Consultants: The Bain of our lives
Management consultants are the people who borrow your watch to tell you the time, then charge you for it.
I know, that’s a really old joke, rehashed also as the subtitle of Martin Kihn’s House of Lies, the book and then TV series about the amoral world of advice for hire. But the reason that the jest has remained spry beyond pensionable age is that it continues to ring true.
This is a business sector with $600bn in worldwide annual earnings, so some management consultants presumably do deliver value for money. However, many are simply fast-talking, soft-shoe shuffling hucksters with zero ethics, adding very little real value to the organisations that they purport to aid.
In many cases, they do actual damage, but most of their failures are quietly swept under the carpet. No CEO is keen to draw to the attention of shareholders that the supposedly innovative strategy or organisational changes sold to them at eye-watering cost by a team of consultants, has turned out to be a crock of crud.
Consultancy is big in South Africa. Many are one-person operations, the experts hired by government departments to do the actual work that deployed cadres and nepotistic appointees are too incompetent or lazy to do. In many cases, these “consultants” are the very same people who were initially employed in the post, but who have taken retrenchment packages offered to get rid workers of the wrong hue.
In 2015, national and provincial departments spent R30bn on consultants to do the work that the country’s 1.3m public servants are supposed to do. Last month, our embattled national carrier, SAA, admitted to paying R16m in executive consultancy fees. This included R10m for three people working on a six-month contract. Nice gravy, if you can get it.
But it is the big consultancy firms that are the big scoundrels. The entire state capture project of the Gupta-axis was facilitated by ostensibly respectable international “professional services” companies — consultants and auditors — that were exposed in the media as being amoral, greedy and sometimes corrupt.
KPMG’s South African operation was brought to its knees, losing 20 listed-company audit clients and having to retrench 400 employees, after becomingly mired in the state capture saga. KPMG did some nifty number work on the accounts of various Gupta companies, including writing off R30m in wedding costs as a business expense. It also churned out, on command, a controversial, apparently entirely fabricated forensic report that was used to get rid of SA Revenue Service (SARS) officials resistant to colluding with Gupta corruption.
Then it was the turn of McKinsey, which earned R1.6bn in consultancy fees from its very dubious work with Eskom. It has now repaid the money, following the National Prosecuting Authority ruling that the payments were illegal, involving crimes such as fraud, theft, corruption and money laundering.
And this week it became the turn of Bain & Company, one of the world’s most prestigious consulting firms. Bain has come under scrutiny at the public hearings of the commission of inquiry into SARS, chaired by retired Judge Robert Nugent. At best, the evidence makes the consultants look like buffoons. At worst, they look like mercenaries for hire, tailoring their advice to suit the political agenda of their client.
Bain is said to have failed to consult knowledgeable SARS staff when remodelling critical units at SARS, reports Legalbrief. Its diagnostic report, which led to a dramatic structural overhaul, “was fraught with misleading, inaccurate and outdated statements”.
Five top SARS officials gave evidence of how Bain's restructuring had “neutralised” the crucial units dealing with enforcement, litigation and customs. These units handled the sensitive and complex cases, those of high-profile individuals, the illicit economy, and organised crime, such as poaching, drugs, cigarette smuggling and gangs.
Bains’s masterful intervention, which cost SARS a mere R200m, made this highly specialised work “fragmented” and “factory-like”, the inquiry was told. Witnesses testified that the unit dealing with sensitive and high-value cases was “effectively killed overnight”.
Because of the resulting decline in enforcement efficiency, SARS potentially lost “hundreds of millions of rands” in unpaid taxes. SARS has had a revenue shortfall of R100bn over the past four years.
According to one affidavit read at the inquiry, the Bain-inspired fragmentation of the debt management division put SARS in a “row boat”, while the errant taxpayer was in a “speed boat”.
We have yet to hear Bain’s response to the claims. The firm, which has been dubbed the “KGB of consulting” because of its secretiveness —clients are given codenames, consultants are sworn to silence — will give evidence next week.
Look out for the Bain team on television. They’ll be the guys in sharp suits and designer balaclavas. Maybe, they’ll be inspired, like McKinsey, to bring a refund cheque.
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