KPMG, McKinsey S. Africa Woes May Deter Investors: LambertiBy and
Political scandal fallout is far reaching: Imperial’s CEO
Greatest impact could come if U.S. DoJ starts investigation
The fall out from a South African corruption scandal that’s implicated global companies may be a “big wake-up call” to those considering an investment in the country, according to Imperial Holdings Ltd. Chief Executive Officer Mark Lamberti.
KPMG LLP and McKinsey & Co are among those who have done work for the Gupta family or companies associated with them. The Guptas are friends with President Jacob Zuma and have been accused of exerting influence over lawmakers to win state contracts. Accountancy firm KPMG said last week that eight top executives quit following an internal probe into auditing done for the family, while McKinsey has suspended or put staff on leave pending its own investigation into work for state power utility Eskom Holdings SOC Ltd.
How the U.S. Department of Justice reacts to the findings may have a knock-on effect on foreign investment, Lamberti said in an interview on Tuesday. Corruption Watch said last week it plans to approach the DoJ to probe McKinsey, while South African Public Enterprises Minister Lynne Brown has told Eskom to pursue legal action against the company. The U.S. firm hasn’t engaged in corruption or paid bribes, it said in an emailed response to questions.
“If the DoJ starts to come at McKinsey for foreign corrupt practices act stuff, that’s going to be a very big wake-up call for a whole bunch of people doing business in this country,” Lamberti said. “And they are going to ask, is it worth the trouble?”
Imperial is South African’s eighth-largest company in terms of sales, and runs car dealerships and logistics operations around the world. Lamberti, 67, has been CEO since 2014, having made his name as the founder and former head of Massmart Holdings Ltd., the South African retailer now majority owned by Wal-Mart Stores Inc. He’s also a director of the Business Leadership South Africa association.
KPMG’s admission that auditing work for the Guptas had fallen “considerably” short of required standards has led to clients dropping the firm. Sasfin Holdings Ltd., a financial-services company, said on Tuesday it replaced KPMG as its independent sponsor and is seeking a new auditor, while lenders including Barclays Africa Group Ltd. and Investec Ltd. said they are reviewing their relationship with the audit firm.
A widespread distancing from KPMG will cause problems for companies as South Africa doesn’t have a big pool of large accounting firms and the country’s rules require a change of auditor every seven years, Lamberti said.
“The demise of KPMG in South Africa is not good for anyone,” the CEO said.
Moses Kgosana, the former CEO of KPMG’s South African unit, resigned as chairman of Imperial’s audit committee two weeks ago.
The Democratic Alliance, the main opposition party, has led calls for companies that dealt with the Guptas to be investigated and penalized. It filed a complaint against public relations firm Bell Pottinger for fostering racial division in South Africa with the main industry group in the U.K., which led to its expulsion and forced it into administration. Zuma and the Guptas deny wrongdoing.
“I do think there are bigger implications for the country,” Lamberti said at the company’s Johannesburg headquarters. “We’re at the point that unless these issues are ventilated and put behind us quite soon, whatever glory that is left from the Mandela years will be gone. This is very serious.”
— With assistance by John Bowker, and Antony Sguazzin