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Rajat Gupta Verdict: Was That A Collective Shudder ?

Posted on June 17, 2012 at 5:00 PM

The reverberations will likely be felt for a long time. Or will they ? Rajat Gupta, ex-head of consultancy Mckinsey & Co, former Goldman Sachs director, former director of Procter & Gamble, Indian-born orphan made good in America, 'land of the free'.....has been found guilty of insider trading. He will be sentenced in October, and there is to be an appeal. He could spend a very long time in prison.

Many expected the verdict, and yet there is a shocked silence around the world. Because these things don't tend to happen at the very top of the echelons of power. Or at least, they may happen - but people don't get caught. 

There is an excellent piece reported out of India on FT.com if you have access. India's business elite is still "struggling to come to terms with the downfall of one of its most celebrated members", it says. Many senior Indian businessmen have rallied around Rajat Gupta since the allegations first surfaced, including India's richest man, Mukesh Ambani. (I'm not sure what happened to the allegations about how exactly he purchased the land on which his extraordinarily vulgar home and homage to himself is built).

But then the FT reporters found a brave man - Suhel Seth, managing partner of Counselage, a New Delhi-based marketing consultancy, who was willing to be quoted as saying : “What he [Gupta] did was entirely about greed and avarice. But he is still being supported by these people because ultimately everything about India is all about a cosy club. If one of your club members gets caught you have to rally round. Or you are seen to be unpatriotic, or not part of the club.”

It's not just India, is it ? But because the elite is so very.......well, elite there - and because the gap between that elite and "the masses" is vast, it is even harder to change the accepted 'tone of doing business.' 

In the UK we talk a lot around the need to 'tone from the top' when it comes to corporate governance. Indeed, the UK's recent Bribery Act puts the onus very much on the top of companies to ensure that everyone they employ is aware of the 'rules' and the need to play by them - as well as being aware of the penalties if you don't. I'm really not sure how you even begin to do that in a country like India.

The problem then arises when India's elite 'air kisses' a UK elite (so to speak) and gets very friendly. (Just take a look at the politics in Whitehall, and at the latest revelations on 'expenses.') But as there is no hierarchy when everyone is expected to be equally at the top, you end up with all sorts of problems arising from cultural differences and deep-rooted expectations around 'acceptable' behaviour.

Anyone who has tried to get anything done in India knows that its bureaucracy has an amazing way of stalling, unless it is "greased." So the government agency that needs to issue you a required permit will repeatedly lose bits of your application until - as I did - you realise that of course, you are getting nowhere because you are not paying for a middleman. Then you realise there is a mechanism in place that allows for a middleman - you are meant to apply through an accountant - who may well pass along some of his fee to help the process along.

At that point - if you're me - you suggest writing a story about your hunch to find out if it's true, find someone who will publish it, and say you'll make sure the man at the top of the government agency gets a copy if you do.

After a seven month delay from the start of the application process, the time between my e-mailed proposal and a successful outcome was: five days.

Now if that happens in the middle - lots of people like me have to apply for that particular permit  - you can imagine what happens at the bottom. While at the top, there are no delays, only thick wads of banknotes changing hands, and not a personal trainer in charge of 'toning' in sight.

A story from Reuters  explains that without former US District Judge Richard Holwell there "probably would not have been any prosecution of Rajat Gupta." This is because in 2010 Judge Holwell ruled that prosecutors could use wiretap evidence in their case against Galleon Group hedge fund founder Raj Rajaratnam.

Alison Frankel writes  @ Reuters: 

"But the real takeaway from the case, Holwell said, is that Wall Street should be worried. Between his ruling that wiretap evidence is admissible and (my addition Judge) Rakoff's ruling that the hearsay rule doesn't bar the tapes, no one who's passing along insider information can be confident it won't someday end up on a wiretap played before a jury. "What the government wants to do is change behavior," Holwell said. "The way to do it is to bring these cases against highly visible defendants."

Changing behaviour is the only way forward. It would be helpful if people did not always assume that if you are 'at the top' you are immune from scrutiny - and prosecution. As a very clever (female) forensic accountant I know said to me recently:  " Shining a light is the best way to start moving towards transparency and change. For that we need the will for it - and we also need journalists." 





Categories: Corruption, Behaviour, Scrutiny