It was “values” day in many McKinsey offices on Friday – the annual occasion when staff take a break from client work to reflect on the principles underpinning the management consultancy. Rarely can they have had before them a case study as timely and as dramatic as that of their former head, Rajat Gupta, who was convicted that day of conspiracy and three counts of securities fraud related to trading in Goldman Sachs’ stock by Raj Rajaratnam’s Galleon hedge fund.
At “the Firm”, the impact of Gupta’s decline and fall is still felt deeply. As I wrote last year in my analysis of how McKinsey was handling the scandal, “what shocks staff and alumni is that Rajat Gupta should stand accused of precisely [the] sins of self-enrichment and self-aggrandisement” that its legendary former chief Marvin Bower abhorred.
One former partner told me on Friday that “the most aggrieved groups are alumni and senior partners who knew Rajat Gupta and continue to be somewhat baffled by what led him to do this”. Another ex-McKinseyite, Roger Parry, now chairman of UK pollster YouGov, admitted to feeling “a little bit devalued and diminished” by the scandal.
But my sense is that while the trial brought punishment and humiliation for Gupta (who will appeal against the verdict), it did not add much to McKinsey’s embarrassment. The firm will not comment but no doubt it hopes the trial has drawn a line under the affair. Read more
The conviction of Rajat Gupta, the former managing director of McKinsey & Co, the management consultancy, on insider trading charges is an extraordinary event – not just because it was a hard case to prove but because of his status at the apex of the business establishment.
The man who ran McKinsey and went on to become a board member of Goldman Sachs and Procter & Gamble, is very likely to receive a jail sentence in October. That makes him the most senior establishment figure to be convicted by a jury since the 2008 crisis.
He had already lost his reputation – silently disowned by McKinsey and discarded by Goldman. Lloyd Blankfein, Goldman’s chairman and chief executive, testified at his trial that leaking information from Goldman’s board – as Gupta was caught on tape doing to Raj Rajaratnam, was wrong. Read more
Companies are woeful at strategy. How can they get better? And who should be helping them do so?
These are important questions, which Kim Warren, who has taught strategy at London Business School for 20 years, addresses in a pungent new e-book The Trouble with Strategy, published by his strategy training company. It contains a strong call to arms to the big management consultants which, he says, “have been strangely absent from the discussion of what needs to be done”. Why is that? Read more
The impression I am left with from reading George Packer’s account in the New Yorker of the Raj Rajaratnam prosecution is of how the odds still favour the determined insider trader who takes precautions.
Packer recounts how the Rajaratnam case, which ended up as the biggest insider trading investigation ever known on Wall Street – claiming scalps including Rajaratnam and Anil Kumar, a former McKinsey partner — gained momentum as a result of a single instant message conversation:
rajatgalleon: u back
roomy81: i am here
roomy81: did not go any where
rajatgalleon: call me..just got back today
roomy81: please let me know on JNPR
roomy81: donot buy plcm till i het guidance
roomy81: want to make sure guidance OK
Not only was it very hard to mount a criminal case against Rajaratnam until that lead enabled prosecutors to tap his work and personal phones but it was incredibly labour-intensive for the lawyers and prosecutors. Read more
The conviction of Raj Rajaratnam for insider trading means McKinsey can breathe again. For now, the drip-drip of courtroom revelations about what Rajat Gupta, ex-head of the consulting firm, or Anil Kumar, a former partner, told the hedge fund billionaire, has stopped.
Mr Kumar has already pleaded guilty to insider trading. Mr Gupta, who denies wrongdoing, faces Securities and Exchange Commission civil charges. (A third McKinsey partner, David Palecek, who died last year, was mentioned in the trial, but his widow’s lawyer has said that he never agreed to “play ball” with Rajaratnam.)
Pending any action against Mr Gupta, the consulting world is wondering what will be the fall-out from the case – and not just for McKinsey. Read more
If you read anybody on the reputational threats facing McKinsey, it should probably be Walter Kiechel. As author of the definitive history of strategy consulting, The Lords of Strategy, he knows a lot about what goes on inside consultants’ heads.
On the Harvard Business Review blog, he’s used his knowledge and the latest revelations from the Galleon insider trading trial to explore “the beguilements…. beckoning to consultants over the last two decades”, in search of a better understanding of how Rajat Gupta, former head of McKinsey, “could have gotten himself into the current mess”.
(Gupta, who left McKinsey in 2007, is accused of sharing information, acquired in 2008 when he was a director of Goldman Sachs and Procter & Gamble , with Galleon founder Raj Rajaratnam. His lawyer has said the Securities and Exchange Commission’s civil charges of insider trading are “baseless”.) Read more
The vagaries of print deadlines can produce odd results. On Wednesday morning in New York, I concluded my column on McKinsey by writing that the firm had better hope that no “third man” came to light in the insider trading scandal.
Lo and behold, on Wednesday afternoon, the prosecutor in the trial in Manhattan of Raj Rajaratnam, the former Galleon Group hedge fund manager, said in his opening statement that Mr Rajaratnam had talked of there being just such a figure inside McKinsey. This is Kara Scannell’s report from the FT:
Jonathan Streeter, a federal prosecutor, told the jury that they would hear a recording of a phone conversation Mr Rajaratnam had with his brother “talking about plotting to get inside information from a consultant at McKinsey”. He said Mr Rajaratnam tried to get the person, described by the hedge fund trader as “dirty”, to “play ball” by possibly placing the person’s wife on the Galleon payroll.