How KPMG is trying to avoid becoming the next Bell Pottinger

One of the world's largest advisory companies has been forced to take a hard look at its own operations after a crisis in South Africa.

How KPMG is trying to avoid becoming the next Bell Pottinger

JOHANNESBURG:KPMG is trying to stop a crisis in South Africa from spiralling into international markets.

Critics have accused KPMG South Africa of diverting taxpayer money to a Gupta family wedding that cost $2.2 million. They also claim the firm delivered a phoney report, since retracted, that resulted in the ouster of the country’s finance minister.

KPMG South Africa resigned from its work for the Gupta family, the powerful clan that controls Oakbay Investments, in March 2016 after 15 years. Bell Pottinger’s work on behalf of Oakbay, which was widely decried for stirring racial tensions in the country, was the impetus for the downfall of the London-based firm this summer.

A communications team of six people for KPMG South Africa, with PR support from Johannesburg-based agency Orange Ink, is managing its response in the country, said KPMG global comms head Brian Bannister. Pierre Jacobs, South Africa head of marketing and communications at the consultancy, is overseeing the account.

"Our strategy is to hold ourselves to account and be responsible," said Bannister, who’s been on the ground in South Africa several times over the last few weeks. He explained that the firm’s staff has served as its "most effective conduit" in gauging public sentiment, disseminating its messages to the market, and engaging clients.

"[KPMG is being] as straightforward, honest, and direct as possible so [clients] understand all the facts," Bannister added. "We’ve been heartened so far by the response from our clients, [who] appreciate the honesty."

KPMG’s problems in South Africa share an epicenter with the scandal that caused Bell Pottinger’s demise: work on behalf of the Gupta family, which is linked to the country’s president, Jacob Zuma.
KPMG published the findings of an internal review of its South African operations in mid-September.

"That was a clear statement of what had gone wrong, what the responses to failings were, and what the way forward looked like," Bannister said. "We tried to be as candid as possible. We looked hard at what happened. And we’ve tried to be even clearer on the way forward."

KPMG South Africa’s CEO and COO resigned after the investigation concluded. Its new chief executive, Nhlamu Dlomu, has apologized and said the company will donate Gupta-related revenue to education and anti-corruption NGOs.

At least seven clients have fired the consultancy since news of the scandal broke. South African waste-disposal company Interwaste cut ties with KPMG and appointed Deloitte as its new auditor on Thursday, according to Reuters. Four of South Africa’s largest banks are also considering severing their relationships with the auditor, according to the Financial Times, and KPMG has had its membership with Business Leadership South Africa suspended.

‘What happens in South Africa doesn’t stay in South Africa’
Crisis communications experts said the company has responded slowly and it may not be able to contain the scandal to its South African unit. Levick CEO Richard Levick said critics are putting KPMG on alert that "what happens in South Africa doesn’t stay in South Africa."

"They’re responding as accountants do when they’re in the limelight, which is to look at your shoes rather than their own," he said. "It’s an introverted response."

Conroy Boxhill, principal of Gladiator RMS, said the scandal threatens KPMG’s value proposition: bringing integrity to the auditing process. The consultancy has to worry if client confidence can withstand scrutiny of its business.

"I’m sure the advice is to contain it in-market," he added. "The biggest risk is not so much the active components now; it’s people who are aware of what the implications are in terms of the brand’s credibility. It’s the customers that are not affected I would be most concerned about. The lawyers will address the issues in-country. For the broader brand, it’s about protecting trust."

KPMG has failed to adequately address how it will fix that breach in trust, Boxhill said.

"The solution they promoted was pro-KPMG, but not necessarily a solution of mutual value," he explained. "It didn’t [make] people feel like they got something out of it."

Boxhill urged KPMG to "dig in on its values and mission," contending the company should find a way to bring its core offering and culture to life, hire a third-party consultant, and encourage dialogue with stakeholders.

It’s no longer just a "South Africa unit issue," Boxhill said. "It’s a KPMG corporate issue."

However, Levick pointed out one of the company’s advantages: its sheer size.

"KPMG is almost too big to fail," he explained. "No one wants to see a limit of competition to only three audit firms with the banks there."

Gupta scandal ensnares more corporations
Late last month, McKinsey was the target of a lawsuit filed by South Africa’s main opposition party, alleging the consulting giant engaged in fraud, racketeering, and collusion.

The company did not respond to requests seeking comment. In a statement to CNN Money, it said, "We have not engaged in corruption or paid bribes. Neither the Gupta family nor any company publicly linked to the Guptas has ever been a client of McKinsey."

SAP has also been accused of authorizing payments to Gupta businesses as part of a kickback scheme. The company, which is conducting an internal investigation, suspended four executives in July, according to media reports.

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