... AND THE FACE OF ALL THAT IS SHAMEFULLY WRONG AT ISB
Let's just visualize 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 aft er 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 insideinformation 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 the 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 aft er that, Gupta attended yet another Board meeting of Goldman Sachs where it was revealed that Berkshire Hathway, owned by the legendary investor Warren Buff ett, would invest $5 billion in the company to bail it out of trouble. And what do you think Rajat Gupta does right aft er 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 aft er Goldman Sachs Board meetings just for casual chit chat. That too when his own defense is arguing 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 aft er 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 oft en 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 oft en enough times many so called paragons of the private sector complaining about how unethical behaviour and poor governance is aff ecting 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 (See Box on how 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 aft er 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 U. S. 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.”
This is not the first time that ISB has been publicly embarrassed because top people involved with the B School have been found involved in notorious scams. The other big name that shamed ISB was M Rammohan Rao, the former Dean of ISB. Rao also happened to be a Board member of Satyam, whose promoter B Ramalinga Raju is now accused of monstrous financial skullduggery. Rao happened to preside over a Board meeting of Satyam that took the controversial decision to buy out Maytas Properties and Maytas Infrastructure, both firms promoted by the family of Ramanlinga Raju. The former Dean of ISB, Rao was an ‘independent’ director of Satyam with the responsibility of protecting the interests of the company and its shareholders. Quite clearly, Rao brazenly failed to perform his duty and would probably have got away with it if other shareholders had not raised a hue and cry about that controversial Board decision of Satyam. Even when the decision of Satyam and the Board was slammed by one and all as one of the worst examples of crony capitalism, Rao remained with the ISB. It is only when Ramalinga Raju made a public confession of his wrong doings and Satyam virtually collapsed that Rao quit as the Dean of ISB. And of course, I have already talked about Anil Kumar, the Ex-Mckinsey honcho and co-founder of ISB who was forced to take ‘leave’ from ISB when the U.S. SEC formally charged him with insider trading back in October, 2009. He is now the star witness in the trial against Rajratnam.
The obvious question to be asked is: what exactly is going on at ISB, that is touted as one of the most prestigious B Schools in the world? Is the institution being run by academicians or by wheeler dealers who conveniently take leave when their follies are exposed in public? Equally important, if Rajat Gupta-either voluntarily or not-has quit his positions in almost all other companies and institutions, what kind of message is being sent by ISB about its adherence to ethics and good governance when Gupta stubbornly clings on to the helm at ISB?
This magazine had two years back ranked ISB as the number one B-School in India. However, good faculty and teaching alone doesn’t make an institution great. It is now clear ISB has become a symbol of all that is rotten in Indian corporate culture. Our corporate titans think that money can buy everything. So ISB has a big campus and has got the money to get the best faculty to come and teach. But education is more than having moneybags and wheeler dealers. It is primarily about running the institute with real educationists. However, just like the Indian corporate sector, ISB seems to believe in running itself with the help of wheeler dealers. And just the way the empty headed corporate heads of India blindly follow the McKinseys of the world without questioning their intellect or commitment, ISB has been getting one aft er the other fixers on board with extremely questionable ethics and not necessarily high intellect. It is a shame that they have not yet forced Rajat Gupta to resign. If this is the example it is setting for its students in terms of ethics, the Financial Times must stop ranking ISB in their future surveys. Or, is ethics not important when it comes to judging a B-School?
Let's just visualize 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 aft er 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 insideinformation 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 the 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 aft er that, Gupta attended yet another Board meeting of Goldman Sachs where it was revealed that Berkshire Hathway, owned by the legendary investor Warren Buff ett, would invest $5 billion in the company to bail it out of trouble. And what do you think Rajat Gupta does right aft er 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 aft er Goldman Sachs Board meetings just for casual chit chat. That too when his own defense is arguing 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 aft er 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 oft en 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 oft en enough times many so called paragons of the private sector complaining about how unethical behaviour and poor governance is aff ecting 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 (See Box on how 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 aft er 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 U. S. 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.”
This is not the first time that ISB has been publicly embarrassed because top people involved with the B School have been found involved in notorious scams. The other big name that shamed ISB was M Rammohan Rao, the former Dean of ISB. Rao also happened to be a Board member of Satyam, whose promoter B Ramalinga Raju is now accused of monstrous financial skullduggery. Rao happened to preside over a Board meeting of Satyam that took the controversial decision to buy out Maytas Properties and Maytas Infrastructure, both firms promoted by the family of Ramanlinga Raju. The former Dean of ISB, Rao was an ‘independent’ director of Satyam with the responsibility of protecting the interests of the company and its shareholders. Quite clearly, Rao brazenly failed to perform his duty and would probably have got away with it if other shareholders had not raised a hue and cry about that controversial Board decision of Satyam. Even when the decision of Satyam and the Board was slammed by one and all as one of the worst examples of crony capitalism, Rao remained with the ISB. It is only when Ramalinga Raju made a public confession of his wrong doings and Satyam virtually collapsed that Rao quit as the Dean of ISB. And of course, I have already talked about Anil Kumar, the Ex-Mckinsey honcho and co-founder of ISB who was forced to take ‘leave’ from ISB when the U.S. SEC formally charged him with insider trading back in October, 2009. He is now the star witness in the trial against Rajratnam.
The obvious question to be asked is: what exactly is going on at ISB, that is touted as one of the most prestigious B Schools in the world? Is the institution being run by academicians or by wheeler dealers who conveniently take leave when their follies are exposed in public? Equally important, if Rajat Gupta-either voluntarily or not-has quit his positions in almost all other companies and institutions, what kind of message is being sent by ISB about its adherence to ethics and good governance when Gupta stubbornly clings on to the helm at ISB?
This magazine had two years back ranked ISB as the number one B-School in India. However, good faculty and teaching alone doesn’t make an institution great. It is now clear ISB has become a symbol of all that is rotten in Indian corporate culture. Our corporate titans think that money can buy everything. So ISB has a big campus and has got the money to get the best faculty to come and teach. But education is more than having moneybags and wheeler dealers. It is primarily about running the institute with real educationists. However, just like the Indian corporate sector, ISB seems to believe in running itself with the help of wheeler dealers. And just the way the empty headed corporate heads of India blindly follow the McKinseys of the world without questioning their intellect or commitment, ISB has been getting one aft er the other fixers on board with extremely questionable ethics and not necessarily high intellect. It is a shame that they have not yet forced Rajat Gupta to resign. If this is the example it is setting for its students in terms of ethics, the Financial Times must stop ranking ISB in their future surveys. Or, is ethics not important when it comes to judging a B-School?
