McKinsey & Company makes further voluntary commitment to repay fees

  • McKinsey & Company is to repay the entirety of the fees earned on projects for Transnet and South African Airways (SAA) brought into disrepute by the involvement of Regiments Capital, totaling approximately R650m ($40m).
  • In keeping with its voluntary repayment to Eskom in 2018, we have made this commitment after seeing significant documents and information - presented by the Judicial Commission of Inquiry led by Deputy Chief Justice Zondo - that were unavailable previously to McKinsey and that casts further doubt on the probity of Regiments’ conduct in connection with work at these state-owned enterprises.
  • The Judicial Commission has confirmed its position that this information does not implicate any current McKinsey personnel in any corruption or impropriety in relation to these contracts and it has commended McKinsey for this commitment.

On 21 November, McKinsey communicated to the Judicial Commission that it was voluntarily committing to return all of the fees it had earned on all nine contracts where Regiments worked with McKinsey at Transnet and on the one contract where Regiments worked with McKinsey at SAA.

The repayment of fees concerning projects for Transnet and SAA that involved Regiments is in keeping with the voluntary approach that McKinsey adopted three years ago, following procedural irregularities in the 2016 Turnaround Programme at Eskom.

In the course of its engagement with McKinsey since 2018, the Judicial Commission has confirmed there is no information that implicates any current personnel of McKinsey in any corruption or impropriety. The repayment decision was made following the Judicial Commission’s recent introduction of documents and information regarding Regiments previously unavailable to our review.

Jean-Christophe Mieszala, McKinsey’s Chief Risk Officer said:

“Our firm has cooperated extensively with the Commission since 2018 and they have not implicated any current employees or partners of McKinsey.”

“We hold ourselves to the highest professional standards, and we have no wish to benefit from potentially tainted contracts. We regret our errors of judgement and even the possibility we were used to further others’ improper actions.”

“We stand by the value of our work. However, in line with our determination to do what is right and be guided by our firm’s earlier commitments to Eskom, we will return fees for projects that – even indirectly – may have been related to State Capture. That is not something our firm is willing to accept.”

Several weeks ago the Judicial Commission shared with McKinsey significant documents and information that was previously unavailable to McKinsey that further indicates irregularities regarding Regiments’ role in several projects worked on with McKinsey between 2012 and 2016. After reviewing this information, McKinsey will voluntarily relinquish its legal rights to fees received on a total of ten projects that Regiments were involved in and has agreed to take the necessary steps to repay these fees earned, demonstrating its continued willingness to do the right thing, notwithstanding the loss of income, to resolve the matter.

The total amount McKinsey earned on these contracts to be repaid will be around R650m ($40m). McKinsey is engaging with the State Owned Enterprises (SOE) and the relevant authorities to conclude the repayment through an appropriate and expeditious process that ensures the funds are repaid lawfully and with finality.

McKinsey is taking this step even though it stands by the value of the extensive work it delivered for its SOE clients.

McKinsey has previously acknowledged it found a series of gaps in its procedures that indicated a need for more robust safeguards that led to wide-ranging reforms to the firm’s global risk policies and compliance procedures.

McKinsey’s Global Managing Partner Kevin Sneader outlined the changes and mistakes in detail in June 2018 in his remarks at the Gordon Institute of Business Science, when he also recommitted to the firm’s 2017 promise that McKinsey would continue to cooperate so that appropriate authorities can thoroughly investigate these matters and responsible parties may be held accountable.

This situation is a source of great regret to McKinsey. In that same statement Mr Sneader said McKinsey is “committed to learning the lessons that will ensure it does not happen again.” Over the past three years, McKinsey has accepted responsibility for the errors of judgement that were made and continues to work hard to make amends.

Three McKinsey Partners will be testifying to this information before the Judicial Commission shortly.