Tuesday, March 29, 2011

The Rajat I Know

A rather sanctimonious mass email I've received is prompting this post.  Rajat Gupta, former head of McKinsey has been widely praised and admired though he is now in the news for passing material non-public information to Raj Rajaratnam (RR) of the Galleon hedge funds.

The email titled "How Much is Enough?" echoed some other chatter about how the wealthy and highly respected Rajat let greed get the better of him and ruin his reputation by abetting insider trading.

I feel compelled to balance the picture about Rajat whom we know personally since 1991 when I had just come to the US for PhD studies at the University of Chicago.  I knew nothing of McKinsey or what he did at that time, and we drove to his house simply to deliver a gift from India sent through us by one of my favorite ex-bosses in the IAS.  That was Mr. P.K. Mattoo, Chief Secretary of HP state till 1987,  and uncle of Anita Mattoo Gupta, Rajat's wife and a warm, wonderful person whom he met as a fellow student at IIT Delhi. 

I've rarely seen anyone more gracious, modest and personable than Rajat, in spite of his brilliance and success at McKinsey.  He was that way in all the subsequent times we met him, and Mr. Mattoo told me how Rajat was ever ready to sleep on the floor when he and family would visit and stay with them in India. In 1994 after Rajat became head of McKinsey, my friend Harsh from the University of Chicago who joined McKinsey told me about how he and other fresh recruits met Rajat at a welcoming party for them.  He said the recruits were blown away when Rajat came up to them individually, put out his hand and diffidently said, "Hi, I'm Rajat Gupta," before chatting with them.  "As if anyone in the gathering didn't know who he was," Harsh marveled, "And he was on the cover of many major magazines."

We saw Rajat and family after a gap of of over 10 years in June 2009 at a high school graduation party for the daughter of Sunil, Mr. P.K. Mattoo's son.  Rajat was as unassuming and cordial as ever, and introduced us to his daughter and her African American husband who had been warmly welcomed into the family.  We also learned about Rajat's hectic schedule, working for free with non-profits, including with the Gates Foundation (that he's now stepped down from) to help eradicate malaria.

While he certainly violated confidentiality as a Goldman Sachs director in his conversations with Raj Rajaratnam, he seems to have done it out of a misplaced sense of friendship, without profit to himself.  I saw SEC's most damning evidence against him, this 18 minute transcript of his call with RR.  The disclosure seems incidental to the main conversation, and as a result of RR pumping him for information.

The other striking incident cited is Rajat calling RR seconds after a Goldman board meeting where Warren Buffet's $5B investment was disclosed.  Minutes later RR placed bets on Goldman shares that netted Galleon $900,000.  To me, it's very out of character for Rajat to call someone just after receiving confidential information to tip them off for illicit gain.  Even a March 7 Times article referred to some curious aspects of the SEC's case against Rajat.

The kind of scenario I'd envision is that RR tracked scheduled board meetings and timed messages requesting a call back to Rajat accordingly.  After meetings are over the attendees typically get to their other activities, including returning calls, as Rajat did with RR.  Then in the course of other conversation that was ostensibly the purpose of RR's contact, he casually asked Rajat some leading questions about Goldman, and pounced on any resultant cues.  RR is obviously sharp as a whip, but his laid back style and humor interspersed with personal chats could disarm a friend into revealing more than he should.  Rajat's amiable and forthcoming nature could make him hesitate to clam up and pointblank refuse to answer RR's "incidental" questions.

In sum Rajat's approachability and helpfulness has apparently proved to be his undoing.  His lack of motive or ill intent seems to be why he hasn't been criminally prosecuted, though he's had to resign all his board positions and suffer ignominy. 

Sometimes bad judgment or carelessness can land very good people in trouble.  I'm sorry to see Rajat in this plight and hope he gets out of this okay.