Gupta Defied McKinsey Before Charges

As MD and then senior partner of McKinsey for four more years before he
retired, he ran his own consulting business on the side — a violation of McKinsey
rules
BLOOMBERG ATLANTA|NEW DELHI 

    On a sunny afternoon in June 2003, Rajat Gupta was greeted at his waterfront home
in Westport, Connecticut, by scores of his McKinsey & Co. partners. They had come
from London, Frankfurt, New Delhi and other cities around the world — and brought
along an elephant, which they tethered on the front lawn. 
Gupta was stepping down after nine years as managing director of the global
consulting firm, and his colleagues were gathered to celebrate his tenure and wish him
the best in the next phase of his career. They offered champagne toasts and took
photos of Gupta, standing next to the elephant, which was draped in a brightly
coloured shawl called a jhool. The decorated elephant represented the Hindu god
Ganesh, who bestows good fortune on new ventures. Gupta smiled as he rested his
arm on its trunk, Bloomberg Markets magazine reports in its July issue. 
Today, some of those same people say they’re stunned by what they’ve since learnt
about Gupta. In March, the US Securities and Exchange Commission filed an
administrative order against him saying that he had passed confidential information to
hedge fund billionaire Raj Rajaratnam, the central figure in the biggest crackdown on
insider trading in US history. 
Rajaratnam was convicted on 14 counts of conspiracy and securities fraud on May 11
and could face 19 years in prison, pending his July 29 sentencing in federal court. 
DOUBLE LIFE 
The government wiretaps and phone records show that Gupta called Rajaratnam nine
times in 2008 and 2009, giving the hedge fund manager information to make trades
for his New Yorkbased Galleon Group LLC. 
Gupta, 62, who divides his time between his Connecticut home, a Manhattan
apartment and a Florida getaway, has lived a double life. For 34 years until 2007, he
worked for McKinsey, including nine years as the top executive of one of the world’s
most trusted and prestigious consulting firms. 
He was the confidant of chief executive officers such as Goldman Sachs’ Lloyd
Blankfein and Procter & Gamble Co.’s former head A G Lafley. Gupta sat on the
boards of both of those companies — and he was a director at four other publicly
traded corporations. 
As a philanthropist, Gupta raised millions of dollars for education and health care,
especially in India where he was born and to which he wanted to give back. He’s done
charitable work with Microsoft Corp. co-founder Bill Gates, former US President Bill
Clinton and Indian Prime Minister Manmohan Singh. Friends describe him as brilliant
and humble. 
KEEPING SECRETS 
At McKinsey, a firm known for keeping secrets, Gupta harboured a few of his own.
As the managing director and then as senior partner of McKinsey for four more years
before he retired, he ran his own consulting business on the side — a violation of
McKinsey rules. 
He and Anil Kumar, a former McKinsey partner who last year pleaded guilty to
passing confidential information to Rajaratnam, set up their own consulting company.
Gupta also independently advised Genpact Ltd., a Gurgaon, Indiabased firm that
manages business processes for other companies. That work, too, broke 
    McKinsey’s rules. 
“It has always been a clear violation of our values and professional standards for any
firm member to provide consulting or advisory services outside of McKinsey for
personal monetary gain,” says Michael Stewart, a McKinsey partner and director of
communications. 
OFF TRACK 
During the past decade, Gupta, who was already a millionaire, began to veer off track.
He spent more time with Wall Street money managers. He told colleagues that he
wanted to be a dealmaker, not just a consultant. Gupta declined to comment on what
he told his colleagues or on anything else reported in this story. While Gupta was
devoted to his philanthropy in India, his quest to amass great wealth led him to lapses
in judgment, says Bala Balachandran, dean of the Great Lakes Institute of
Management in Chennai, India, and a friend for almost three decades. 
“He wanted a billionaire’s life and the question for him was how could he become a
billionaire in a short time,” Balachandran says. 
Gupta, a man to whom corporate chieftains turned for advice and counsel, chose
poorly when it came to investment partners. 
In December 2006, two years before he reached McKinsey’s mandatory retirement
age of 60, Gupta cofounded private equity firm New Silk Route Partners with
investors, three of whom had previously paid fines to settle SEC actions against them. 
THE FINES 
Among the three was Rajaratnam, whose Galleon Group paid a $2 million in a fine
and forfeited profits to the government in May 2005 to settle an SEC complaint it had
made improper trades. He neither admitted nor denied wrongdoing. 
Two other investors in New Silk Route, Parag Saxena and Victor Menezes, like
Gupta, had connections in the US and India. 
Saxena, a former money manager, paid a $250,000 fine in 1994 to settle civil claims
that he had received pre-initial- public-offering stock in companies at big discounts
and then recommended the shares to his clients at Chancellor Capital Management
Inc., after the companies went public. 
In January 2006, Menezes, a former Citigroup Inc. senior vice chairman, paid $2.7
million in a fine and forfeited trading profits to the sUS to settle SEC charges that he
sold Citigroup holdings ahead of an announcement of losses from a subsidiary in
Argentina. Both men neither admitted nor denied wrongdoing. Balachandran says he
warned Gupta of his choice of business partners. 
‘THE CHICKEN FLU’ 
You’re an eagle, so why do you want to be with these chickens who can’t fly?”
Balachandran says he told Gupta. “You’ll get the chicken flu.” Gupta hasn’t been
charged with a crime in the Galleon insider trading scandal. The SEC administrative
action against him is a civil complaint — and the most that could happen to him is a
fine and a consent decree that could bar him from serving on public company boards
in the US. 
Gupta and Rajaratnam have known each other since the 1990s, and their relationship
is both personal and professional. Gupta invested $10 million of his own money with
Rajaratnam, according to Gupta’s lawyer, Gary Naftalis. Gupta gave Rajaratnam more
than money; he passed along information on Goldman and P&G, prosecutors said
during Rajaratnam’s trial in Manhattan. 
Justice Department prosecutors called Gupta an unindicted co-conspirator. They
presented wiretap evidence to the Rajaratnam jury showing that Gupta had told the
hedge fund manager that in 2008 Goldman Sachs’s board was discussing possible
acquisitions of American International Group Inc. or Wachovia Corp. 
Gupta also gave Rajaratnam early word on earnings at Goldman Sachs and P&G, the
SEC says in its action. Gupta sent an e-mail in late February to fellow directors of the
Indian School of Business, declaring his innocence. 
“I have done nothing wrong,” he wrote to the board of the school, which he
cofounded in 2001 in Hyderabad. “The SEC’s allegations are totally baseless.” 
For the 85-year-old McKinsey, the Kumar conviction and the SEC action against
Gupta have been a blow to its elite image. The firm counts among its clients hundreds
of the world’s leading corporations, including Bloomberg, and governments. 
OLD BOYS’ CLUB 
Consultants never talk about their clients in public, and the firm won’t even disclose
customers’ identities. Leaders of major companies have started their careers at
McKinsey, including Boeing Co. CEO Jim McNerney, former American Express Co.
head Harvey Golub and one-time International Business Machines Corp. CEO Lou
Gerstner. 
For decades, until the 1970s, the firm was the ultimate old boys’ club, where
consultants were required to wear hats and long, darkcoloured socks, with white,
buttondown cotton shirts and conservative suits. Gupta was the first nonwhite and
non- US-born elected managing director of the firm. 
McKinsey veterans have been deeply troubled by Gupta’s run- in with the SEC. 
“I was shocked, totally and completely shocked, at the news of the allegations,” says
Ian Davis, who succeeded Gupta as McKinsey’s managing director from 2003 until
2009 and is now a director of BP Plc and Johnson & Johnson. 
Gupta got caught up in envy and emulation of the super- rich, says Terry Connelly,
dean of the Ageno School of Business at Golden Gate University in San Francisco. 
SEDUCTIVE POWER’ 
“You can never underestimate the seductive power of three or more zeroes added to
net-worth numbers,” says Connelly, a former managing director at Salomon Brothers
Inc. “You can be successful, but if you’re in hedge fund managers’ circles and you’re
not rich like them, you can start asking, ‘Why can’t I get that? I’m every bit as
smart.’”
Smart is a word people often use when describing Gupta. His ascent from lower-
middle-class roots in Kolkata to the top of McKinsey is a triumph of brainpower and
drive. He was born in December 1948, 14 months after India became independent of
British rule. His father, a journalist who worked for two newspapers, fought for
India’s independence and was jailed several times for his political activism. His
mother was a teacher in a Montessori school.
The family moved to New Delhi when Gupta was five. He, his two sisters and
younger brother attended Modern School, one of India’s few English-language,
Western-style high schools at the time — located off what was then New Delhi’s most
exclusive shopping district, Connaught Place. 
ORPHANED AT 18 
Gupta was orphaned at age 18 after both his parents died of natural causes within two
years of each other. He persuaded an unmarried aunt to live with him and his siblings,
according to a 1994 interview Gupta gave to `Business Today,’ an Indian magazine. 
He said he was shattered by his father’s death and became very studious, careful never
to make a mistake that could cost him his high school scholarship. 
Gupta ranked in the top 20 applicants among hundreds of thousands of Indian youth
who took the entrance examination in 1966 for a spot at the elite Indian Institute of
Technology, according to an interview he gave to the “Economic Times” of India
when he became head of McKinsey. 
He chose the Delhi campus, which kept him close to home and, in 1971, he earned a
bachelor’s degree in mechanical engineering. His main leisure activity was acting in
plays in the school’s drama club, where he met his future wife, Anita Mattoo, an
electrical engineering student.
TERRY CONNELLY Ageno School of Business, Dean