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McKinsey says it ditched Trillian partnership over shareholder flags

Jul 03 2017 17:30
Liesl Peyper

Cape Town - McKinsey, the global consulting firm implicated in a report on Trillian, said although the company at one time explored a partnership with Trillian, it decided not to proceed due to concerns over its shareholding. 

"At one time we explored a formal supplier development partnership with Trillian, but as a consequence of a detailed risk review we decided over a year ago not to proceed because of our concerns about Trillian’s shareholding," Bonita Dordel, director of external relations Africa, told Fin24 via email. 

Advocate Geoff Budlender on June 29 released a report, following an investigation into the Trillian group of companies. The investigation was requested by outgoing chair Tokyo Sexwale after a whistleblower reported that Trillian executives had been aware that Nhhanla Nene would be axed as finance minister months ahead of time.

Budlender in his report suggested McKinsey had made misleading statements and stopped cooperating when confronted with evidence that it had made false statements. 

"We are reviewing Advocate Budlender’s findings and are continuing to investigate this matter seriously, supported by an external law firm, Norton Rose Fulbright," Dordel told Fin24. "The investigation will also be overseen by McKinsey’s General Counsel and Chief Risk Officer. We are committed to communicating in an open manner." 

According to Budlender's report, Eskom acquired the advisory services of McKinsey in September 2015 to the value of R1bn per year and subsequently subcontracted 30% of the services to Trillian.

The subcontracting of the services was done in terms of the so-called supplier development programme which requires that international firms enter into an agreement with local service providers, which in turn is supposed to gain experience and develop the necessary skills and benefit from part of the contract.

When Budlender during the course of his inquiry asked McKinsey’s Benedict Phiri to elaborate on the subcontract with Trillian, he denied that the consulting firm had done any work with Trillian.

“McKinsey did not work on any projects on which Trillian worked as an SDP (supplier development programme) or a subcontractor to McKinsey.”

However, correspondence that Budlender acquired shows that McKinsey director Vikas Sagar authorised Eskom to pay Trillian directly for services rendered. The letter was drafted and signed on a McKinsey letterhead.

“As you know,” Sagar wrote, “McKinsey has subcontracted a portion of its services to be performed under the Agreement to Trillian Propriety Limited … 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 obligation under the Agreement.”

In Budlender’s report he points out that Sagar’s correspondence contradicts Phiri’s assertion that it did not work on any projects with Trillian.

“McKinsey has neither suggested that the letter apparently signed by its director is not genuine, nor provided any explanation for this inconsistency, despite repeated invitations to do so. It has refused to provide any explanation,” Budlender said.  

He added that it is difficult to avoid the conclusion that McKinsey’s response was an attempt to avoid dealing with a situation which “appears to be embarrassing to the company”.

“In my opinion, a refusal to provide the truth ought to be even more embarrassing,” Budlender said.  

More evidence from Budlender’s report showed that McKinsey’s managers regarded the supplier development programme it was supposed to enter into with Trillian as a mere necessity.

The former CEO of Trillian Management Consulting, a subsidiary of Trillian Capital Partners who had extensive dealings with McKinsey’s management, told Budlender during his investigation that she was concerned about the general behaviour of the team and more specifically the leadership of McKinsey as far as the supplier development programme was concerned.

A senior McKinsey representative was quoted as saying: “It doesn’t really matter as long as you get your percentage.”

She also told Budlender that McKinsey’s Lorenz Jungling had remarked that Trillian Management Consulting was not “motivated by delivery and growth towards independence, but rather … purely to receive revenue in return for not much work.”

Budlender therefore concluded that McKinsey’s representatives regarded the supplier development programme as a sham.

Dordel however said that McKinsey takes supplier development and professional standards seriously. "We have a strong track record in South Africa of transferring skills and developing local capacity." 

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