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Cover Story
 
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BEST OF B&E 2011 "CORPORATE CRIMINALS – ISSUE DATED 31/03/11"
Unholy Cow
... and the face of all that is shamefully wrong at ISB
Issue Date - 19/01/2012
 
Let’s just visualise a few things to get them in perspective. It is June 2008 and the man is attending a Board meeting of the financial giant Goldman Sachs. He is one of the most connected, respected and powerful men in the rarefied world of corporate America. Soon after the Board meeting, he calls up a man with whom he supposedly has “strained relations”. Mind you, he doesn’t call up his family or other friends, but a man who is allegedly responsible for this icon losing $10 million dollars of his personal money. We don’t know what exactly transpired. But the American stock market regulator – the Securities and Exchange Commission (SEC), is convinced the phone call resulted in the recipient getting advance-and inside-information about earnings at Goldman Sachs and made a killing using that ‘inside’ information.

The man who made that call is former managing director of consulting giant McKinsey & Company and chairman of the Indian School of Business (amongst many other things) Rajat Gupta, now accused by SEC of passing on inside information. And the man who received those calls is hedge fund tycoon Raj Rajaratnam, who is facing a criminal trial in America. You and I don’t know if Rajat Gupta is guilty of criminal conduct; but I find it laughable the way Indian media is treating him with kid gloves; the way it is presuming that an ‘icon’ like Rajat Gupta can do no wrong.

The accusations against Gupta are not the result of just one phone call in June, 2008. A few months after that, Gupta attended yet another Board meeting of Goldman Sachs where it was revealed that Berkshire Hathway, owned by the legendary investor Warren Buffett, would invest $5 billion in the company to bail it out of trouble. And what do you think Rajat Gupta does right after that Board meeting? Why, he calls up Raj Rajaratnam – another founder promoter of the Indian School of Business (ISB) who – according to SEC records – again makes a killing.

Even more damaging and damning for Gupta are wire taps of phone conversations between him and Rajaratnam released by prosecutors during the ongoing trial of Rajaratnam. The recorded conversations clearly show that Gupta had no qualms in discussing details of Goldman Sachs Board meetings with Rajaratnam – including details of how the Board was considering buying out some other financial firms like Wachovia and AIG.

Now many in the media are being unusually charitable and defending Gupta. But I find it difficult to believe that a seasoned corporate icon like Gupta would keep calling Rajaratnam soon after Goldman Sachs Board meetings just for casual chit chat. That too when his own defence is arguing (imagine that!) that Rajaratnam was responsible for Gupta losing $10 million of his personal fortune in a hedge fund deal. Do you indulge in casual chit chat with someone who has lost your $10 million?

In case you haven’t been following this sensational case and the trial that began recently, the tale gets even murkier. The star prosecution witness against Rajaratnam is a gentleman called Anil Kumar who has already confessed to charges of insider trading and of passing on confidential information about clients illegally to Rajaratnam. And guess who this Anil Kumar is, or was? Yes, he was a director at McKinsey and also an Executive Board member of the Indian School of Business. Anil Kumar was gracious enough to quit the ISB Board after October 2009 when his criminal involvement was made public. Needless, he is a former colleague of Rajat Gupta – both at McKinsey and at ISB.

 
This is the season of scams in India, with the 2G telecom scam taking pride of place in newspaper headlines and public consciousness. You must have heard and read often enough about how corruption in India is primarily caused by corrupt politicians in nexus with either corrupt or pliable bureaucrats. You must have also read and heard often enough times many so called paragons of the private sector complaining about how unethical behaviour and poor governance is affecting the growth story of India. And of course, the media is everyday full of recriminations and outrage at the manner in which politicians are abusing their authority with impunity and refusing to quit unless they are dragged out screaming and protesting.

How many times have you or I read or heard similar outrage at ‘private sector’ icons abusing their authority with impunity? How many stories of outrage have you heard about the unholy nexus between powerful companies and corporate leaders who are corrupt and their nexus between consultants who are either pliable or corrupt? It is not as if we lack examples and case studies of private sector companies and consultants and auditors indulging in rampant corruption and unethical practices. It is only when it crosses all limits and the house of cards collapses like in the case of Enron that the perpetrators pay. It is well known how even the ‘iconic’ Arthur Andersen collapsed in the wake of the Enron scandal.

Now look at it this way again to get a better perspective. Soon after the SEC investigations and allegations against him were made public, here is what Rajat Gupta did – or had to do – in the United States. He took ‘leave of absence’ from the $1.4 billion venture fund New Silk Route, which he had founded. He quit the boards of Goldman Sachs and Procter & Gamble. His resignation was also accepted by the boards of Genpact, American Airlines and Harman International. In fact, even as this issue goes for printing, we get news that Rajat Gupta has resigned as Chairman of the Governing Board of the Public Health Foundation of India. Some of his colleagues in this board are Nobel Prize winning economist Amartya Sen and Planning Commission Deputy Chairman Montek Singh Ahluwalia. But Gupta continues to be the Chairman of Board of ISB. What is strange is the manner in which Gupta is clinging on to ISB, the B-School he helped found by using his amazing network of corporate contacts across the world. If he can quit his positions of trust and authority in the United States as a result of the serious charges against him, why is he further damaging the already damaged reputation of ISB by clinging on? In fact, the official response from ISB is nothing short of brazen, something you would expect from the office of corrupt politicians we all love to hate. It says, “ We note that the US SEC has initiated administrative and civil proceedings against our Chairman, Rajat Gupta. We also note the statement of the counsel for Rajat Gupta, which asserts that the allegations are totally baseless. The ISB community is confident that Rajat Gupta will be vindicated. He continues to be the Chairman of the ISB Executive Board.”

          

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