: The Dubai
Laundromat – How Millions Milked from Free State Government Paid for the Sun City Wedding,” Daily Maverick, June 30,
2017; h amaBhungane and Scorpio, “#GuptaLeaks: Guptas and Associates Score R5.3bn in Locomotives Kickbacks,”
amaBhungane, June 1, 2017, accessed December 12, 2017, https://amabhungane.org/stories/guptaleaks-guptas-and-
associates-score-r5-3bn-in-locomotives-kickbacks/; i, j Thulisile Nomkhosi Madonsela, State of Capture: Report on an
Investigation into Alleged Improper and Unethical Conduct by the President and Other State Functionaries Relating to Alleged
Improper Relationships and Involvement of the Gupta Family in the Removal and Appointment of Ministers and Directors of
State-Owned Enterprises Resulting in Improper and Possibly Corrupt Award of State Contracts and Benefits to the Gupta
Family's Businesses (Pretoria, South Africa: Public Protector South Africa, 2016).
EXHIBIT 2: PAYMENTS FROM ESKOM TO TRILLIAN
Date of Date of Amount Invoice Invoice

invoice payment (in million number description
US$)
April 14, April 14, 1.84 ESK2016- Professional services: Pro-rate share of Eskom
2016 2016 MC01 plan deliverable
August 10, August 13, 7.23 ESK2016- Professional services: Financial advisory
2016 2016 MC02
August 10, August 13, 7.98 ESK2016- Professional services: Management consulting
2016 2016 MC03
Source: Geoff Budlender, Report for Mr T Sexwale, Chairperson of Trillian Capital Partners (Pty) Ltd on Allegations with
Regard to Trillian Group of Companies, and Related Matters, Corruption Watch, June 29, 2017, accessed April 16, 2020,
www.corruptionwatch.org.za/wp-content/uploads/2017/06/Trillian-final-report-with-annexures-corrected.pdf.
Page 12 9B20M145
EXHIBIT 3: BUDLENDER REPORT CORRESPONDENCE
Date Addressee Q&A

March 22, Letter to McKinsey McKinsey is asked whether it had collaborated on any projects on which
2017 Trillian worked as a supplier development partner (SDP) or subcontractor.
April 6, 2017 Letter to McKinsey states that it had not worked on any projects “on which Trillian
Budlender worked as an SPD or subcontractor of McKinsey.”
May 3, 2017 Letter to McKinsey Copy of a letter dated February 9, 2016, from Vikas Sagar to Eskom,
authorizing payments to Trillian in relation to work done together with
McKinsey, in contradiction to the response sent to McKinsey on April 9.
May 7, 2017 Letter to McKinsey states that it will discuss the letter of May 3 and reply to Budlender.
Budlender
May 17, 2017 Letter to McKinsey Budlender informs McKinsey that the drafting of the final report has
commenced.
June 4, 2017 Letter to McKinsey Budlender informs McKinsey that the drafting of the final report is in progress.
June 6, 2017 Letter to McKinsey states that the internal investigation is complete; McKinsey will
Budlender reply to Budlender shortly.
June 6, 2017 Letter to McKinsey Budlender informs McKinsey that the report will be finalized by the end of
June.
June 18, 2017 Letter to Given the unofficial nature of Budlender’s inquiry, McKinsey will no longer
Budlender comment or respond to requests from Budlender.
June 19, 2017 Letter to McKinsey Confirmation that McKinsey will no longer cooperate with Budlender.
June 26, 2017 Letter to Confirmation that, given the unofficial nature of Budlender’s inquiry, the legal
Budlender advice is that it is not appropriate for McKinsey to respond to any further
requests from Budlender.
Page 13 9B20M145
EXHIBIT 4: FEBRUARY 2016 LETTER FROM MCKINSEY’S VIKAS SAGAR TO ESKOM,

AUTHORIZING ESKOM TO PAY TRILLIAN FEES FOR WORK COMPLETED BY MCKINSEY AS
PART OF THE TURNAROUND ENGAGEMENT
McKinsey & Company
9 February 2016
Prish Govender
Eskom
Megawatt Park
Sunninghill
Email:Prish.Govender@eskom.co.za
Dear Prish,
Authorisation to pay Subcontractor Directly
We refer to the Professional Services Contract forr the provision of consulting services for 6 months entered
into beween Eskom SOC Ltd (Eskom) and McKinsey and company Africa Proprietary Limited (“McKinsey”),
dated 29 September 2015 (the Agreement). As you know, McKinsey has subcontracted a portion of the
services to be performed under the Agreement to [Trillian Proprietary Limited] (Trillian).
Subject to: (i) the terms of the Agreement relating to any payments to be made by Eskom to us; and (ii) us
issuing a written confirmation of our satisfaction with the relevant services to be performed by Trillian to
McKinsey and; (iii) the correctness of the amount to be invoiced, we hereby agree for, and authorize, Trillian
to invoice, and be paid directly by, Eskom for any services performed by it in pursuance of our obligations
under the Agreement.
We trust you find the above in order.
Yours sincerely
Vikas Sagar
Director
McKinsey and Company Africa Proprietary Limited

Sandown Mews East 88 Stella Street Sandown Sandton 2196 PO Box 652767 Banmore 2010 South africa
Incorporated and Registered in South Africa No 2013/09125/07

Directors: LJH Arwidi (Swedish) S Wu P Parbhoo VN Magwentshu T Legoele (Independent)
Page 14 9B20M145
EXHIBIT 5: MARCH 2016 LETTER FROM MCKINSEY TO TRILLIAN, INQUIRING ABOUT ITS LINKS
TO THE GUPTA AND ESSA BUSINESSES
McKinsey and Company
March 10, 2016
CONFIDENTIAL
Eric Wood
Trillian Management Consulting
eric@tcp.co.za
Dear Mr. Wood
TRILLIAN, HUBEI HONGYUAN, E GATEWAY GLOBAL CONSULTANTS FZC, AND ESKOM DUVHA
BOILER PURCHASE
The above matter refers. Mr. Vikas Sagar has forwarded your email dated March 08, 2016 to us. We have
noted the contents thereof with thanks. We wish to inform you however that our global risk review remains
ongoing with a view to being concluded during the middle of the coming week. To this effect, in addition to
your undertaking to furnish us with a detailed group profile of the Trillian Group (which we have still not
received), we would also appreciate your detailed responses to our letter dated February 25, 2016 before
the close of business on Friday 11 March 2016. Your response should contain the following, as previously
requested by us:
1. Detailed account of the form and legal status of Trillian’s relationship with Hubei Hongyuan;
2. Detailed account of the form and legal status of Trillian’s relationship with E Gateway Global
Consultants FCZ;
3. Confirmation that Trillian, its employees, or any of its subcontractors or affiliates have no other interests
which may conflict with their respective roles as advisor to Eskom;
4. Confirmation that, pending your detailed response wo this letter and with immediate effect, no Trillian
personnel, subcontractor personnel, or personnel of any affiliate undertaking will conduct or undertake
any activities on any element of the Top Consultants Programme which may lend themselves to a
conflict of interest whether real or perceived;
5. Confirmation that Trillian indemnifies, defends and holds McKinsey harmless from any and all claims
brought against McKinsey in respect of and relating to Trillian’s relationship with Hubei Hongyuan and
any services performed by Trillian and/or any of its subcontractors or their affiliates for Eskom.
We look forward to your favourable reply.
Yours sincerely,
George Desvaux Jean-Christophe Mieszala

Managing Partner, Africa Chair, Client Service Risk Committee
Europe, Middle East & Africa

Sandown Mews East 88 Stella Street Sandown Sandton 2196 PO Box 652767 Banmore 2010 South africa
Incorporated and Registered in South Africa No 2013/09125/07

Directors: LJH Arwidi (Swedish) S Wu P Parbhoo VN Magwentshu T Legoele (Independent)
Page 15 9B20M145
EXHIBIT 6: MCKINSEY’S NEW (2018) CHECKLIST FOR CONTRACTS WITH STATE-OWNED

ENTERPRISES
Process improvements
It strengthened its global compliance activities.
Partners must now check proposals to serve all new clients, or any clients they have not served for more than two
years, with firm leaders.
Partners must seek approval of new development partners from firm leaders.
All public-sector work must be registered with the risk team before proposals are submitted.
Annual risk assessments will be conducted for state-owned company clients.
The legal department must review all public-sector and state-owned company sole-sourced work.
Source: Walt Bogdanich and Michael Forsythe, “How McKinsey Lost its Way in South Africa,” New York Times, June 26, 2018,
accessed April 16, 2020, www.nytimes.com/2018/06/26/world/africa/mckinsey-south-africa-eskom.html.
Page 16 9B20M145
ENDNOTES
1
This case has been written on the basis of published sources only. Consequently, the interpretations and perspectives
presented in the case are not necessarily those of McKinsey & Company or any of its employees.
2
“McKinsey & Company Statement on Eskom,” McKinsey & Company, October 17, 2017, accessed April 16, 2020,
www.mckinsey.com/za/our-work/mckinsey-investigation-statement.
3
$ = USD = United States dollar. All currency amounts are in USD unless otherwise specified.
4
“Speech by Kevin Sneader, Global Managing Partner of McKinsey & Company, at Gordon Institute of Business Science
Seminar, 9 July 2018,” McKinsey & Company, July 9, 2018, accessed April 16, 2020, www.mckinsey.com/za/our-work/speech-
by-kevin-sneader-at-gordon-institute-of-business-science-seminar.
5
Walt Bogdanich and Michael Forsythe, “How McKinsey Lost its Way in South Africa,” New York Times, June 26, 2018,
6
Seminar, 9 July 2018,” op. cit. State capture is a type of corruption that occurs when individuals in government and the private
sector manipulate laws and regulations in order to obtain rents and other advantages from the state.
7
Joe O’Mahoney and Andrew Sturdy, “Power and the Diffusion of Management Ideas: The Case of McKinsey & Co.,”
Management Learning 47, no. 3 (2016): 247–265.
8
Elizabeth Haas Edersheim, McKinsey's Marvin Bower: Vision, Leadership, and the Creation of Management Consulting (New
York, NY: Wiley, 2004).
9
“2018 Vault Consulting 50,” Vault, accessed March 21, 2020, www.vault.com/company-rankings/consulting/vault-consulting-
50/?sRankID=248.
10
Ibid.
11
“Overview,” McKinsey & Company, 2018, accessed December 30, 2018, www.mckinsey.com/about-us/overview.
12
Ibid.
13
Jay Lorsch and Emily McTague, McKinsey & Co. – Protecting its Reputation (A) (Boston, MA: Harvard Business School,
July 2014), Case 415-021; Jay Lorsch and Emily McTague, McKinsey & Co. – Protecting its Reputation (B) (Boston, MA:
Harvard Business School, July 2014), Supplement 415-022.
14
Walt Bogdanich and Michael Forsythe, “How McKinsey Lost its Way in South Africa,” New York Times, June 26, 2018,
15
“The World Factbook: Africa: South Africa,” CIA, accessed March 21, 2020, www.cia.gov/library/publications/the-world-
factbook/geos/sf.html.
16
Ibid.
17
Merle Lipton, “Is South Africa's Constitutional Democracy Being Consolidated or Eroded?,” South African Journal of
International Affairs 21, no. 1 (2014): 1–26.
18
William M. Gumede, “South Africa: Jacob Zuma and the Difficulties of Consolidating South Africa’s Democracy,” African
Affairs 107, no. 427 (2008): 261–271.
19
Anthony Lemon, “The Implications for Opposition Parties of South Africa’s 2009 General Election,” paper presented at the
Democratization in Africa Conference, Leeds University, Leeds, December 4–5, 2009.
20
David Pilling and Joseph Cotterill, “Jacob Zuma, the Guptas and the Selling of South Africa: How Did One Family Manage
to Gain Such Extraordinary Influence Over a Country and its Politics?,” Financial Times, November 30, 2017, accessed April
16, 2020, www.ft.com/content/707c5560-d49a-11e7-8c9a-d9c0a5c8d5c9.
21
Don Makatile “High cost of Nkandla exceeds R246m,” IOL, February 7, 2016, accessed 21 July 2020,
www.iol.co.za/news/politics/high-cost-of-nkandla-exceeds-r246m-1981002. The Nkandla saga, as the case became known,
started at the beginning of President Zuma’s first term (2009) and stretched well into his second term (2016). It was the subject
of multiple court cases and several unsuccessful attempts to end his presidency via judicial and parliamentary means. The
president eventually apologized for unduly benefiting, following a successful court challenge to force him to do so in 2016.
Ironically, according to KwaZulu-Natal Wildlife, “Nkandla” is derived from another word meaning to tire, exhaust, or prostrate—
thereby aptly describing President Zuma’s political strategy for holding onto power.
22
Thulisile Nomkhosi Madonsela, State of Capture: Report on an Investigation into Alleged Improper and Unethical Conduct
by the President and Other State Functionaries Relating to Alleged Improper Relationships and Involvement of the Gupta
Family in the Removal and Appointment of Ministers and Directors of State-Owned Enterprises Resulting in Improper and
Possibly Corrupt Award of State Contracts and Benefits to the Gupta Family's Businesses (Pretoria, South Africa: Public
Protector South Africa, 2016).
23
Ibid.
24
Pieter-Louis Myburgh, The Republic of Gupta: A Story of State Capture (Cape Town, South Africa: Penguin Random House
South Africa, 2017).
25
Adriaan Basson and Pieter du Toit, Enemy of the People (Cape Town, South Africa: Jonathan Ball, 2017).
26
“Atul Gupta Bio,” Gupta-Leaks.com, accessed April 16, 2020, www.gupta-leaks.com/information/atul-gupta-bio/.
27
Haroon Bhorat, Mbongiseni Buthelezi, Ivor Chipkin, Sikhulekile Duma, Lumkile Mondi, Camaren Peter, Mzukisi Qobo, Mark
Swilling, and Hannah Friedenstein, Betrayal of the Promise: How South Africa is Being Stolen, State Capacity Research
Project Report, May 2017, accessed April 16, 2020, https://pari.org.za/wp-content/uploads/2017/05/Betrayal-of-the-Promise-
25052017.pdf
28
Ibid.
Page 17 9B20M145
29
Ibid.; “Mabengela Investments,” South African Companies, accessed March 21, 2020, www.companies-
southafrica.com/mabengela-investments-o3ha/.
30
Bhorat et al., op. cit.
31 Madonsela, op. cit.; Stephen Grootes, “Divided ANC House Struggling to Stand,” Daily Maverick, July 28, 2019, accessed
March 21, 2020, www.dailymaverick.co.za/article/2019-07-28-divided-anc-house-struggling-to-stand/.
32 Madonsela, op. cit.
33
Geoff Budlender, Report for Mr T Sexwale, Chairperson of Trillian Capital Partners (Pty) Ltd on Allegations with Regard to
Trillian Group of Companies, and Related Matters, Corruption Watch, June 29, 2017, accessed April 16, 2020,
34
35
David Robert Fine, “Statement of David Robert Fine,” McKinsey & Company, November 11, 2017, accessed April 16, 2020,
www.mckinsey.com/za/~/media/mckinsey/locations/africa/south%20africa/our%20work/statement-of-david-fine.ashx.
36
Ibid.
37
Ibid.
38
“Speech by Kevin Sneader,” op. cit.
39
“Overview,” op. cit.
40
41
Ibid.
42
Fine, op. cit.
43
Ibid.
44
Ibid.
45
The supplier development requirements were part of the broader indigenization policies that also existed in other emerging
markets. The intention behind such policies and requirements was to lift up Black South Africans, who had been disadvantaged
and discriminated against during the apartheid era (prior to 1994). Even after the transition to full democracy, South Africa
was still largely divided along racial lines. Inequality remained high, with wealth skewed toward White South Africans.
46
Fine, op. cit.; Bhorat et al., op. cit.
47
Bogdanich and Forsythe, op. cit.
48
49
Susan Comrie, “How State Capture Inc Funded the ANC,” Daily Maverick, August 13, 2019, accessed March 21, 2020,
www.dailymaverick.co.za/article/2019-08-13-how-state-capture-inc-funded-the-anc/.
50
Fundudzi Forensic Services, “McKinsey, Trillian and Regiments,” in Final Report: Forensic Investigation into Various
Allegations at Transnet and Eskom, 2018, accessed June 12, 2020,
www.treasury.gov.za/comm_media/press/2018/Final%20Report%20-%20National%20Treasury%20-
%20Mckinsey%20Regiments%20Trillian%2015112018.pdf.
51
Open Secrets, “McKinsey, Profit over Principle,” Daily Maverick, April 29, 2020, accessed June 25, 2020,
www.dailymaverick.co.za/article/2020-04-29-mckinsey-profit-over-principle/#gsc.tab=0.
52
53
Fundudzi Forensic Services, op. cit.
54
Ibid.
55
Seminar, 9 July 2018,” McKinsey & Company, July 9, 2018, accessed April 16, 2020, www.mckinsey.com/za/our-work/speech-
by-kevin-sneader-at-gordon-institute-of-business-science-seminar.
56
Fundudzi Forensic Services, “McKinsey, Trillian and Regiments,” in Final Report: Forensic Investigation into Various
Allegations at Transnet and Eskom, 2018, accessed June 12, 2020,
www.treasury.gov.za/comm_media/press/2018/Final%20Report%20-%20National%20Treasury%20-
%20Mckinsey%20Regiments%20Trillian%2015112018.pdf.
57
Budlender, op. cit.
58
Ibid.
59
amaBhungane reporters, “The McKinsey Dossier Part 5: How Transnet Cash Stuffed Gupta Letterboxes,” Fin24, October
23, 2017, accessed April 16, 2020, www.fin24.com/Companies/Financial-Services/the-mckinsey-dossier-part-5-how-transnet-
cash-stuffed-gupta-letterboxes-20171022.
60
61
Ibid.
62
63
Ibid.
64
Susan Comrie and Pauli van Wyk, “How Consultants Ripped R1.6bn from Eskom – and Planned to Take R7.8bn More,”
Fin24, September 14, 2017, accessed October 31, 2018, www.fin24.com/Economy/Eskom/how-consultants-ripped-r16bn-
from-eskom-and-planned-to-take-r78bn-more-20170913.
65
Eskom Holdings SOC Limited v McKinsey and Company Africa (Pty) Ltd and Others (22877/2018) [2019] ZAGPPHC 185
(18 June 2019), accessed August 24, 2020, www.saflii.org/za/cases/ZAGPPHC/2019/185.html.
66
67
Ibid.
68
“Speech by Kevin Sneader,” op. cit.
69
Madonsela, op. cit.
Page 18 9B20M145
70
71
Madonsela, op. cit.
72
73
Budlender, op. cit.
74
John Gapper, “McKinsey Has Closed its Eyes in South Africa,” Financial Times, September 20, 2017, accessed March 3,
2018, www.ft.com/content/bf1ead36-9c8b-11e7-8cd4-932067fbf946.
75
Anton Eberhard and Catrina Godinho, Eskom Inquiry Reference Book, State Capacity Research Project, August 2017,
accessed March 21, 2020, www.gsb.uct.ac.za/files/Eskom%20Enquiry%20Booklet%20Sept%202017.pdf.
76
Budlender, op. cit.
77
Ibid.
78
Ibid.
79
80
Fine, op. cit.
81
David Segal, “How Bell Pottinger, P.R. Firm for Despots and Rogues, Met Its End in South Africa,” New York Times, February
4, 2018, accessed March 21, 2020, www.nytimes.com/2018/02/04/business/bell-pottinger-guptas-zuma-south-africa.html.
82
“Joint Statement between Eskom and Deloitte Consulting,” Deloitte, March 20, 2020, accessed March 21, 2020,
www2.deloitte.com/za/en/pages/about-deloitte/press-releases/settlement-statement-as-agreed-with-eskom.html; Joseph
Cotterill and Madison Marriage, “KPMG South Africa Executives Dismissed Over Gupta Scandal,” Financial Times, September
15, 2017, accessed March 21, 2020, www.ft.com/content/ce8ddb84-9a01-11e7-a652-cde3f882dd7b; Madison Marriage,
“Former KPMG Partner Struck Off South Africa Register over Gupta Audits,” Financial Times, March 28, 2019, accessed
March 21, 2020, www.ft.com/content/2591c996-5157-11e9-9c76-bf4a0ce37d49.
83
Joseph Cotterill, “Germany’s SAP Says Payments to Scandal-Hit Gupta Entities More Than Thought,” Financial Times,
March 8, 2018, accessed March 21, 2020, www.ft.com/content/5cf33766-22c9-11e8-ae48-60d3531b7d11; Alec Hogg, “SAP’s
‘Wholehearted, Unreserved’ Apology a Silver Lining to an Uplifting Day,” BizNews, October 27, 2017, accessed March 21,
2020, www.biznews.com/undictated/2017/10/27/sap-apology-silver-lining.
84
Madison Marriage, “Barclays Africa and Standard Bank End Contracts with McKinsey,” Financial Times, October 30, 2017,
accessed March 21, 2020, www.ft.com/content/a2a0a572-bd71-11e7-9836-b25f8adaa111; Madison Marriage, “Nedbank
Cuts Ties with McKinsey over Gupta Scandal,” Financial Times, December 3, 2017, accessed March 21, 2020,
www.ft.com/content/f06b1bd0-d689-11e7-a303-9060cb1e5f44.
85
Janice Kew and Paul Burkhardt, “Coca-Cola Units, Sasol, Sever Ties with McKinsey in South Africa,” Bloomberg, January
11, 2018, accessed March 21, 2020, www.bloomberg.com/news/articles/2018-01-11/coca-cola-south-africa-bottling-unit-
severs-ties-with-mckinsey.
86
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Budlender, op. cit.
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“Overview,” op. cit.
97

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MCKINSEY & COMPANY: FACILITATING BRIBERY IN SOUTH

Copyright © 2020, Ivey Business School Foundation Version: 2020-08-25

– Tom Barkin, chief risk officer, McKinsey & Company2

State Capture in South Africa

The Gupta Family and Zuma

MCKINSEY’S SCANDAL IN SOUTH AFRICA

MCKINSEY AND REGIMENTS’ WORK AT TRANSNET

MCKINSEY AND TRILLIAN AT ESKOM

State Capture Becomes Public

CONSEQUENCES OF FACILITATING STATE CAPTURE

EXHIBIT 1: GUPTA SCANDALS 2010–2016, AS REPORTED BY THE MEDIA IN SOUTH AFRICA

EXHIBIT 2: PAYMENTS FROM ESKOM TO TRILLIAN

Date of Date of Amount Invoice Invoice

EXHIBIT 3: BUDLENDER REPORT CORRESPONDENCE

Date Addressee Q&A

EXHIBIT 4: FEBRUARY 2016 LETTER FROM MCKINSEY’S VIKAS SAGAR TO ESKOM,

McKinsey & Company

Authorisation to pay Subcontractor Directly

We trust you find the above in order.

McKinsey and Company Africa Proprietary Limited

Incorporated and Registered in South Africa No 2013/09125/07

McKinsey and Company

March 10, 2016

Dear Mr. Wood

We look forward to your favourable reply.

George Desvaux Jean-Christophe Mieszala

McKinsey and Company Africa Proprietary Limited

Incorporated and Registered in South Africa No 2013/09125/07

EXHIBIT 6: MCKINSEY’S NEW (2018) CHECKLIST FOR CONTRACTS WITH STATE-OWNED

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