Much has been said about blockchain potential to revolutionize the internet and usher in a new age of interconnectedness — one characterized by fairness, equality, privacy and security, popularly termed as “Web 3.0”. Several projects are building the infrastructure to enable this transition, of which the social media experience is an integral part.
Sapien Network, which has been building a decentralized social platform that gives power back to end-users, is one of those projects. Social platforms have enormous influence in shaping the opinions of the masses, and are unfairly designed in favor of the tech companies behind it.
With its utility token SPN, Sapien hopes to let users define the value of content, advertising influence and their overall social experience.
It’s no small task overhauling the web, however, and Sapien has been focused on developing the many underlying features that make up a radically new way of interacting online.
In Its Vision to Build Web 3.0, How Does Sapien Differ from Reddit and Steemit?
As is the case with other projects attempting to build Web 3.0, Sapien’s long-term goal is to build a tokenized version of a social platform that gives power to the users, which in turn allows them to combat misinformation, protect their data and secure their privacy through the use of tokens and decentralized governance mechanisms.
To that end, they are building an ecosystem of products in partnership with several other projects and third parties that will uphold the principles of the internet’s true intent: a platform for communication that cherishes free speech, privacy and democracy.
The current internet offers this to a degree, with platforms like Reddit and Steemit allowing users to share their opinions anonymously.
However, Sapien triumphs over Reddit by monetarily rewarding users for their content and curators for their moderation efforts, while also highlighting experts and their knowledge in certain fields. Additionally, there is a greater emphasis on users putting forth their ideas, rather than companies pushing their agenda.
With respect to Steemit, the advantage Sapien has is its Proof-of-Value consensus mechanism, which runs on the quantifiable value of content and reputation of communities. This is bolstered by the fact that it is also easier to create communities on Sapien’s platform.
Users are incentivized to act honestly through a reputation system, which also plays a part in platform governance, which we talk about later.
What users like best are tools that let them operate in the way they want and, knowing this, Sapien is also planning to implement public and private modes, and community tools, which lets them customize their social experience to their liking.
Indeed, customization is one of Sapien’s most salient features. These modes will allow users to choose either their real identity or a anonymous one, and this can be set according to the groups or subscriptions that one wishes to join.
When one switches between these groups, the private/public mode automatically toggles. In other words: one account, two different identities.
This is an important aspect in upholding a user’s privacy, which is an essential characteristic of Web 3.0. Of course, this privacy also extends to the chat systems, which are encrypted from end to end.
Not to be left unmentioned, Sapien’s marketplace allows users to buy goods on a peer-to-peer basis using their native tokens.
Sapien’s unique staking system also deserves a brief mention as content value is at the heart of the staking system, which is divided into various “pillars.” Each of the 8 pillars demands varying amounts of staked tokens, and grant different levels of user actions.
For example, the first level called “Access” allows user to perform only read-only actions, whereas staking more tokens into the “rewards engine” lets the user receive a greater amount of revenue from advertisements.
The system lets users decide how much they want to contribute and rewards them proportionally. The more a user stakes, the more they earn.
The reward engines will go live this month, letting users stake SPN for each action they take on the platform, such as creating HQ content, leaving comments, and voting on posts.
It is worth reading Sapien’s documentation on their staking system to get all the details on how it works.
The Sapien Network Roadmap Describes the Path Towards their Decentralized Vision
Consistent updates to keep the community informed about progress is a hallmark of a good project, and those interested in Sapien will be pleased to know that the team does so frequently on their blog.
As those posts will indicate, Sapien’s 2018 roadmap revolves around designing a user-friendly platform with an intuitive UI/UX, which we talk about shortly, and getting the word out that a decentralized social platform does exist and is ready for use.
Their overall roadmap stretches to 2020, around which time they hope to consistently add users to their platform. First, however, they must create a platform that can actually be used and this has been their focus in early 2018.
Sapien spent 2017 working on a private beta, developing Sapien into a blockchain application and completing the project’s whitepaper. Having done this, they felt confident enough to move onto the actual token sale, which conducted its first phase in Q1 2018.
What’s Next for Sapien in 2018
Sapien is taking the majority of the year to build the fundamental infrastructure for their platform and growing the user base. The following is an outline of their agenda for 2018.
Marketing, Brand Awareness and the Sapien Mobile App
Social platforms are a finicky endeavor. There were many before Facebook came into being, but none clicked in quite the same way as Facebook. A large part of a platform’s success comes down to word of mouth and a welcoming UI; and up and until Facebook, nothing had the same effect as Facebook’s news feed and the inviting red notification contrasted against a blue background.
The Sapien team knows that growing a user base is at the heart of their project’s success and has thus put a lot of effort into marketing and brand awareness.
The first half of 2018 was focused on marketing and UI/UX, described below. The former included airdrops, the Sapien rewards program, competitions and a ceaseless effort by the team to educate the public on all of the different ways decentralized social platforms are better than current platforms. The Sapien team also implemented a payout to content creators and curators.
Being aware of the fact that most people use social media on their phones, Sapien released a mobile app version of the Sapien platform on June 14, which is a key development in creating growth. Additionally, they are also working on porting the platform to a dapp.
Naturally, marketing will have to be a continual effort, at least until Sapien’s adoption reaches critical mass. It is not the only project in this space, which is further reason as to why publicizing its uniqueness will be important. The team hopes to acquire 10,000 users every month by Q4 2018, which is a reasonable ambition.
For any service in which people are expected to spend a lot of their time, the actual experience of using the platform must be intuitive and unobstructive. Think Facebook, and the ease with which you can view updates from your friends, as opposed to MySpace or Orkut, which was extremely cumbersome by comparison.
That’s why the team has been working hard on perfecting the UI/UX of the Sapien platform.
Pictured below is a preview of the proposed update to the UI that is expected with Sapien’s next platform update. The clean approach draws the attention to the content, with easy accessibility to categories, filters and user account options.
The UI will continue to remain a subject of development efforts throughout 2018 and beyond.
2019 and Beyond
2019 is a whole different ball game for the project, shifting their focus from marketing to platform development and general refinement.
Democratized Autonomous Platform
A key feature of the Sapien platform is the Democratized Autonomous Platform (DAP) which is a mechanism that allows users to have their say on the project’s roadmap through a proposal system. SPN stakeholders will have the power to influence organizational decisions, suggest new features for the platform, and modify marketplace rewards.
The DAP will function on a staking mechanism and random set of users will be selected as validators. Furthermore, a reputation system exists to ensure that malicious actors are penalized for dishonest behaviour.
The ultimate goal is to create a system that is self-moderating and fully autonomous, where users themselves can decide what is best for the platform.
The team will be building the infrastructure for the DAP in Q1 2019.
Bolstering the Marketplace and Other User-Centric Features
The marketplace goes beyond just goods, as the SPN token plays the most important role in deciding how valuable a content is, and the more charitable goal of fighting fake news and loq quality content.
Creators receive tokens for worthwhile content from other users, and this removes the dependance on advertisements for revenue. As Sapien grows more popular, the team wants to add to the list of available items on the marketplace, which will become the economic hub that defines the value of content creators.
This is expected to happen in Q2 2019.
Scaling to a Million Users
Growth remains one of the biggest challenges and pulling in developers will be critical in overcoming that challenge. By Q3 2019, the team hopes to open up the developer platform to third-party applications and integrations, which would mean that many more services and products could be built on top of the Sapien Network.
In tandem with their marketing efforts, this could put them on track to achieve their goal of optimizing the platform to scale, and add a million new users every month from Q4 2019, as they have stated in their roadmap.
For a detailed description of roadmap and features, we recommend reading Sapien’s whitepaper.
Past Successes Will Instill Confidence for Their Ambitious Goals
Despite the relative newness of the Sapien platform, the project has already established multiple partnerships and completed major milestones.
Most recently, Sapien partnered with Civic, the digital identity project, and was listed on LAToken. The list of collaborations extends to UC Berkeley’s Blockchain Lab, Rocket.Chat, Onfido, ComplyAdvantage and many more. The full list of partnerships can be viewed here.
The common theme among these partnership appears to be growth and utility for its users. Each one of the varied list of partners serves different purposes and helps build a robust decentralized social platform, who in collaboration with Sapien, expand the advantages of the platform.
For instance, ComplyAdvantage offers Anti-Money Laundering services for businesses to safely conduct their operations, Onfido offers biometrics for token sale security and Rocket.Chat offers a feature rich chat system.
Sapien has also checked off some notable milestones since the project really began its development cycle at the beginning of the year.
Most significant of all was the launch of the beta version of the marketplace and merchandise store. The marketplace was the first project of its kind to accept payments in native tokens, via Metamask, and allows users to purchase virtual and physical goods, including premium content, clothing and accessories.The team expects to add more goods to the store in the months to come.
We also mentioned the launch of the mobile app, which is available on both Android and iPhone.
Lastly, Sapien’s beta program, launched on April 30, allowed its ardent followers to test the platform and publish content, which resulted in the creation of over 7,000 posts and 150 micro-communities.
If they can continue to consistently develop and meet their goals, Sapien can very well reach their ambitious goal of building Web 3.0.
The sheer scale of Sapien’s efforts to overhaul the online social experience is made clear in their roadmap.
There are 2 major sides to their development efforts: marketing and infrastructure. The former is rather straightforward, given that a use case such is directly dependent on the user base. While marketing efforts may be an obvious necessity, it is no means easy and this is why Sapien is spending so many resources in raising awareness.
Infrastructure development is far more interesting, and arguably more important than marketing. Sapien has the potential to get several third parties and partners to deliver useful and creative products on the platform, which are created with end-users in mind. These end-users in turn purchase and support these features, further emphasized by elements of the platform like the Democratized Autonomous Platform.
The Web 3.0 may not be around the next corner, but it is coming, and it is platforms like the Sapien Network that will be beating a path towards it. With the successful implementation of user-centric features that preserve security, privacy and free speech, the Sapien network could be the platform that brings in the age where we are in control of our social media experience, and where we can decide what information is worth viewing and disseminating.
How McKinsey Lost Its Way in South Africa – a special report
The McKinsey & Company offices in Sandton, Johannesburg’s financial center. In 2015, the consulting giant entered into a contract that turned out to be illegal.CreditGulshan Khan for The New York Times
JOHANNESBURG — The blackouts kept coming. The state-owned power company, Eskom, was on the verge of insolvency. Maintenance was being deferred. And a major boiler exploded, threatening the national grid.
McKinsey & Company, the godfather of management consulting, thought it could help, but was not sure that it should, according to people involved in the debate. The risk was huge. Could McKinsey fix the problems? Would it get paid? Would it be tainted by South Africa’s rampant political corruption?
In late 2015, over objections from at least three influential McKinsey partners, the firm decided the risk was worth taking and signed on to what would become its biggest contract ever in Africa, with a potential value of $700 million.
It was also the biggest mistake in McKinsey’s nine-decade history.
The contract turned out to be illegal, a violation of South African contracting law, with some of the payments channeled to an associate of an Indian-born family, the Guptas, at the center of a swirling corruption scandal. Then there was the lavish size of that payout. It did not take a Harvard Business School graduate to explain why South Africans might get angry seeing a wealthy American firm cart away so much public money in a country with the worst income inequality in the world and a youth unemployment rate over 50 percent.
And a bitter irony: While McKinsey’s pay was supposed to be based entirely on its results, it is far from clear that the flailing power company is much better off than it was before.
The Eskom affair is now part of an expansive investigation by South African authorities into how the Guptas used their friendships with Jacob Zuma, then the country’s president, and his son to manipulate and control state-owned enterprises for personal gain. International corruption watchdogs call it a case of “state capture.” Lawmakers here call it a silent coup. It has already led to Mr. Zuma’s ouster and a moment of reckoning for post-apartheid South Africa.
Yet despite extensive coverage of the scandal by the local news media, one question has remained largely unanswered: How did McKinsey, with its vast influence, impeccable research credentials and record of advising companies and governments on best practices, become entangled in such an untoward affair?
McKinsey admits errors in judgment while denying any illegality. Two senior partners, the firm says, bear most of the blame for what went wrong. But an investigation by The New York Times, including interviews with 16 current and former partners, found that the roots of the problem go deeper — to a changing corporate culture that opened the way for an aggressive push into more government consulting, as well as new methods of compensation. While the changes helped McKinsey nearly double in size over the last decade, they introduced more reputational risk.
The firm also missed warning signs about the possible involvement of the Guptas, and only belatedly realized the insufficiency of its risk management for state-owned companies. Supervisors who might have vetoed or modified the contract were not South African and lacked the local knowledge to sense trouble ahead. And having poorly vetted its subcontractor, McKinsey was less than forthcoming when asked to explain its role in the emerging scandal.
Since the Eskom disclosures, much of McKinsey’s business in South Africa has evaporated. Mr. Barton has made six trips there to assess the damage and make amends, and McKinsey has asked its 2,000 global partners to repay South Africa, where it is under investigation.
Indeed, the harm to the McKinsey brand is more profound than the fallout from the epochal Galleon hedge fund case almost a decade ago, in which McKinsey’s former managing director and a senior partner were convicted on charges related to insider trading. Neither man acted on behalf of McKinsey.
More broadly, the scandal in South Africa — which has ensnared several other overseas companies — underscores the risks that arise as governments increasingly turn over responsibilities to consultants who operate mostly in secret, with little or no public accountability.
McKinsey built its brand as the ubiquitous adviser to businesses great and small. But in recent years, it has created an increasingly powerful unseen presence as counselor to governments across the globe.
The extent of that global influence is difficult to evaluate because, as a matter of policy, the firm will not reveal clients or the advice it gives.
Even so, by examining government records, along with McKinsey publications and other company documents, The Times found that the firm shapes everything from education, transportation, energy and medical care to the restructuring of economies and the fighting of wars.
McKinsey’s clients include sovereign wealth funds worth more than a trillion dollars, as well as what one marketing brochure describes as “defense ministries, military forces, police forces and justice ministries in 15 countries,” where the company consults on such matters as the maintenance and support of “armored personnel carriers; minesweepers, destroyers and submarines; and fast jets and transport aircraft.”
McKinsey “is a hidden, unaccountable power that has a prestigious face,” said Janine R. Wedel, a professor at George Mason University who has written extensively on what she calls “the shadow elite.” She added, “Think of them as a repository of the most intimate information that governments and others have, from what they are investing in to who wields influence.”
McKinsey refused to work in South Africa until it embraced democracy in the mid-1990s, but records show that it consults for many authoritarian governments, including the world’s mightiest, China, to a degree unheard of for a foreign company. Late last year, two McKinsey partners spoke at a meeting of the state-controlled conglomerate China Merchants Group that focused on carrying out Communist Party directives. McKinsey is also advising the Saudi crown prince, Mohammed bin Salman, as he seeks to make its economy less reliant on oil.
While confidentiality is necessary in private business, it can become problematic when public money is involved, as in South Africa, or for that matter in the United States, where McKinsey has advised more than 40 federal agencies, including the Federal Bureau of Investigation, the Central Intelligence Agency, the Defense Department and the Food and Drug Administration.
Since President Trump took office, McKinsey has greatly expanded consulting for Immigration and Customs Enforcement through that agency’s office of “detention, compliance and removals.” Their contracts with the agency exceed $20 million. Asked about those contracts, a McKinsey spokesman said the company’s work focused primarily on administration and organization and was unconnected to immigration policy, including the separation of children and parents at the border.
Certainly, consulting firms other than McKinsey keep client lists confidential and work for authoritarian governments. And McKinsey has undeniably been a force for good, through its pro bono work and by helping many organizations become more efficient engines of economic growth. As for the quality of people McKinsey hires, many have gone on to run some of the world’s biggest and most successful companies.
The Firm Rewrites the Rules
In 2012, a new class of recruits — the worker bees in McKinsey’s hive — settled in at its office in Sandton, Johannesburg’s financial center, often called the richest square mile in Africa. They were part of a notably diverse group. Given South Africa’s historic battle against apartheid, it was a point of pride at McKinsey that more than 60 percent of the office’s 250 employees were black South Africans. Many described their work as a calling, an opportunity to make a difference in a young and still-struggling democracy.
Years earlier, McKinsey’s South African partners had decided that to be relevant, they had to embrace the public sector, because of its outsize role in South Africa’s economy. But a South African government weakened by corruption also represented a risk to McKinsey’s sterling reputation — a reputation forged by its founder, a math whiz from the Ozarks named James O. McKinsey, and nurtured by his disciple and successor, Marvin Bower.
Over the decades, the firm — that’s what it calls itself — became confidant to chief executives and presidents, simultaneously the secret-keeper of corporate America and its most effective evangelist, preaching the McKinsey way to companies across the globe.
In 1952, McKinsey helped the incoming President Dwight D. Eisenhower staff his new administration. Later it helped to set up NASA, and helped to invent the Universal Product Code — the bar code. The company was instrumental in Wall Street’s rise as a dominant force in the economy, providing SWAT teams of brainpower to help Merrill Lynch, Citigroup and countless other financial companies adapt and move into new markets.
There came to be a not entirely hyperbolic narrative of McKinsey’s preordained white-shoe path through the world — the Harvard Business School recruit turned McKinsey consultant turned rising corporate titan. And few companies have a better track record of producing them: Louis V. Gerstner Jr., who oversaw I.B.M.’s turnaround in 1990s, is a McKinsey veteran. So is Sheryl Sandberg of Facebook, and Google’s chief executive, Sundar Pichai.
“So pervasive is the firm’s influence today that it is hard to imagine the place of business in the world without McKinsey,” wrote Duff McDonald, author of “The Firm,” a 2013 book about the company.
McKinsey has had its share of bad publicity, but much of it has focused on people who have already left.
One very public flap emerged in the summer of 1970, when The Times (also a McKinsey client over many decades) published front-page articles detailing an explosion in consulting fees paid out by New York City. At the center of the controversy was a young McKinsey partner, acting as an unpaid official in the city’s budget bureau even as the city was spending taxpayer dollars on contracts with the firm.
It looked bad. And while McKinsey was cleared of wrongdoing, the experience helped steer the company away from government work, avoiding the publicity, the ethical quandaries and the generally lower fees that came with public contracts.
But if McKinsey had learned a lesson, it soon began to unlearn it.
By the early 2000s, McKinsey re-entered the public sphere in a major way — and now government contracts and work with state-owned companies make up 16 percent of the firm’s revenues.
There was another lesson being unlearned as well: Work for a fixed fee.
In the late 1980s, an up-and-coming partner in McKinsey’s energy practice, Jeffrey K. Skilling, had been part of a committee considering whether payment should be based on delivered results, such as reduced costs.
As Mr. Skilling told the journalist Anita Raghavan, the panel concluded it would not work, because getting paid based on impact, for example, could give McKinsey an incentive to tell clients to reduce costs even if it was not in their interest. Doing that, Mr. Skilling said, “could destroy” the firm.
Mr. Skilling — who would become Enron’s chief executive and end up in federal prison after its vast accounting fraud was revealed — saw the ethical trap. A future generation of McKinsey partners came to a different conclusion.
Starting around 2001 or 2002, McKinsey again began to rethink its fee-for-service rule. Its competitors were already changing over. After years of deliberation and study, the firm agreed in 2011 to allow “at risk” contracts alongside its traditional fee structure.
“There’s been client demand for that, clients saying we like that approach,” Mr. Barton said. “If you don’t get the results you want, then don’t pay us.”
With this new pay policy and avid embrace of government work, the firm’s South African partners had been handed a seductive vision of the future. Some of McKinsey’s young associates in Johannesburg would end up on the ill-fated Eskom deal. But first, there was an ambitious project at the state-owned rail and port agency, Transnet.
‘Trying to Play God’
McKinsey had worked with Transnet since 2005, embedding itself so deeply that one board member wondered how the agency could ever oust the consultants should the need arise. Still, Transnet remained an underachiever, its ports inadequate, its freight rail system moribund.
Then, in February 2011, Transnet got a new chief executive, Brian Molefe, who had been running the country’s public pension fund.
His tenure began with controversy. The South African media had already linked him to the Guptas, a family led by three brothers who arrived in South Africa a quarter-century ago and became ostentatiously wealthy through a web of businesses, once commandeering an air force base to fly in wedding guests from India.
McKinsey and Mr. Molefe set out to revitalize the agency by buying as many as 1,064 new locomotives in what would be the biggest government procurement in South African history. But McKinsey would have to take on a subcontractor, under a South African law requiring companies that worked with state-owned enterprises to have black-owned partners.
According to prosecutors, the Guptas saw these black-empowerment companies as a way to empower themselves, and state-owned companies like Transnet became willing accomplices. Transnet steered McKinsey toward working with a company, Regiments, owned in part by a businessman linked to the Guptas.
But weeks before the winning bidders were announced, McKinsey bowed out, saying the process was moving too quickly.
As it turned out, Transet agreed to pay about $1 billion more than the agreed-upon price for the locomotives. And, as leaked documents published last year in the local media revealed, one of the winning bidders, a state-owned Chinese company, paid more than $100 million to shell companies tied to another Gupta associate, Salim Essa.
Although it is unclear what, if anything, Mr. Molefe knew about those payments, he left Transnet to search for a new challenge. He found it in 2015 as the chief executive at Eskom.
The power company had long been the public’s favorite punching bag, notorious for its high rates, sputtering from one crisis to the next. Officials worried about getting enough coal, about delaying maintenance to keep electricity flowing. During the World Cup in 2010, Eskom feared that the lights might go out at any moment with the whole world watching.
To address Eskom’s financial troubles, McKinsey and Eskom drew up an audacious new reorganization plan.
McKinsey’s team leader on the project was a popular partner, Vikas Sagar, a stylish, Porsche-driving fitness buff in his 40s, known for hugging colleagues when the spirit moved him and fiercely charting his own course. He was assisted by Alexander Weiss, a serious reverse image of Mr. Sagar, who thought little of commuting between his home in Germany and Johannesburg.
McKinsey’s proposal appeared perfect for a company in desperate financial straits. Eskom would pay only if the plan produced savings. Then the consultancy would get a percentage. All the risk, ostensibly, would be McKinsey’s, since it might spend heavily but get nothing in the end.
Yet for all the upside, the proposal had a Trojan-horse quality: Eskom would hire McKinsey not knowing what the final bill would be.
The plan left several McKinsey partners uneasy. Could Eskom absorb and apply McKinsey’s recommendations? And how would a contract with an anticipated payout in the hundreds of millions of dollars be received by South Africans? Also troubling was the fact that McKinsey had won the contract without competitive bidding.
“You are betting the office,” one former partner recalled warning colleagues. If the final payout became public, that official added, “You are going to be slaughtered just for the size.”
The contract’s structure — with the risks it posed for McKinsey — was not universally embraced, either. “Trying to do a 100 percent at-risk contract at Eskom is trying to play God,” a former partner said. “You are really guaranteeing that I can turn around everything, no problem.” To accomplish that, McKinsey might need more political clout and expertise than it could deliver.
Most of McKinsey’s current or former partners who spoke to The Times requested anonymity because they were not authorized to speak to the media. McKinsey did provide several partners for interviews on the condition that their names not be used. Mr. Sagar did not respond to repeated messages seeking an interview, and Mr. Weiss declined to speak to The Times.
Concerns notwithstanding, the prospect of a big payday made the contract popular not only in Johannesburg but throughout McKinsey’s global empire. Supporters included two senior partners with oversight in energy and power: Yermolai Solzhenitsyn, the novelist Aleksandr Solzhenitsyn’s eldest son, in Moscow, and Thomas Vahlenkamp in Düsseldorf, Germany. Both declined to be interviewed.
In the end, Mr. Sagar and his allies carried the day.
In situations like these, risk managers are supposed to serve as corporate lifeguards, ready to whistle back dealmakers if they expose the company to unnecessary legal and reputational peril. Yet the Eskom contract was approved with less scrutiny than regular public contracts. That was because state-owned enterprises were treated as private corporations, where reviews focused on commercial viability, not political risk.
Had McKinsey vetted the Eskom contract properly, it might have spared itself some of the grief to come. The contract, it turned out, was illegal: The power company had failed to get a government waiver from the standard fee-for-service payment, despite assuring McKinsey that it had done so.
“For the scale of the fee, they were prepared to throw caution to the wind, and maybe because they thought they couldn’t be touched,” said David Lewis, executive director of Corruption Watch, a local advocacy group.
A Mystery Partner Is Unmasked
If McKinsey fell short in vetting the Eskom contract, the same could be said about the scrutiny of its minority partner, a company called Trillian Management Consulting.
McKinsey’s putative marriage to Trillian produced its first awkward moments when its chief executive, Bianca Goodson, showed up angry at the consultancy’s Sandton headquarters on a January evening in 2016. Under McKinsey’s agreement with Eskom, Ms. Goodson’s company was supposed to provide consulting support, but with only two employees was unsure how to do that.
Feeling ignored and marginalized, Ms. Goodson planned to raise her concerns at a meeting of McKinsey partners. Four hours in, she got her chance. But before she could finish, Ms. Goodson wrote in an account later submitted to Parliament, a McKinsey team leader abruptly left the room, another partner said not to worry too much about work because she would still get her financial cut, and another made “whipping sounds and gestures,” an apparent inside joke, prompting laughter among the partners.
Ms. Goodson left more disillusioned than before she arrived. Two months later, she resigned.
During the internal debate over the Eskom deal, several partners had questioned whether McKinsey knew enough about who precisely was behind Trillian. Now rumors began reaching the McKinsey office that Trillian Management and its parent company, Trillian Capital, might have ties to the Gupta family.
McKinsey knew little about Trillian — a new company, with no track record, that had broken off from McKinsey’s previous minority partner, Regiments, after a business dispute. What’s more, Trillian had refused McKinsey’s requests to divulge its ownership.
Even so, McKinsey chose to kick the can down the road and continue working. What McKinsey did not yet know was that Eskom’s chief executive, Mr. Molefe, had placed dozens of phone calls to one of the Gupta brothers during and after contract negotiations.
An influential senior partner in Johannesburg, David Fine, had grown increasingly uneasy about Trillian, according to his testimony to Parliament. One source of concern: Over the objections of two senior partners, McKinsey’s team leader, Mr. Sagar, had been meeting with Eskom and Trillian without any other McKinsey officials present.
Eventually McKinsey hired a private investigative firm to dig into Trillian’s background. When that did not produce any definitive leads, Mr. Fine began running internet searches on companies named Trillian and found the name “S. Essa” listed as a director. Weeks later, the South African media revealed the majority owner of Trillian as none other than Salim Essa, the Gupta associate whose shell companies had received more than $100 million in the locomotive deal.
On March 30, 2016, McKinsey told Eskom in writing that it was severing its ties to Trillian. But while McKinsey had finally taken a stand, it quietly undercut that decision by continuing to work alongside Trillian — independently, rather than as a subcontractor.
To the consternation of some McKinsey partners, that arrangement continued until the end of June 2016. With the local media revealing ever more of the Gupta family’s influence, Eskom — not McKinsey — prematurely terminated the contract. Mr. Molefe resigned that November. Mr. Molefe did not respond to requests for comment for this article; a lawyer for the Guptas declined to comment.
The abbreviated tab for barely eight months of work: nearly $100 million, with close to 40 percent going to Trillian.
In the United States, with an economy over 50 times as big as South Africa’s, a contract that size might have gone unnoticed. But in South Africa, millions of dollars flowing out of a struggling public utility and into the pockets of consultants driving Porsches and Ferraris created an unsavory image that required a response.
Yet McKinsey kept quiet, one of many decisions the firm would come to regret.
A Surge of Public Scrutiny
Late the next year, South Africa’s National Prosecuting Authority would deliver a stinging summation of the Eskom case. McKinsey, the prosecutors would allege, had been instrumental “in creating a veil of legitimacy to what was otherwise a nonexistent, unlawful arrangement.” That arrangement, in turn, allowed a company controlled by the Gupta associate, Mr. Essa, to profit.
That conclusion was based in part on a letter obtained by a widely respected human-rights advocate, Geoff Budlender, who had been asked to investigate Trillian, including its ties to McKinsey. For the first time, McKinsey was being publicly held to account.
Mr. Budlender asked to interview McKinsey but was told to put his questions in writing, which he did. In response to one question, McKinsey denied working “on any projects” with Trillian, as either a subcontractor or a black-empowerment partner.
With his trap laid, Mr. Budlender pounced. He attached a Feb. 9, 2016, letter from the McKinsey team leader, Mr. Sagar, to Eskom. “As you know,” Mr. Sagar had written, “McKinsey has subcontracted a portion of the services to be performed” to Trillian. The letter went further and authorized Eskom to pay Trillian directly, rather than through McKinsey, as was customary for a subcontractor.
Asked to explain the conflicting answers, a McKinsey lawyer, Benedict Phiri, took weeks to respond, saying he needed to speak with his colleagues. Finally, he wrote that, given ongoing legal disputes, it was “inappropriate” to comment.
Mr. Budlender concluded that McKinsey’s denial was false. “I have to say that I find this inexplicable, particularly having regard to the fact that McKinsey presents itself as an international leader in management consulting and given the widespread public interest in this matter,” he wrote.
In the interview with The Times, the McKinsey managing partner, Mr. Barton, said the office leadership in Johannesburg had been unaware of Mr. Sagar’s letter, and had only learned of it from Mr. Budlender. But three current or former McKinsey partners told The Times that Mr. Sagar’s German colleague, Mr. Weiss, and the firm’s lawyer, Mr. Phiri, also knew of the letter.
McKinsey’s lawyers said that the letter should never have been sent. Even so, they said, the authorization to pay Trillian referred to another, much smaller contract, and it was predicated on Trillian’s meeting certain conditions.
In late 2017, a parliamentary committee began calling witnesses as part of its own investigation of state capture. One witness was Ms. Goodson, the former Trillian executive, who said she had been told soon after being hired that Mr. Essa owned Trillian. She also testified about meeting Mr. Sagar and Mr. Essa in Melrose Arch, a wealthy enclave with high-end retail and sidewalk dining where deals are made.
McKinsey sent Mr. Fine, who withstood nearly four hours of questioning. He addressed criticism head on, beginning with the size of the contract. “We should have absolutely had a fee structure that was capped,” he said.
Mr. Fine, who had no role in the Eskom contract, said he had been assured that Eskom did derive measurable benefits from McKinsey’s consulting. Yet his comments betrayed an element of doubt. As a native South African, he said, he couldn’t help asking himself, “If these benefits were there, why then has the price of electricity gone up and has the liquidity position of Eskom deteriorated?”
Mr. Barton, in his interview with The Times, insisted that his firm helped Eskom solve important problems. He expressed frustration at the overarching narrative that McKinsey took money for little work. “There was real work being done,” he said.
Grieve Chelwa, an economics lecturer at the University of Cape Town, said in an interview that McKinsey’s top ranks in South Africa were overwhelmingly filled by Europeans who “may not have had the political antennae” to pick up potential problems.
“The less charitable interpretation is that they knew,” said Dr. Chelwa, until recently a fellow at Harvard’s Center for African Studies. “They made a risk calculation that we know what is going on or we have an idea what is going on, but then there is 1.6 billion rand to make, and what is the probability that all this falls in our faces? They made that kind of calculation and they said, ‘O.K., the risk is worth doing,’ and they did it.”
Hard Lessons Learned
It is a risk McKinsey now regrets taking.
The advocacy group Corruption Watch referred the firm’s conduct to the United States Justice Department for possible violations of the Foreign Corrupt Practices Act. McKinsey declined to say whether federal investigators had contacted the firm; the Justice Department declined to comment. The National Prosecuting Authority in South Africa has frozen the proceeds of the Eskom contract, pending the completion of the government’s investigation. And several banks and corporations, including the South African arm of Coca-Cola, have said they will not do business with McKinsey until investigations are concluded.
McKinsey vehemently denies breaking any laws, and says that this view has been validated by a monthslong internal inquiry involving more than 50 lawyers reviewing millions of documents and emails.
The firm does admit mistakes. McKinsey will now give state-owned companies the same scrutiny it would government agencies or ministries. That policy may have a major impact in China, where McKinsey has advised at least 19 of the biggest state-owned companies as well as the country’s powerful planning agency.
In a statement, McKinsey said that it was “not careful enough about who we associated with,” that it should not have worked alongside Trillian after cutting its ties and that it did not communicate properly with Mr. Budlender. “We are embarrassed by these failings, and we apologize to the people of South Africa, our clients, our colleagues and our alumni, who rightly expect more of our firm.”
At the end of June, Mr. Barton, 55, will step down as previously planned. McKinsey’s nearly 600 senior partners voted to replace Mr. Barton with Kevin Sneader, a British citizen. Last weekend, as The Times was preparing this article after weeks of questioning McKinsey about its secretive culture, The Financial Times published an interview with Mr. Sneader, who said the firm could no longer “hide from the outside world.”
Mr. Sagar has left the firm with his full benefits in place. Mr. Weiss has been sanctioned, though McKinsey declined to say what that involved. The firm’s Johannesburg lawyer, Mr. Phiri, resigned, and the head of McKinsey’s Africa practice was transferred to Hong Kong.
Mr. Fine, who now leads McKinsey’s worldwide public-sector practice in London, cast the fallout from Eskom in personal terms. “I have seen the anger and disappointment in my clients’ eyes,” he told the South African Parliament. He added, “I’ve experienced rejection from people that I really love and trust, and that’s been hard.
BANK OF CHILE HIT BY CYBER-ATTACK, HACKERS ROB MILLIONS
Shares in the Bank of Chile were down on Monday after it confirmed hackers had syphoned off $10 million (roughly Rs. 67 crores) of its funds, mainly to Hong Kong, though the country’s second-largest commercial bank said no client accounts had been impacted.
The cyberheist is the latest in a string of such attacks, including one in May in Mexico in which thieves used phantom orders and fake accounts to steal hundreds of millions of Mexican pesos out of the country’s banks, including Banorte.
Shares in the Bank of Chile, which is controlled by the Chilean Luksic family and Citigroup, were down 0.47 percent at CLP 100.4 ($.16) in mid-day trading.
Bank CEO Eduardo Ebensperger told Chilean daily La Tercera in an interview on Saturday that hackers had initially used a virus as a distraction, prompting the bank to disconnect 9,000 computers in branches across the country on May 24 to protect customer accounts.
Meanwhile, the hackers quietly used the global SWIFT bank messaging service to initiate a series of fraudulent transactions that were eventually spotted by the bank and cancelled but not before millions were funnelled to accounts abroad.
“The [attack] was meant to hurt the bank, not our customers,” Ebensperger said.
Ebensperger said a forensic analysis conducted by Microsoft had determined the attack was the work of a sophisticated international group of hackers, likely from eastern Europe or Asia, and that the bank had filed a criminal complaint in Hong Kong.
The bank said in a May financial statement that it would work with insurers to recoup the lost funds.
source: Gadgets 360
DIGITAL DELIVERS FINANCIAL REWARD FOR REFINERS, BUT CUTTING-EDGE TECHNOLOGIES COULD UNLOCK EVEN MORE VALUE, ACCORDING TO NEW ACCENTURE RESEARCH
NEW YORK; June 5, 2018 – Refiners are gaining financial benefits from digital technologies but are missing out on the additional value that the most cutting-edge technologies could provide, according to new Accenture (NYSE: ACN) research.
“The Intelligent Refinery,” Accenture’s second annual study on digital technology in the refining industry, is based on a survey of approximately 170 executives, functional leaders and engineers at refiners globally. In addition to addressing the financial benefits that digital technologies can provide, the research also suggests that refiners are not investing sufficiently to address the increasing number of cyberattacks resulting from the proliferation of digital technologies.
Forty-one percent of respondents reported that their company can now determine the financial value of using digital technologies, including 30 percent who reported that the technologies increased their refining margins by more than 7 percent in the last 12 months. One-fifth (20 percent) of respondents said digital technologies are adding US$50 million to US$100 million or more in value to their business, with another one-third (33 percent) of respondents citing between US$5 and US$50 million.
This tangible financial benefit may explain why more than half (59 percent) of companies surveyed — approximately the same proportion as in last year’s survey — are spending more or significantly more on digital technologies than they were 12 months ago. Additionally, three-quarters (75 percent) intend to increase spending in the next three to five years, up from just over 60 percent in last year’s survey, indicating that demand for digital technologies remains strong.
Likewise, almost half (48 percent) of refiners now rate the use of digital technologies within their company as mature or semi-mature (up from 44 percent in last year’s survey). At the same time, however, most refineries have yet to move beyond deploying well-established digital technologies, such as analytics.
Indeed, when asked to identify the digital technologies driving the greatest margin improvement in refining operations, respondents most often identified advanced process control and advanced data analytics, cited by 61 percent and 50 percent of respondents, respectively. These are also the technologies to which refiners expect to allocate the largest proportion of their digital budget over the next 12 months. Cutting-edge technologies that could unlock additional value – including internet of things sensors and edge computing, mixed reality, mobility and blockchain/smart contracts – are only seeing partial adoption or pilot programs and are likely to receive less investment than the other well-established technologies over the next year.
In light of this, there is a need for more effective management of refiners’ digital strategies, with one-quarter (24 percent) of executives saying there is currently no clear role within the organization driving the digital strategy. In fact, 43 percent reported that this lack of a clear digital strategy is a barrier preventing further adoption of digital technologies in their refineries.
However, change is afoot. While only 11 percent of respondents said their company currently has a chief digital officer driving the digital agenda, many refiners are making governance changes to drive greater digital transformation and address the convergence of information technology and operational systems. Specifically, one-third (34 percent) are creating new organizational structures, more than one quarter (28 percent) are launching a steering committee, and 15 percent are creating new C-level positions.
“Refiners are currently reaping just a fraction of the value that digital can yield,” said Tracey Countryman, managing director for Global Resources Industry X.0, Accenture. “The next step will be to combine and deploy multiple technologies at scale to totally reinvent business processes and drive plant-wide transformational change. Our recent Accenture Disruptability Index pinpointed the energy industry as the most susceptible to future disruption. Increased and tactical digital investment can better enable the efficiency and performance improvements to help refiners weather the storm. There are signs refiners have realized this and are taking action to capture these benefits.”
Rising number of cyberattacks requires greater investment to bolster cyber defenses
With a growing number of cyberattacks, there comes the associated need to constantly upgrade cybersecurity resilience and response. Indeed, 28 percent of respondents said they are seeing more or significantly more cyberattacks than last year. Most worryingly, at a time when operations are becoming increasingly connected and exposed to these kinds of threat, one-third (33 percent) of respondents said they don’t know how many attacks they are experiencing.
The need becomes more pressing considering that 38 percent of respondents said they see data security as a barrier to adopting digital technologies in their organization. Among the risks respondents most often associated with cybersecurity are operational impact (67 percent), impact on workforce health and safety (39 percent) and data breaches (39 percent).
However, only 28 percent of executives cited digital tools to improve cybersecurity in one of their top three priority areas for investment in digital technologies. Respondents were more concerned about how lack of digital investment will affect their competitiveness (cited by over 67 percent), how digital can support cost reduction and improve their margins (64 percent) and how weak digital investment might affect their operational reliability (58 percent).
“With the increased exposure and risk from ever-greater connectivity of digital technologies comes a need to invest to stay at least a step ahead of the growing threat,” said Jim Guinn, a managing director at Accenture who leads the cybersecurity practice within the company’s Resources operating group. “In order to do that investing now in fundamental security capabilities will be crucial to safeguard future operations.”
The online survey was conducted in March 2018 by PennEnergy Research in partnership with the Oil and Gas Journal. The survey was developed with HSB Solomon Associates LLC, a benchmarking and global advisory services company for the global energy industry. Respondents are subscribers to PennWell publications and comprised 169 refining industry professionals across 48 countries, including executive and mid-level management, business unit heads, engineers and project managers from a cross-segment of the industry.
Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions – underpinned by the world’s largest delivery network – Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 442,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.
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