I've blogged about the dangers with the creeping influence capture of important public policy decision-making processes by management consulting organisations. This is a universal trend across countries and across consulting firms, varying only in the degree and brazenness of their actions across contexts.
South Africa during the regime of Jacob Zuma has witnessed some of the most egregious examples of corrupt practices by these organisations, with established cases of misconduct.
Early this year, Bain and Co was found guilty by a South African judicial commission of being an enabler of graft. Specifically, it helped the Zuma regime systematically weaken the South African Revenue Service (SARS) by crippling its ability to carry out investigations of tax evaders and allowing "state capture" by vested interests. The Judge wrote in the report that Bain's work on weakening of SARS was "a clear example of how the private sector colluded" on state capture.
Over the past decade, Bain has worked closely with state companies and the private sector in South Africa. Vittorio Massone, the firm’s former South African managing partner, forged a close relationship with Zuma, meeting him on average every six weeks between 2012 and 2014, according to the report. An event management company owned by a soap-opera producer close to Zuma became Bain’s second-highest paid local adviser around the world, the report said... Between 2012 and 2015, Bain laid plans “to restructure entire sectors of the South African economy” and centralise state procurement, the report said. “Central procurement agency: he loves it, wants an implementation plan,” Massone said in one email that the inquiry said referred to Zuma... Bain’s quest for influence even extended to Massone attending meetings to discuss the manifesto of the ruling African National Congress, according to the report.
Now the British government has come down hard on Bain, banning it from tendering for government contracts for three years for its "grave professional misconduct". The government felt that Bain's role in the scandal had rendered its integrity "questionable". This is one of the first major actions by a western government against corrupt practices by western consulting organisations.
In fact, Bain is only the latest in the series of misconduct by western firms in Jacob Zuma's South Africa
McKinsey agreed in 2020 to repay about R650mn ($39mn) over irregularities in contracts it had entered into with a local partner at government-owned companies. Auditor KPMG apologised in 2017 for “mistakes” in work for businesses linked to the Gupta family, accused of serious corruption through ties to Zuma. UK public relations company Bell Pottinger was brought down by its work for the Guptas, which led to accusations that it had stoked racial tensions in South Africa.
The UK government's barring of Bain from its public procurement process raises the question about why McKinsey and others with similar, if not worse, charges should not be similarly punished.
Consider the infamous case of McKinsey's work with Purdue Pharma, where they advised both drug makers and the government regulators is an egregious example of practices which are becoming all too common in many developing countries too. See also this about McKinsey's work in South Africa and elsewhere. I've blogged here about questionable practices by McKinsey.
Consultants play an important role in shaping and reinforcing narratives on issues involving the intersection of public and private sectors. Most often, like with all profit driven incentives, their interests coincide with those of their private sector interlocutors.
The problem with the work of consulting organisations advising governments is that it's largely opaque and secretive, commands disproportionately large influence, involves high stakes, and the incentives are clearly distorted.
This has serious consequences in public procurements and institutional reforms. Weak checks and balances and institutional maturity within public systems encourages the Chinese walls within consulting organisations to become porous and allow commercial considerations to over-ride client interests and public interest at large.
Appropriate safeguards by way of disclosures therefore become extremely important. For example, in case of consultancies advising governments on activities that involve private sector engagement, it's important that all the sector-related commercial engagements of the consultant be disclosed in the procurement documents. Consultants who advise on the sell-side of a private service/product should be barred from advising the buy-side government agencies.
Similarly, public officials engaged with consulting organisations should be mandated to make public their or family connections with consultants. This should be done both before and for at least two years after the officials leave the post or the engagement has ended.
It's also time that philanthropic foundations and civil society organisations, as well as multilateral organisations, support work that looks closely at the activities of consulting organisations working with governments. I have not come across even one comprehensive study scrutinising the business practices of consulting organisations advising governments. A part of the reason is that these organisations themselves are advised by the same consultants.
Finally, taking a cue from the UK government's action on Bain & Co, western governments should redefine the scope of bribery and corruption to clearly include such practices. Firms engaging in such activities and held guilty in the host countries should be banned from public procurements in western countries too.
Update 1 (01.10.2022)
McKinsey has been charged in a corruption scandal involving work it did advising South Africa's state-owned freight rail and port operator, Transnet, in a massive locomotive purchase contract.
To secure a consulting contract with Transnet, McKinsey was required by South African law to work with a Black-owned subcontractor. But instead of thoroughly vetting that subcontractor, McKinsey relied on a recommendation from Transnet that it hire a company called Regiments Capital to help oversee the purchase of a fleet of 1,064 rail locomotives. The locomotives were initially estimated to cost $2.6 billion, but their price inexplicably rose, almost overnight, by about $1 billion. Matthew Chaskalson, a member of a judicial commission investigating suspicious contracts with state-owned agencies, said in a 2020 hearing that after hiring Regiments, McKinsey received “an extraordinary succession of sole-source contracts” during which its fees increased “exponentially.” Subsequent investigations by the media and the commission discovered that Regiments had links to the politically powerful Gupta family — three brothers who for years hid their ties to companies that were improperly securing lucrative state contracts. By the end of 2020, the judicial commission had uncovered three tainted McKinsey contracts, including ones with the state-owned airline and the nation’s power company, Eskom.
See also this review of a book by two NYT reporters that exposes McKinsey's business practices,
In 2002, Martin Elling, along with three colleagues at the global consulting firm McKinsey & Company, published an article in the firm’s quarterly journal intended to gin up more business from the pharmaceutical industry. Elling’s article argued that drug companies were missing an opportunity by not tracking how often individual physicians were prescribing certain drugs. By aggregating such data, pharmaceutical salespeople could target their marketing pitches to the doctors most likely to become heavy prescribers, and the sales reps themselves could also be better evaluated by their companies. Soon enough, a relatively unknown drug company called Purdue Pharma came calling, retaining McKinsey in 2004 to help increase sales of its opioid pain killer OxyContin — which had already topped $1 billion annually. In the face of a worsening national opioid addiction crisis and multiple state and federal investigations, prescriptions of higher-strength OxyContin pills had begun to level off. Among other recommendations, McKinsey, led by Elling and his team, suggested “turbocharging” sales through more innovative and aggressive marketing tactics. Between 2004 and 2019, Purdue paid McKinsey $83.7 million in fees.
This is an abstract from the book.
No comments:
Post a Comment