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Does the response to Bain’s business in South Africa show corporate accountability is improving?

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Bain & Co has been banned from entering into any governmental contracts with the UK for the next three years. Jacob Rees-Mogg MP has officially disallowed Bain from entering into tenders for governmental contracts.

The Cabinet’s official spokesperson has said that after reviewing documents the South African Government Commission released, the Cabinet decided to exclude Bain & Co from competing for governmental contracts.

Bain has made an official statement, in which it confirms that it has started a procedure known as judicial review. A proceeding in which the High Court reviews the lawfulness, rationality, and / or procedural fairness of an action or decision of a public body. In this case, the minister’s decision to ban Bain from tendering for governmental contracts in the UK.

What Bain & Co did was to enter into a contract with the South African government to restructure the South African Revenue Service (SARS). Somewhere during the ensuing cooperation, the firm became tangled in corruption. The South African judicial commission found that Bain, working under President Zuma, was involved in corrupt processes. The Financial Times reveals that there were “close connections” between Bain’s partners and the now jailed President Zuma. Bain has paid back the fees it collected for its work in South Africa.

The South African government has not decided to follow in the UK’s footsteps and ban Bain in South Africa. As BusinessTech suggests, this lack of action from the South African government could be because they are still trying to deal with the aftermath of the scandal – which brought down a previous head of state. The fragile institutions of South Africa took a hit, and the priority should be to get them back up and running properly. So that the most vulnerable in South Africa don’t have to bear the costs.

On the other hand, South Africa’s business community is backing Bain. Bain’s work has been now readmitted to the Business Leadership South Africa, whose Chief has said that BLS’s board is satisfied with the work Bain has undertaken to redeem itself.

Lord Hain has called on Joe Biden to take the same action as the UK in the US, but so far, there has been no response from the White House. The White House has not made any statements either to condemn Bain or support them. Bain is part of the “Big Three” – the three consulting companies which command the biggest revenue – alongside two other US based companies, McKinsey and Boston Consulting Group.

The ban in the UK, combined with potential action in the US, and the reputational damage to the Bain business in South Africa, has hurt the company. The question arises however, who should bear the brunt of the financial cost? Would it be the partners, who have been recruiting and handling clients such as Jacob Zuma, or regular low level employees losing their jobs?

The managing partner for South Africa said that the firm is “accountable for its mistakes,” as well as that they “regret any role in the damage to this critical institution [meaning SARS],” but he denied any involvement in corruption. 

The term “state of capture” has come up frequently in discussions around Bain’s role in South Africa. State of capture refers to a manipulation of state resources for private gain. For example, restructuring the tax revenue service for the personal gain of a client. Which client then pays the given company millions of pounds. As Bain did in South Africa.

Bain said that its actions in supporting the state of capture were not intentional, neither in South Africa, nor anywhere else. In its statement, the company said: “Bain does not, however, accept that its representatives knowingly participated in an effort to damage SARS.” They do acknowledge, though, that there were flaws to the governance process and that earlier, more concrete action could have been taken.  

The firm even claims, “we have been shocked by our involvement with SARS.” This suggests – not wholly convicingly – that senior leaders were not fully aware of what this project was about. A former partner for Bain made an excellent point when pointing out the obvious: that the company must have been aware of the business they were conducting and of the impact it was having. He also called out the South African government, saying they should be “embarrassed, because they have had this information for years.”

Athol Wiliams, a Bain whistleblower, told the FT that Bain saw on opportunity to earn easy money, at the cost of South Africa’s weak institutions. Wiliams told the FT that this scheme would never be possible in the UK or the US. 

It is important to take a brief look at the history of South Africa to understand just why SARS was so important for the country. Why one of the most effective tax-collecting offices had to fall, for Bain and President Zuma to gain money.

South Africa has a troubled history. The country used to be a British colony, and from the late 1940s to 1990s, was divided by apartheid policies. It was only around 30 years ago that the country emerged as something approaching a democracy. A young country needs steady foundations and governmental institutions it can trust. 

As a young democracy, South Africa has to focus on issues the UK and US have already solved much earlier in history. For instance, stabilising governmental institutions, granting them necessary powers to govern themselves, and develop. There is less time to focus on democratic accountability, grounded in strong, independent agencies. Knowing this, Bain allegedly felt the need to take advantage of those shaky political institutions. 

The cooperation between Bain and the South African government has been going on for years. Between 2012 and 2015 Bain had plans “to restructure entire sectors of the SA economy” and centralise state procurement. All things that are easily associated with the way non-democratic governments behave for personal gains of high office holder’s gains. Little surprise that South Africa’s most senior treasury official has called for other companies to stop doing business with Bain. As one of the business leaders in South Africa told the FT, Bain is now “radioactive.”

This precedent of the UK banning Bain is a huge step towards improving corporate accountability, which has already been on the rise in recent years. Big corporations no longer can feel that they wield enough power, money, and influence to get away with potential misconduct. Lord Hain said those companies need to “feel the pain” of their consequences “otherwise other companies will be tempted to do the same.” Bain’s ban is a cautionary tale, and all we can do is hope that the message has reached its target audience. 

Author: Julia Maczka

#Bain #SouthAfrica #UK #US #CorporateAccountability

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