Elite takes sides as Gupta fights SEC charges

Rajat Gupta was McKinsey’s global managing director until 2003. He also served on the boards of Goldman Sachs and Procter & Gamble

At the January 2010 birthday party of Henry Kravis, the founder of private equity firm Kohlberg Kravis Roberts, Rajat Gupta was in a sombre mood.
While Mr Kravis was enthusiastically recounting tales of a temple tour in southern India to a Delhi drawing room, a brooding Mr Gupta was publicly reflecting on charges of insider trading in the US levelled at Anil Kumar, a close, senior Delhi-based associate at McKinsey, the consultants.
Few of the senior businesspeople in the room, many of them donors to a northern Indian expansion of the Indian School of Business (ISB), had any idea that the suspicion of insider trading surrounding the New York-based Galleon Group hedge fund could in time envelop Mr Gupta himself.
Born in Calcutta and schooled in New Delhi, Mr Gupta was widely revered in Indian business circles as a man who had scaled the heights of corporate America by becoming McKinsey’s global managing director.
He was India’s foremost private sector global operator and attracted many acolytes among India’s successful entrepreneurs keen to have the shine of McKinsey’s prestige and intellectual prowess rub off on them.
Mr Gupta ran McKinsey for almost a decade until 2003 and remained on its partnership board until 2007.
Abroad, he enjoyed the company of Microsoft’s Bill Gates, General Electric’s Jeff Immelt and the Clintons.
At home, he had an open door to prime minister Manmohan Singh’s office and was thick with the country’s most powerful business leaders.
They included Mukesh Ambani, the chairman of Reliance Industries; KP Singh, the chairman of property developer DLF; Sunil Bharti Mittal, chairman of Airtel; and Hari Bhartia, the current president of the Confederation of Indian Industry.
However, Mr Gupta now faces civil insider trading charges for allegedly sharing secret information he learnt as a board member of Goldman Sachs and Procter & Gamble with Galleon Group founder Raj Rajaratnam. Mr Gupta’s lawyer has called the charges “baseless” and insisted his client did nothing wrong.
The immediate reaction of many of Mr Gupta’s business associates in India to the charges, brought by the US Securities and Exchange Commission at the beginning of March, has been shock, followed by a mix of denial and disappointment.
His supporters, notably at ISB and McKinsey, have strenuously rallied to a man whose standing was unrivalled as one of India’s biggest names.
As the trial on insider trading charges of Mr Rajaratnam gets under way in New York this week, Mr Gupta’s supporters feel sure that, whether he is called to testify in that case or not, his denials of wrongdoing will be vindicated.
Mr Kumar has pleaded guilty to insider trading charges and is expected to testify against Mr Rajaratnam.
For all his towering local reputation, Mr Gupta is not without critics in India.
They say Mr Gupta worked with Mr Kumar to corner private and government business and gain favour in Asia’s third-largest economy.
The two operated as a forceful double-act to secure business for McKinsey, win access in Washington and build a brotherhood of donors around the Hyderabad-based ISB and a handful of social initiatives.
“They had created a kind of hustling that was almost unimaginable,” says Suhel Seth, managing partner of Delhi-based advisory business Counselage.
“They were the face of McKinsey in India. They used McKinsey as a calling card to enter and then it allowed them to do things to claim that they were the disseminators of ‘Brand India’ around the globe.”
Mr Gupta’s counsel in the US said in response: “Mr Gupta’s 40-year record of ethical conduct, integrity and commitment to guarding his clients’ confidences is beyond reproach.”
A senior Indian corruption investigator said that in his view Mr Gupta’s credibility would “take a bashing” regardless of the legal outcome.
He also said the furore surrounding such a prominent Indian business leader would reflect badly on the perception of India as a whole. “Unfortunately he’s an Indian. This will affect global Indian standards,” he said.
Mr Gupta has already left the Goldman Sachs board and is stepping down from other company boards, including that of outsourcing group Genpact.

His travails in the US come at an awkward time for Mr Singh and the ruling Congress party, already battling a tide of high profile corruption scandals including allegations that $39bn was lost in national revenues as a result of the flawed award of 2G telecoms licences.

One veteran Mumbai-based businessman familiar with Mr Gupta’s work said: “Everyone’s completely stunned because Rajat’s reputation in India is very strong. If you took the top 150 businessmen, politicians – he knew them all. [The alleged insider trading] doesn’t fit with his image.”

Gurcharan Das, the former chief executive of Procter & Gamble India, a company on whose global board Mr Gupta sat until last week, said the speed of the US judicial system would hold a mirror up to India’s own courts, where the slow passage of justice is notorious.

“It’s a bit of a disappointment when one of your heroes has fallen,” he said.