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The fall of Rajat Gupta

The fall of Rajat Gupta
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First Published: Sat, Jul 02 2011. 02 13 PM IST
Updated: Sat, Jul 02 2011. 02 13 PM IST
In The Witch Doctors: Making Sense of the Management Gurus, the witty and engrossing 1996 romp through the wonderland of management theory and its practitioners, John Micklethwait and Adrian Wooldridge, journalists at The Economist newspaper, highlight the central paradox of management theory: the banality of the slogans and the awe the consultants command. Their jargon of clichés includes terms such as “core competence,” “total quality management,” “theory Z,” “search for excellence,” “intrapreneurship,” “downsizing,” “rightsizing,” and “re-engineering,” but they help chief executives “market” unpalatable solutions within a company. By hiring a top firm, which charges high fees, a chief executive officer sends a market signal that he has the resources to spend big money to change something, and then implement tough, market-pleasing decisions, to increase its competitiveness.
The consultants are highly intelligent, uniformly smart, with a retinue of young number crunchers. They are thoroughly professional, and abounded with bons mots that make it seem so simple. Cold figures and spreadsheets matter, but so does a warm, personal touch.
What brings the clients to the consultants is their reputation, skills, and talent. But most important is trust, built on assurance of confidentiality. Consultants have their omerta, a private code: they keep secrets. A firm may have two clients in cut-throat competition with one another, but teams working on those projects won’t share any secrets with one another. Break that code, and you destroy the reputation, trust, and the firm’s sense of integrity.
The slow-motion disintegration of Rajat Gupta, the first Indian to head McKinsey and Co., the world’s leading consulting firm, has tragic elements and shows the perilous consequences that befall when you cross limits. Gupta headed McKinsey for three consecutive three-year terms, the maximum permissible, and was on blue-chip boards, headed charities, and helped set up a fine business school in Hyderabad.
There is no evidence suggesting criminal wrongdoing on his part, and he may not have benefited personally from allegedly passing on confidential information he had because he was on the board of certain companies. But within moments of learning market-sensitive information at board meetings of companies where he was a board member, Gupta is alleged to have called the convicted head of a New York hedge fund, Raj Rajaratnam, and passed on some market-moving information. How substantial Rajaratnam’s gain was, and whether Gupta benefited from it, are almost irrelevant. The calls were bad enough. That he and Anil Kumar, another McKinsey partner, reportedly formed a firm offering services that competed with McKinsey, may only be a matter for McKinsey’s rule enforcers. But no course in ethics at a business school can necessarily prevent that. Most people who go to business school are in their mid- to late-20s, way past the age when basic values can be imparted.
What could have happened in Gupta’s case? Two long, investigative reports last week—in Businessweek and Bloomberg— suggest greed. The fictional Gordon Gekko said greed is good; it shows how the top of the skyscraper is within reach. Words such as “sufficient”, and “enough”, aren’t part of the vocabulary: the gold card yearns for platinum; the business class wants first; the first, a private jet; the extra zeroes in a pay packet buy a vacation home, a beach house, a chateau wedding, a yacht, and magically frame a Husain—sometimes even Picasso—on the wall.
When Ernest Hemingway told Mary Colum that he was getting to know the rich, she said: “I think you’ll find the only difference between the rich and other people is that the rich have more money.” Hemingway turned the story into an anecdote, which showed F. Scott Fitzgerald poorly; Fitzgerald himself used it in a story. The rich are different from us; they have more money. What matters is what you do with it: build a skyscraper mansion, or invest in eradicating a disease. Raghuram Rajan and Luigi Zingales were onto something when they titled their book on financial markets Saving Capitalism from the Capitalists.
The market can’t teach values; it rewards talent, signals trust, and multiplies wealth. But when wealth becomes the objective, judgement can get clouded, corners get cut, and actions are taken in the hope that no one is looking. American journalist H.L. Mencken called conscience that inner voice that tells you that someone is looking. And someone usually does. But wealth and power can make people do strange things. As French philosopher Michel Foucault said, the dynamics of power can have a profound effect and influence on how we think. As you ascend the ladder of success, that voice within gets fainter, the logic gets muddled. Actions become automatic, because everyone does it, before that voice can restrain behaviour. American chief executive officers say Gupta liked quoting Mohandas Gandhi in his speeches. Gandhi said: “True morality consists not in following the beaten track, but in finding out the true paths for ourselves and in fearlessly following it…moral result can only be produced by moral restraints.”
Salil Tripathi is a writer based in London. Your comments are welcome at salil@livemint.com
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First Published: Sat, Jul 02 2011. 02 13 PM IST