India elite yet to absorb Gupta lesson
This suggests an insufficient reckoning with the difficult questions his crimes raise about business in India.
By James Crabtree
Rajat Gupta’s conviction for insider trading has led to soul searching among India’s corporate elite. Business associates of the disgraced former head of McKinsey seem genuinely perplexed that a man who once had an unimpeachable reputation for integrity would risk everything by passing on corporate secrets.
But despite the expressions of shock and surprise, there has been little public criticism. This suggests an insufficient reckoning with the difficult questions his crimes raise about business in India.Mr Gupta was by all accounts an admirable figure, as acknowledged by several jurors who convicted him last week for passing confidential information – gleaned from his Goldman Sachs directorship– to Raj Rajarathanum, head of the Galleon hedge fund. “We wanted him to walk, go home to his family and live a very prosperous life,” one said.
During the trial more than 300 business and other professional figures signed an open letter in praise of his character; a list including some of the most recognisable names in Indian business, such as Mukesh Ambani of Reliance Industries. Even after the verdict, the sense remains that Mr Gupta’s was a temporary lapse of judgment. Those who know him mutter that the punishment, which could include many years in jail, is excessive.
This reaction is partly explained by Mr Gupta’s unusual position in India’s recent corporate history. Although he was not a prominent figure before becoming head of McKinsey in 1994, his elevation had deep symbolism. The first Indian to lead a large global business, he inspired a generation of aspiring professionals seeking a place at the top table in an era of globalisation.
More important, his rise coincided with the opening up of India’s economy; a time when the nation’s corporate titans were turning their eyes abroad. Mr Gupta became a trusted conduit: a source of counsel to India’s biggest boardroom names, but also of international contacts and even personal advice. “These guys all send their children to study abroad, and they would ask Rajat for advice, given he was on the boards of several business schools,” says Pramath Sinha, a friend and former McKinsey colleague.
He also had a knack for bringing the elite together. It was a trait seen most obviously in his founding of the Indian School of Business, established in 1999 and now rated among the world’s top 20 management institutions. India’s leading business families co-operate rarely, but they did so at Mr Gupta’s instigation, by funding and supporting an institution that became a source of national pride.
Yet while this understandable mix of personal friendship and professional admiration explains a good deal of the incredulity at Mr Gupta’s fate, there are surely other factors – and these reflect less well on the country. The first concerns the crime itself. Hard data are tough to find, but analysts and brokers admit privately that insider trading is widespread in India, and often not considered a serious crime.
“It isn’t a problem unique to India, but it is a problem, and enforcement is definitely more lax than in the US,” says Sandeep Parekh, a securities lawyer and former financial regulator. The Times of India made the point more bluntly in a headline this week: “Insider trading is rampant on Dalal Street [the Mumbai equivalent of Wall Street]”.
Just as important, however, was the disbelief that it was Mr Gupta who ended up in the dock. It remains all too rare in India for leading business figures to be jailed for corporate crimes. No chief executive, for instance, has yet suffered this fate during numerous recent corruption investigations, including those into the misallocation of mobile telecom licences.
Other examples of soft regulation are not hard to find. One came when two of billionaire Anil Ambani’s companies paid large fees to settle a probe into alleged financial irregularities. A “consent order” was signed with the Securities and Exchange Board of India, which said Mr Ambani’s group had misrepresented its end-of-year financial statements over a number of years and violated overseas borrowing rules. The details of any wrongdoing by were never made public, and Mr Ambani’s group admitted no guilt.
This lenient approach to alleged corporate misdemeanours remains common in India. It is part of the reason the rallying-round that preceded Mr Gupta’s trial, and the lack of criticism that followed its conclusion, looks poorly judged. Here was a figure whose rise embodied much of the best of modern India. But his fall is emblematic of many of the practices the country still has to do more to leave behind.
James Crabtree is the Financial Times’s Mumbai Correspondent |
