Stephen Chernin/Getty Images
Rajat Gupta spoke during a Global Business Coalition forum on HIV/AIDS,
Tuberculosis and Malaria, at the United Nations headquarters in New York, 13 June 2007.
Source :Ajit Mohan :WSJ :Nov 4,2011
Last week in New York, Rajat Gupta, the man who led McKinsey for almost a decade and was a board member at Goldman Sachs and Procter & Gamble, was accused by U.S. prosecutors of leaking insider information.
The six-count indictment alleges that Mr. Gupta used his position on the boards of premier institutions in the U.S. to “become the illegal eyes and ears for his friend and business associate, Raj Rajaratnam,” founder of the Galleon Group hedge fund, who himself was found guilty of insider trading last month and faces a prison sentence of 11 years.
Even as Mr. Gupta was being released on $10 million bail by a New York court (he had pleaded not guilty to all charges), the Occupy Wall Street protests were spreading to more cities. These protests have dramatically framed the anger and angst of America’s displaced middle class, who have become convinced that the “game” is rigged from the start, and that too much power and money rests with Wall Street, a conviction reinforced by the indictment.
In Mr. Gupta’s case, it was a stunning reversal for a man whose rise in the global corporate world foretold India’s own rising fortunes in the last three decades. Mr. Gupta at some point appears to have crossed his own Rubicon, prompting him to allegedly share information that was confidential with a friend.
Last year’s leaked “NiiraRadia” tapes revealed an India where leading business figures and television anchors — aided by lobbyists and public-relations professionals — were too cozy by half with political leaders. Similarly, the conversations between Mr. Rajaratnam and Mr. Gupta at the very least reveal an intimate relationship built on passing privileged information, and, in Mr. Gupta’s case, portray a diminished individual in gross violation of the values supposedly at the core of the firm he once led.
Mr. Gupta’s actions had consequences, unlike the case of many of the players in the Radia tapes – some of whom continue to give us daily lectures on morality and ethics, on television and in print.
In the U.S., a disturbing popular commentary tried to paint the allegations against Mr. Gupta and the conviction of Mr. Rajaratnam as being symptomatic of the values of the South Asian community at large. Writing in Newsweek, Suketu Mehta, the author of “Maximum City,” attempted a multi-layered sociological explanation, claiming that “the whole story speaks to the South Asian-American community: its pursuit of success and money at any cost; the differences between immigrants and the first generation.”
It seems ridiculous to attribute a pattern of behavior to a particular community at a time when the most egregious stories on Wall Street over the last three years have been about misbehavior, misdemeanor and misappropriation at firms large and small, the collective sum of which triggered the worst economic crisis since the Great Depression. If anything, the central characters in the story have spent much of their adult lives in the U.S. and are products of America’s institutions, from McKinsey and Chase Manhattan to Harvard and Wharton.
If there is a narrative thread in their stories, it is one with fewer roots in India than in the insider-trading scandals of junk bond titans Michael Milken and Ivan Boesky in the 1980s.
The reaction of India Inc. to Mr. Gupta’s indictment has been mixed. On one hand, many business leaders are aghast at the allegations and Mr. Gupta’s fall, most genuinely sad and disappointed to see someone held in deep respect in this position. Others seem surprised that behavior that is part and parcel of doing business in India could actually be considered illegal in another part of the world, with a prison sentence to boot!
Of course, in a deeply ironic twist, some of the most outspoken criticism of Mr. Gupta (and the accompanying name-calling) has come from the same lobbyist-fixer-media pundits whose own booming voices were all over the Radia tapes.
However, nothing has been more amusing than the chutzpah of the many individuals and institutions in India that have claimed a distance from Mr. Gupta that did not exist in reality. Many were quite comfortable using Mr. Gupta’s access and relationships when they were useful and now are busy attempting to scrub clean a history of deep and close association. (Full disclosure: I can only add, on a personal note, that in the limited interactions I had with him, he was a thoughtful and constructive supporter of a non-profit initiative I was leading).
We know that it is human nature to want to build up heroes and then to tear them apart without mercy. Even so, as we recognize the serious nature of the allegations against Mr. Gupta, we must acknowledge, too, that he has been behind the creation of at least one world class institution, the Indian School of Business (perhaps the only educational institution of excellence in independent India crafted with the energy of the country’s private sector), and another, the Public Health Foundation of India, that could yet play a meaningful role in public health reforms in the country. As much as the legacy of Mr. Gupta may become one of greed, a part of it will always be about a stellar contribution to his country of birth.
The allegations are really about Wall Street and America. But the underlying issues exposed by the revelations — and the broader framing of those issues by the Occupy Wall Street protests — are relevant to India, too.
At the centre of the debate is the question of transparency in the rules of the game and the way in which valuable information is accessed and leveraged. Here, India is closer to oligarchic Russia than it is to the comparatively rules-based West. With the government still playing a central role in directing industrial policy and framing economic opportunities, there is enormous value in gaining access to inside information and knowledge on the complex web of policies, regulations and executive orders.
The practice that is an offense on Wall Street is, in many ways, the benchmark by which astuteness is judged in the private sector in India: the ability to glean and leverage information not easily available in the public domain to create value for the enterprise. And this has given rise to a new entrepreneurial breed in the country: the one that mixes executive roles, political power and private enterprise.
Examples are legion of associates of leading industrial houses becoming state and government ministers, and then continuing to run their businesses on the side; ministers incubating and growing private enterprises; second generation businessmen running for office on the back of access to the heft and influence of the family enterprises; and, of course, the lobbyists, the fixers (and the occasional television commentators) who help bring all of these savvy entrepreneurs together to add economic value for all involved.
Not that this behavior is limited to the top echelons of power. The business of information is an attractive, nationwide enterprise. From the district collector who passes early information on the conversion of rural land to an affiliated investor to the office clerk who reveals the status of a permit approval in process, India is full of savvy “entrepreneurs” who know how to put the right value on privileged information at the right time.
India’s economic growth over the last two decades has come on the back of exploiting the low-hanging fruit: comparatively easy structural reforms and opportunities presented by the demographic dividend.
The next wave of growth will have to come from unleashing the real entrepreneurial energy of India’s talented millions. Genuine competition between ideas and enterprises, and the assurance of a fair playing field, are absolutely essential for that to happen.
So, even as we pause to reflect on a fallen hero, this is a great moment to reflect on the rules and behavior that have become a part of our private enterprises which, if we don’t learn a lesson from across the ocean, will hold us back from the promise of our future.
–Based in New Delhi, Ajit Mohan has worked with private and public institutions around the world. He is an alumnus of McKinsey and Wharton
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