When the US Securities and Exchange Commission sued Rajat K Gupta for insider trading yesterday, it wasn’t simply accusing “a Westport (Connecticiut)-based business consultant” of providing illegal tips to the billionaire hedge-fund manager Raj Rajaratnam.
Gupta, unlike the 26 people charged in the government’s multiyear criminal insider-trading investigation that went public with Rajaratnam’s arrest in October 2009, has served on the boards of some of the largest multinationals, including Goldman Sachs and Procter & Gamble (P&G). From 1994 to 2003, he ran McKinsey & Co, the global consulting firm that has plotted strategy for companies such as General Electric and AT&T. Gupta remained a senior McKinsey partner until 2007.
“McKinsey is the closest thing the business world has to a confessional, and he was the high priest,” said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco, and a former managing director at Salomon Brothers. “They have been an icon in the consulting business almost since they were founded.”
Gupta, 62, is the only member of the Bill & Melinda Gates Foundation’s Global Development Program Advisory Panel who has not led a country or at least worked directly for its president or administration, according to foundation biographies. He chairs the panel.
The panel “provides strategic guidance and does not have any financial, fiduciary or audit responsibilities,” the Seattle-based foundation said in a statement. “Rajat is a valued member of the panel and will continue to serve on it.”
Initial Harvard rejection
Gupta has served on advisory boards at Northwestern University’s Kellogg School of Management, University of Pennsylvania’s Wharton School, Massachusetts Institute of Technology’s Sloan School of Management and Harvard Business School, his alma mater. He went from Harvard to McKinsey, though was rejected after his first application to the consulting firm. He was reconsidered after a recommendation from professor Walter J Salmon.
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“I can only say that he was an outstanding student, and as far as I could tell in my exposure to him in those years an outstanding person,” Salmon said yesterday.
In 2008 and 2009, after stepping down from McKinsey, Gupta passed confidential information to Rajaratnam, founder of New York-based Galleon Group, including early word on quarterly earnings at Goldman Sachs and P&G, according to the SEC’s civil suit. Gupta called Rajaratnam 23 seconds after an October 2008 Goldman Sachs board call during which senior executives informed the board of poor results by the bank, the SEC said.
The allegations are “totally baseless,” Gary Naftalis, a lawyer for Gupta, said in a statement. Gupta’s “40-year record of ethical conduct, integrity and commitment to guarding his clients’ confidences is beyond reproach,” Naftalis said. Ed Canaday, a spokesman for Goldman Sachs in New York, declined to comment. Gupta, who stepped down from Goldman Sachs’s board last year, resigned yesterday from the Procter & Gamble board “to prevent any distraction,” said Paul Fox, a spokesman for the Cincinnati-based consumer-products company.
‘Effort to destroy witness’
The SEC action “is simply an effort to destroy a favourable witness,” said John Dowd, Rajaratnam’s attorney at Akin Gump Strauss Hauer & Feld in Washington. “There is no case, absolutely none.” In 1994, after his promotion to the head of McKinsey, the Chicago Tribune reported that the two people Gupta admired most were Mother Teresa and Swami Vivekananda, a 19th-century Hindu hero credited with helping make Hinduism a major world religion.
India and beyond
Gupta’s reach has extended beyond India, where he was born in Kolkata. After McKinsey, he joined the boards of Russia’s OAO Sberbank, American Airlines parent AMR Corp, Harman International Industries and the business outsourcing company Genpact. He has also served as the UN Secretary General’s special advisor on management reform, and in July became chairman of the International Chamber of Commerce (ICC).
In 2001, Gupta founded a business school in Hyderabad, India, called the Indian School of Business, whose board was stocked with that country’s corporate leaders, along with McKinsey director Anil Kumar, who has pleaded guilty to providing Rajaratnam with inside information. Bala Balachandran, who has known Gupta for three decades and was on the founding faculty of the Indian School of Business, sees his old colleague as “a classy guy” who “delivered results as the number one guy at McKinsey”.
Balachandran, who left that school to found the Great Lakes Institute of Management in Chennai, India, in 2004, said Gupta’s post-McKinsey world of investments was different.
“The arrogance became so high” among sophisticated investors, he said in a May 2010 interview.