KPMG SA to cut staff and fly in international reinforcements for damage control

Following alleged involvement in the Gupta scandal, and the prolonged period of backlash that has followed, global professional services firm KPMG has announced yet another restructuring of its operations in South Africa. The new plan involves large-scale cutbacks in expenditure and staff, and a call to the firm’s international partners to fly in for support.

The Gupta scandal broke midway through last year, and caused repercussions across South Africa, spanning the domains of business, politics, and the media. As an ultra-wealthy and well-connected family in South Africa, the Guptas have repeatedly been accused of leveraging their political reach to help their business, particularly over the last decade when Jacob Zuma has been in power.

Last year, it came to light that the family’s close ties with Zuma’s son Duduzane had been exploited to win a contract worth nearly R2 billion with local power company Eskom – a contract that global consulting firms McKinsey & Company and KPMG were both involved in implementing.

Since news of the scandal broke, both firms have held similar positions in the media: that they were not aware of the ties, but were apologetic about the negligence nonetheless. “We are sorry for the distress this matter has caused the people of South Africa. We are taking a hard look at all of our practices in the country,” said Dominic Barton, Global Managing Partner for McKinsey.

Nevertheless, both firms have suffered considerable blows to their operations in the country, having lost a string of clients over the last year. McKinsey was the first to suffer, losing contracts with Standard Bank and Absa immediately, and subsequently losing its contract with Nedbank.

KPMG, meanwhile, immediately began a restructuring process, starting with a complete revamp of its leadership in the country, followed by the addition of experienced members to its senior ranks. Despite its best efforts, however, the firm suffered earlier this year, when the office of the Auditor General terminated its ties with KPMG, followed by a termination from Absa.

“We are disappointed by, but fully accept, the decision, We have implemented far-reaching changes over the past seven months to all aspects of the firm including governance, quality, and risk management,” said a statement from the firm in response to Absa’s decision. 

Now, in an effort to contain the damage, the firm has announced comprehensive plans for restructuring in the country. The plans involve the retreat of the firm’s business to four offices, namely those in Johannesburg, Cape Town, Durban, and Port Elizabeth, and the consequent departure of as many as 400 professionals  from the firm.  

On the skimming of operations, Nhlamu Dlomu, the CEO of KPMG South Africa said that it “is a difficult day for us, (but the firm) simply did not have the business for the employees we had,” while a statement from the firm added that the decision “take(s) into account recent client losses and current levels of demand for certain services.”

Another feature of the restrucuring process, as per the statement, will be the “embedding in the firm, for an extended period, a number of senior KPMG partners from across the international network.” According to KPMG International Chairman Bill Thomas, this is “evidence of the significant investment KPMG International is providing to help ensure KPMG South Africa can continue to focus on trust, quality and integrity.”