How Rajat Gupta corrupted McKinsey

By Felix Salmon
May 19, 2011
corrupted was the culture of Rajat Gupta's McKinsey? Suzanna Andrews reports:

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Just how corrupted was the culture of Rajat Gupta’s McKinsey? Suzanna Andrews reports:

McKinsey had a culture of superiority, says one longtime client, who declined to be identified, adding that consultants at the firm really seemed to think they were better than anyone else in the business world. This CEO is still shocked recalling an incident in the late 1980s, when a McKinsey team offered to provide him with a road map of what his competitors were doing. When asked how they could produce such information, he was told that McKinsey also worked with his competitors, but he could trust McKinsey to know what was confidential information and what was to be kept private. He says arrogance permeated the firm. The usual rules seemed not to apply. When this CEO listened to a wiretapped phone call from July 2008, in which Gupta relayed to Rajaratnam the details of the Goldman board’s discussions about buying a commercial bank, it sounded to him just like Gupta consulting a client.

Gupta seems to have been directly violating internal McKinsey rules for years:

As the managing director and then as senior partner of McKinsey for four more years before he retired, he ran his own consulting business on the side — a violation of McKinsey rules…

While Gupta was devoted to his philanthropy in India, his quest to amass great wealth led him to lapses in judgment, says Bala Balachandran, dean of the Great Lakes Institute of Management in Chennai, India, and a friend for almost three decades.

“He wanted a billionaire’s life and the question for him was how could he become a billionaire in a short time,” Balachandran says.

If Andrews’s CEO was shocked by what a presumably-representative McKinsey team would do in the course of normal business, one can only imagine what Rajat Gupta and Anil Kumar got up to at Mindspirit, the company set up by their wives (!) to consult for InfoGroup CEO Vin Gupta — or what services Gupta provided to Genpact which resulted in him getting 81,405 stock options at a strike price of less than a buck apiece. Genpact, whose sole client is GE, another McKinsey client, is currently trading at $16.88 per share, which means that Gupta’s options in the company are worth well over a million dollars.*

And Andrews does put forward one explanation of why Gupta might have been giving such valuable information to Raj Rajaratnam. It’s not because he was being paid for it directly, but rather because he had much bigger ambitions: he was negotiating with Rajaratnam for a 10 percent to 15 percent stake in the Galleon International Fund in exchange for attracting investors and becoming the fund’s chairman. And the wiretaps don’t end there:

Listening to the pleading tone in Gupta’s voice as he pitches himself to Rajaratnam is almost painful. “I can be helpful in Galleon International, by the way—not Galleon International, Galleon Group,” he says, apparently angling for a bigger job. “I mean you’ve given [me] a position in Galleon International, that’s good enough. I, I … ,” he breaks off.

It seems clear that Gupta had various personal crises and issues which obviously aren’t reflective of McKinsey as a whole. But at the same time, this quiet man who described himself as a servant to McKinsey’s partners was clearly never going to crack down on any of them if and when they started pushing the envelope in terms of fishing for clients by trading in confidential information. Unless and until some heads start rolling within McKinsey, it’s fair to assume that many of the most successful Gupta-era partners remain. And we’ve been given precious little reason to trust in their integrity.

Update: Gail Marold of Genpact responds in the comments, saying that Gupta provided no consulting services beyond his capacity as a director. And although Genpact did start life as a division of GE, it now gets 62% of its revenue from non-GE clients.

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