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Friday
Jan122018

Tom Fox: McKinsey loses work after South Africa corruption allegations

What is the cost of a corruption scandal? It has been known for some time that such costs could include investigative and remediation costs, any fine or penalty and post-resolution costs such as those to deal with a monitorship or ongoing remediation. Or the financial hit for stock market listed companies could also come into play.

However now there may be a more tangible cost -- loss of business going forward.

In a report in the Financial Times, Coca-Cola has announced it would not contract for any additional work with the international consulting firm McKinsey and Company “until external investigations into potential corruption have been completed.”

This has turned on McKinsey’s work for the South African concern Trillian Capital which is associated with the Gupta family. The Gupta family has come under scrutiny for using the family’s ties to the current President of South Africa, “to influence state contracts and appointments to favour its business interests.”

Coca-Cola is not the first company to cut its ties with McKinsey over its work for Trillian; the list now contains Sasol and three of South Africa’s largest banks.

McKinsey conducted its own internal investigation involving its contract with Trillian and declared it “found no evidence of bribery and corruption” but did admit it should not have begun to work exacting enough and the internal investigation not sufficiently rigorous.

McKinsey is the world’s largest consulting company and it now must be concerned about the growing scandal in South Africa how it may impact its business relationships on a more global basis. This may become more acute in light of President Zuma’s decision to set up a judicial inquiry into the claims of the looting of government agencies and state-owned enterprises under his Presidency.

The entire imbroglio brings up the most current risk for companies to not only refrain from engaging in nefarious behavior but also the need for a robust, rigorous and transparent response when substantive allegations arise.

McKinsey has already found that it began work without completing due diligence on Trillian. This means that McKinsey violated its own internal controls by allowing work without proper vetting. Who knows what else a more rigorous internal investigation might find?

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Tom Fox, pictured above, is a Contributing Editor of the FCPA Blog. He has practiced law in Houston for 30 years. He's the creator of the award winning FCPA Compliance and Ethics website. He is the Compliance Evangelist.  His best-selling seminal book, "Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program” (available from Amazon here) is widely viewed as one of the top volumes on the nuts and bolts of compliance. His latest book is 2016 – The Year in Corporate FCPA Enforcement.