Culture & Ethics : Galleon Group and McKinsey insider trading case

Remember the Rudyard Kipling saying I mentioned in the last blog ? It was about the six serving men he had- the What and Why and When and How and Where and Who.

On 16th October, 2009 Raj Rajaratnam CEO of the hedge fund management firm Galleon Group and Anil Kumar a top senior partner and director at McKinsey & Company were arrested and indicted for insider trading and conspiracy. Later on June 15, 2012 Rajat Gupta the managing director of McKinsey & Company and a board member of corporations including Goldman Sachs, Procter and Gamble and American Airlines was found guilty of conspiracy and securities fraud in the same case.

In this article I’ll reveal the above case through those ‘six’ men I talked about and try to explore the aspect of ethics, morality, right and wrong in the culture at play in the mentioned case.

Corporate culture is the pervasive values, beliefs and attitudes that characterize a company and guide its practices. Apart from that there is a conscience within each individual in that company that gives them the sense of right or wrong. Then there is the societal morality which tests some standardised definitions of right or wrong. Ethics are the moral principles that govern a person’s behaviour or the conducting of an activity.

Who – The people involved weren’t just ordinary people. They were high level CEOs and friends. To contemplate over the motive of the act is not a simple act of labelling it as a profit-making strategy which was caught. They were already super-rich businessmen.

What – Using the identity of his housekeeper Manju Das, Anil Kumar got multiple subscriptions in Rajaratnam’s Galleon hedge fund group which he used for receiving illegal payments by avoiding taxes on the income. Around $125,000 was transferred quarterly by Rajaratnam to Anil Kumar for giving insider information of upcoming corporate deals of McKinsey’s clients. Rajat Gupta was indicted on a similar charge of giving Rajaratnam inside information about Goldman Sachs and Procter & Gamble.

Why – The three were friends from long and have been doing business across multiple companies and collaborations since Rajat and Anil founded Indian School of Business (ISB) in 1997. The motive for all three were that of personal benefits. Rajat had planned a spectacular career finale by teaming up with Rajaratnam to establish himself in the elite circle of billionaires.

When – For someone like Rajat Gupta, an IIT Delhi alumnus with a 15th AIR rank and then attending Harvard Business School, to be caught in such a scam is certainly disgraceful. All the three were at the heights of their career (as mentioned) when the case came out in public.

Where – The cases were dealt by United States Securities & Exchange Commission and United States Department of Justice. The both director level McKinsey executives “were the face of McKinsey in India.” Would such thing happen in India ? Well, India is no lesser than anyone in revelation of scams every year, anything can happen in India.

How – Well as I have mentioned in the article many times the three men here are not only businessmen but close friends since years. What they have been punished and penalised for is “giving away very confidential information” to a friend to make profits at personal and mutual levels. Is it wrong? Well, according to the law and the corporation it was definitely. Ethically also, it goes against the culture of such a large corporation. But then why such successful and rational people, who have reached enormous heights in their careers did such illegal trading of information? Was it their conscience? Or their caution gone wrong? At the time of his release Rajat Gupta continued to appeal his conviction on grounds that he received no tangible benefit from Raj Rajaratnam in return for the profitable insider information.

Certainly their behaviours were wrong and they were punished for it. But, now going out of the scope of this case, how do we work towards designing a behaviour change intervention?

Steve Wendel’s brilliant book Designing for Behaviour Change, gives us three dimensions identifying which we can go forward in designing the change. Its the Action – Actor – Outcome model. Outcome is the social problem we are trying to tackle and it should be specific, unambiguous and easy to measure. Actor is the person who will perform the Action. Finally, Action is the single thing that the Actor must do. When the Actor undertakes the Action it causes the Outcome. Your intervention should enable and encourage the Action.

In the end its all about the decision-making at the personal level. A man is the consequence of his own actions. Just ask yourself – How do I want to live this life? How can I get the good life? – and make a decision.

 

 

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