Chicago Booth Review Podcast Why Did the Former Head of McKinsey Go to Jail?
- August 16, 2023
- CBR Podcast
Hal Weitzman: Rajat Gupta was one of America’s most successful Indian-born businessmen. When he was elected in 1994 to lead McKinsey, the global consulting firm, he became both its youngest chief executive and the first who had been born outside of the US, as well as the first Indian-born CEO of a US multinational corporation.
Under his nine-year leadership, McKinsey’s revenues grew from $1.5 billion to $3.4 billion, its number of consultants went from 3,300 to 7,700, and from having 58 offices in 24 countries, it expanded to 81 offices in 44 countries.
But in 2010, Gupta was charged with insider trading, a crime for which he was convicted in 2012, and for which he spent two years at the Devens Correctional Facility in Massachusetts.
Gupta told his side of the story in his 2019 book Mind Without Fear, and it was while promoting that book that he came to Chicago Booth to be interviewed by John Paul Rollert, an adjunct associate professor of behavioral science, and a columnist for Chicago Booth Review.
Welcome to the Chicago Booth Review podcast, where this week we’re bringing you audio from an event that was a collaboration between Chicago Booth Review and Booth’s Harry L. Davis Center for Leadership. The first voice you’ll hear will be John Paul Rollert’s.
John Paul Rollert: When you read a book about someone that you know from the press, there are always surprises and, in fact, occasionally delights. One of the delights of this book, for me, in terms of my own expectations, was actually the role that poetry and scripture plays for you throughout the book. You begin every chapter with some snippet of poetry or scripture that helps to kind of frame that particular chapter. And, most notably, the epigraph gives you the title for this book, and it comes from the Bengali poet and Nobel Prize winner, Rabindranath Tagore. Now, I know from the book that you actually were something of a successful actor when you were in college, and so I wondered if you wouldn’t mind it, and you would save me the trouble, would you be willing to actually read the epigraph? Because it does frame the book. And give us a sense of why you used it as the title for this book?
Rajat Gupta: Sure.
John Paul Rollert: Thank you. (audience chuckling)
Rajat Gupta: Well, before I do that, I have to say that when I first became a managing partner at McKinsey, you have partner conferences, and then you’re supposed to give a speech at every one of these. And I typically used to start with a poem, and it depended on what the times were. When we were going crazy when the dot-com boom was happening and everybody wanted to go public and this and that, then I read the poem called “If,” which, I think, many of you probably have read, which has got to do with it. When everybody is going crazy, you should just calm down a little bit. But this is one of my favorite poems from the collection by Tagore called “Gitanjali.” I really love that collection. I named my eldest daughter Gitanjali, based on this collection of poems. It goes, “Where the mind is without fear “and the head is held high, “where knowledge is free, “where the world has not being broken up into fragments “by narrow domestic walls. “Where words come out from the depth of truth, “where tireless striving stretches “its arms towards perfection. “Where the clear stream of reason has not lost its way “into the dreary desert sand of dead habit. “Where the mind is led forward by thee “into ever-widening thought and action “into that heaven of freedom, “my father, let my country awake.” Tagore did win the Nobel Prize on this collection of poems, which was quite, quite. So if you haven’t read it—he translated it into English himself—you should get a hold of it and read it; it’s beautiful.
John Paul Rollert: And why did you decide to not only use this particular passage as your epigraph for the book, but you drew your title from it as well too?
Rajat Gupta: Yeah, I mean I found, you could take it into the first line, where the mind is without fear. I thought about my life and what I’d gone through and you could take it many ways and you can take it all of those ways. First is that, I decided to fight what I believe was a grave injustice to me all the way. So you can take that my mind was without fear. It didn’t matter to me what the outcomes would be. I didn’t care. I felt I had to fight it, as I have said, all the way. The other side of it is that I write in the book I decided not to testify, on my lawyer’s advice. And to me, I succumbed to fear, because they kept saying that that’s not the right thing to do, and you will be grilled this way, and you’ll get a bigger sentence if you testify and you’re still proven guilty, and so on. So I was overcome, I believe, by fear. So while a mind without fear is an ideal that we should all aspire to, it is also not so easy to do, and sometimes you succumb to fear. And when you do, the consequences typically are not what you would be happy with later.
John Paul Rollert: One of the interesting things—you have this remarkable experience toward the end of your teens. By the time you’re 18, you’ve tragically lost both of your parents, but nonetheless you push ahead. You go IIT Delhi, where you have tremendous success as a student, and at the end of your time, you actually gained admissions to Harvard Business School. We won’t hold that against you in this room. And that’s how you find your way to the United States. And you note in the book that you were actually only one of four Indians in your class. And one of the things that’s striking, and for me it actually may be an insight into not just American culture, but maybe American business, is the behavioral differences and what you observe. So I’m gonna read a little passage to you, and I hope you might elaborate on it. Because you found as you got to HBS the kind of case-study call-and-response was a little bit discomforting for you. So you write, “My confidence deserted me “in the midst of this unstructured free for all. “My American classmates were so competitive, “vying to get the professors’ attention and be heard. “They would ramble on and on, “taking up air times with superfluous comments. “What am I supposed to learn from this, I wondered. “Indian students didn’t speak unless called upon. “My father and my teachers in school had always taught me “that it benefited a man to be humble and self-effacing “not brash and assertive. “If you worked hard and lived with integrity, “you would be rewarded “and recognized without having to push yourself “in people’s faces. “This opinionated game of classroom one-upmanship “seemed crass and awkward to me. “Plus it puzzled me that Americans were always so confident “even when what they were saying “sometimes made little sense.” (audience laughing) So I’m sure no Booth student will recognize such behavior in their own classes. (audience laughing) But I’m curious, and obviously culturally that’s striking, but did it also teach you something about the way in which Americans did business?
Rajat Gupta: Well, yes, to say that the same characteristic actually continued when I joined McKinsey. There were two things that are interesting out of that. One was—I’ll come back to the McKinsey story in a minute—but one at HBS was that I then determined to exert myself and make sure I made my presence felt in class and I started speaking against my own comfort zone. I started speaking more in class. But after a little while, my professors stopped calling on me, so I was really quite puzzled. I said, they tell you that half your grade is your class participation, and everybody is vying to get into class, but yet when my hand would be up, as perhaps the only person in the class with a hand up, they would just look away and go on to something else. And so I got frustrated with this. I went to the professor and I said, “Why do you do? “You encouraged me to speak in class. “I was quite happy not speaking in class. (audience laughing) “But you encouraged me and then you don’t call on me.” He said, “Yeah, but you know the problem is “that you confuse the class.” So I said, “What do you mean by?” He said, “No, I’m trying to get through “some straightforward concepts “and you are making it too nuanced and too complex “and they don’t understand what you are saying “and you are right.” And that was because of the training in engineering school I had. These were two or three courses, like decision sciences or production management. I’m an industrial engineer by training, so some of the ideas and concepts that were being taught in those classes were pretty rudimentary, and there was actually more complexity to it and more nuance to it than was being conveyed in class. So I was trying to make it more interesting or more nuanced, and that didn’t fly, so I struck a deal with the professor. I said, “I will not speak in class from now. “You just grade me on my final exam. “I will not say a word.” And I did the same deal with three professors. And what happened as a result of that was that I was able to either not read or skim the cases on those three courses and concentrated on the cases that I didn’t know anything about, which was marketing and human resources and so on. So that turned to my advantage. In McKinsey, I had the same kind of feedback all the time. You’re not assertive enough. You’re not talking enough. You’re not pushing your points of view. Over time, I adjusted for it. I can be pretty pushy when I want to be and can be quite persuasive anyways.
John Paul Rollert: Do you see actually a business value to that or is this merely just some cultural artifact of the American experience that has made its way into business or is there actually a value to being that aggressive and pushy and demanding?
Rajat Gupta: I don’t know. I think it’s an issue of personal style. Everybody has their own style, and every style can be effective. I don’t say that a very pushy, aggressive style can produce results. So can a quiet, listening, intervening when you have really something important to say rather than all the time trying to get your points across can also be very effective. So I won’t pass judgment on that.
John Paul Rollert: Admirable restraint. Maybe I will in my own private time. (audience laughing) So when you arrive at McKinsey, it seems as though McKinsey is living—and this is in the best sense—in the shadow of Marvin Bower. This extraordinary individual, who I believe joins McKinsey almost when it opens in the ‘30s. He serves as managing director from 1950 to 1967. Considered the father of modern management consulting, and clearly is someone you admire a great deal. You say of Bower, you say: “Bower, whose vision shaped the firm, “articulated what it truly meant to be a professional. “He talked about serving clients. “Putting their interests above those of the firm. “Letting financial reward be the byproduct “of providing an excellent service.” One of the ways this is often phrased is that consulting at McKinsey was a profession rather than a business.
Rajat Gupta: Yeah.
John Paul Rollert: And I’m curious if you could maybe talk a little bit about how you understand that distinction, right, and what made McKinsey as a business proposition or as a business venture so special to you?
Rajat Gupta: Well, first to say those of you who belong to this city or are fond of this city, McKinsey & Company was started in Chicago. McKinsey was the founder of McKinsey & Company, and then went on to become the CEO of Marshall Fields. Marvin was a very, very special person. He brought, sort of, professional values to the firm from the best of law-firm models, not necessarily many law firms we see, but the very best in terms of client service and he shaped the culture of the firm. He did many interesting things. For example, he actually, for many, many years, met every person who joined the firm. We used to have an introductory training program in McKinsey, so all new associates would go through that program. And he would invariably attend that program and interact with students, I mean interact with the new recruits. So he shaped the culture in so many different ways. It was a very special place because of the values that McKinsey had in terms of client service, in terms of partnership, in terms of one firm globally, which it still retains, and in terms of really believing that what is important is to do best by the clients, and if you continue to do that, it automatically will result in the firm being very successful. So Marvin. One story to say about Marvin, which is in the book, is that I started in the New York office and then I transferred to Scandinavia, and I had the opportunity to lead the Scandinavian office. It became very successful. It became one of the most successful offices in the firm, but when, at the peak of that success, I decided that I should leave the Scandinavian office to the Scandinavians. I had this mind-set of whenever you get too comfortable, you should change because you’ll learn a lot more. So I decided to come to Chicago. I didn’t wanna go back to New York. I decided to come to Chicago, and my Scandinavian partners gave a farewell party. It was around Christmas time. So we go to my successor, who was a Swede, at his home that the retirement party or the farewell party was there, and there was a Santa Claus. And he was sitting there and there was a Christmas theme to it, and there was a children’s choir, and there was music, and so on. And so he told me, “Why don’t you guess who Santa Claus is?” I had no idea. I couldn’t figure it out. He was quietly sitting there. And then I said, “I give up,” but then I went out to say hello to Santa Claus. And Marvin had a very distinctive voice. So as soon as he said, “Merry Christmas,” I knew it was Marvin Bower. And he was then in his 80s and he had come just for that farewell party. And he wrote a long letter after that too and he said, “I went there because I could feel “how much Rajat’s partners loved him “and wanted to honor him, so I came to honor him.” He was that kind of an individual. So when I first got elected managing partner at McKinsey, the first pilgrimage I made was—he was then living in Florida and not traveling anymore—I went to Florida to spend a day with him to just, let’s say, learn at the feet of the master.
John Paul Rollert: When you think in terms of a profession. There’s a bit of an antique ring to that. When business schools were first started, they were understood to credential people to be in the profession of business. And we don’t tend to speak in those terms so much anymore. This commitment and this concern for professionalism, however, seems to be very important to you and it seems to have been something that was imparted by McKinsey. That what it meant to work there was somehow different, and that there might be trade-offs between looking at your work as simply business as opposed to being a member of a profession.
Rajat Gupta: Yes, it was characterized by the value set that it had. First thing is saying that the clients’ interests come first. You are serving as a professional, and your clients come first no matter what. That’s very important. The other is to invest in your own capabilities. So you’re talking all the time about professional development, not career development.
John Paul Rollert: What’s the difference between them?
Rajat Gupta: The difference between them is whether you are actually investing to become a better consultant not investing to get to the next step or get to become partner or get to do this or that or the other. So I find a big difference between professional development and career development. And if you focus on professional development, career development will automatically happen. It’s the same thing as Marvin said before: if you focus on making the client successful, you will become successful, but you have to focus on the first one. So those kinds of things appealed to me a lot. Also the sense of, which is a different dimension, is the sense of partnership. That is a very, the feeling that you belong to this, and it’s a mutual commitment that the firm makes to you and you make to the firm.
John Paul Rollert: Well, you had tremendous success at McKinsey. In fact, in your late 30s, in 1988, is the first time, I think, you get to the slate of seven as one of the people possibly voted on to become managing director. It’s a few more years before you do, but in 1994, you become the youngest managing director in the history of McKinsey, at the age of 45, which makes me intensely jealous, but is admirable nonetheless. The youngest managing director in the history of McKinsey and the first non-American to be elected. It’s an extraordinary accomplishment. And the way you describe it is very striking to me because you see your own personal success as both a reflection of meritocracy on the one hand and the very best of what America has to offer. I was wondering if you can say something about that.
Rajat Gupta: Often times, we credit ourselves with all our successes and blame somebody else for all of our failures. It just simply is not true. You have to be good, but you also have to be at the right place at the right time in order to get somewhere. It’s not all your own capabilities. Firstly, there’s the team that helps you succeed, but you also have to be at the right place at the right time. I moved to Scandinavia out of luck. There was not any planned anything. The Scandinavian office was growing and they asked me to go to Scandinavia. I would say that I was in the right place at the right time. Scandinavia, which built my reputation, and then I came to Chicago, and Chicago was a very staid, old office. And it only had—it was a small office. 60 consultants in a market which was certainly the second largest market for consulting in the US. So I was able to turn it around and grew a lot, but again, I was lucky to be choosing to come back to Chicago. Made the head of the office. I was there at the right time. I would also say that throughout my time in McKinsey, I felt it was a true meritocracy. And when they put me on the ballot, when I was 39 years old, I never expected it. I thought it was a fluke. I thought about it as, why did people vote for me? And it had to do with two things. One is I was a very good consultant. First thing, I was very good at client service and I’d proven it in Scandinavia and then I’d proven it again in Chicago. Even though I was head of the office, I did client service a lot. The second had to do with trust, that my leadership style had much more to do with making other people successful. And if you try to make other people successful, then I believed always that they will work much harder to make you successful. That certainly was true. So when I got elected managing partner, I said, “Extraordinary credit goes to the firm “for electing somebody who didn’t fit the mold.” But in some dimensions that are important to be a successful consultant, I was very good at. And yet, there were many candidates who were also good, so, I mean, I felt, what a firm! Amazing, you know? To elect somebody who doesn’t even look like the majority of people, that was not US. Every other managing director before me was elected from New York—I was sitting in Chicago—was elected from New York and was a white Anglo-Saxon American.
John Paul Rollert: Now you served three terms as the managing director of McKinsey, from 1994 to 2003. A kind of remarkable time to be at the head of the firm. In many respects, you had incredible success. So in the nine years you led McKinsey, the firm’s revenues nearly tripled from $1.2 billion to $3.4 billion. The number of partners more than doubled, from 427 to 891. You opened 26 new offices globally under your leadership and pursued expansion in India, China, and other emerging markets. So you had this kind of incredible success at the head of McKinsey. But at the same time, of course, the dot-com explosion was going on, and this, of course, created certain choppy waters for you. So, for example, in 1999 alone, the San Francisco office lost 50 people, fully a third of its original strength. So you have people who are now leaving the profession of consulting and chasing, among other things, money, right?
Rajat Gupta: Yeah, yeah.
John Paul Rollert: And I saw my own, say, classmates when I was an undergraduate do this. One of the opportunities that would have been available to you, which you fought against, but it created a lot of strife within the upper ranks of McKinsey was the possibility of going public. Goldman famously, I think in 1999, changes from a partnership to going public, and you say affirmatively there were a lot of partners who wanted to do this, and I quote: “This will never happen under my leadership. “They would have to find someone new.” Why, for you, was staying in the partnership mold so important, as opposed to getting an incredible payday for you and all the people you worked with?
Rajat Gupta: Well, it was very simple. I mean firstly, the consulting profession doesn’t need a lot of capital. So what do you go public for? To get capital to invest in your business or some good purpose like that, or to create a currency for acquisitions or currency for paying people, etc. Those conditions didn’t really apply to McKinsey. So it was just to enrich ourselves. Now at that point, I said, many partners from the late ‘20s, have built up the firm. So if there’s anybody really owning equity in the firm, it’s all of those people, including the current partners and perhaps including the future partners. So it’s like saying, this moment of time, this group of partners decides to cash out and enjoy all the benefits of all the contributions made by generations of partners before and mortgages the future of the future partners. It didn’t make any sense to me. So I was very, very, very against that. There were many people who were with me on that, It’s not like . . . There was a small fraction of people making a lot of noise saying we should go public, but we did experiment with taking equity of our clients, which was another debate that was going on. And a third debate that was going on was whether we should create an investment arm like Bain Capital—originally Bain Capital was part of Bain when it was started. We said no to that too. We did take some equity, but we managed it completely differently. It was never more than 1 percent. It was less than 1 percent.
John Paul Rollert: Now if there’s any downside to being something of a wonder kid at a firm like McKinsey is that at some point you’ve kinda capped out. You yourself put a restraint on managing directors that they could only stand three times for election. So you served nine years all together. Interestingly enough, you finish right about the same time, in age at least, as, say, Barack Obama. Barack Obama finishes his presidency at I think about 54. You finished up your managing directorship for McKinsey at 54. It’s interesting in looking at a couple of interviews you gave during this time. There’s a kind of reflective tone as you think through how maybe this experience has changed you. Specifically, you bring up in a couple of cases the concerns about materialism. So in one case, you’d given an interview to the Academy of Management Executive. This is May 2001, and you’re describing a little bit of your father and you said, “He had very high standards of integrity “and high thinking and he believed in simple living. “I don’t think I would say I followed him in that regard. “I’m far more materialistic a person than he ever was.” That’s May 2001. In 2004, after you’ve now left as managing director, you’re speaking at Columbia University. I believe at the business school, and you have, to me, even a kind of a darker quote. So I’m going to read it to you. You say, “When I look at myself, yeah, I am driven by money. “I like many creature comforts. “I wanna make sure I take care of my kids well, “and so on and so forth. “And when I live in this society, you know, “you do get fairly materialistic. “So I look at that. “I am disappointed. “I’m probably more materialistic today “than I was before and I think money is very seductive.” You continue, “You have to watch out for it “because the more you have it, you get used to comforts “and you get used to, you know, “big houses and vacation homes “and going and doing whatever you want. “So it is very seductive. “However much you say “that you will not fall into the trap of it, “you do fall into the trap of it.” Now these are to me somewhat darker sentiments and I’m curious was there a fear for you that the money that had come with professional success had begun to change your values or perhaps compromise them in some way?
Rajat Gupta: Most people would not authentically express the struggles that they’re going through. Everybody goes through struggles and they’re not really authentic. I could have not said those things. I could have pretended not to do that. The Columbia class was a three-hour class. The quote you took out of it is five minutes.
John Paul Rollert: Right, right.
Rajat Gupta: The rest of it was all about a life philosophy and the idea of being a—in Indian philosophy you have this term called Karma Yoga, which is you have a right to work, never to the fruits thereof. And the whole class was about the philosophy of Karma Yoga, of detachment from the results, and how that is a liberating philosophy. What I was trying to contrast is saying, while I believe in that philosophy and I strive hard for it, the world is full of temptations and you ought to be guarding yourself on these. It was a completely authentic and frank discussion. I’ve compared myself . . . I observed my father. I don’t think I could be as idealistic or a person like him, but very few people are. At the same time, I don’t feel that the things I have done in my life are driven by some set of outcomes or some set of greed or some set of idea of accumulating enormous amounts of wealth. No, because one of the things I did. I’ll give you a few examples. I mean, I believed, I was elected when I was 45. Retirement age is 60. I could have served five terms. I decided no. It’s not fair to the firm. iI’s not probably fair to me because you get too much into this comfort zone and so on and you will never progress as an individual. I also, very early on, started getting very involved in philanthropic work. I always felt that business is a force of good and business brings a certain kinds of skills to any problem. If you look at the toughest societal problems they cannot be solved by government alone, or by civil society. They have to be solved by a bringing together of talents, of governments, of civil society, of business. Just like all of us, I also struggled with what is the role of material things in my life. How do you make sure that you don’t get completely seduced by them? The class I was teaching was saying these questions would come to you. You will be tempted. It is very difficult to make sure that you keep the balance between material, philanthropic, career, other kinds of considerations. So it’s a bit out of context that you picked up five minutes of a three-hour class. If you look at the three-hour class, you will see the context in which those things were said.
John Paul Rollert: So there is a certain tension between this idea of Karma Yogi, as you describe it—you do your best and you are committed to the outcomes—and materialism, right? To be afflicted with materialism, by its very nature, is to give an overcommitment to outcomes. It’s not about, say, a consideration for lifestyle in the basic sense, but to be able to demonstrate power, right? Success and superiority. So these two would in many senses be in tension. They’re inconsistent with the two. Probably one of the reasons in a discussion like this you might bring it up. I’m curious for you, you get to the end of your career at McKinsey, and you say in the book that your wife kinda wanted you to go right into retirement. But on the one hand, you do have these incredible commitments to philanthropic objectives, right? On the other hand, you have a lot of business opportunities that are available to you, by virtue of your success. And I guess I have a question as to why, did it ever, how much did you wonder as to whether, in terms of allocating your time, you should just give up the business commitments whatsoever? I mean, unfortunately, because of your notoriety, I know that at this time, you’re basically worth about $100 million, putting you in the top 0.01 percent, so one out of about 10,000—$100 million being more than a man could spend in 10 lifetimes, if he spends his money prudently. Why give yourself over to that? Did it ever occur to you, I should just cast away these kinds of remunerative acts and stay committed to those philanthropic acts I care about because that’s really where my heart is, and at the very least, I have to give up time in order to pursue them.
Rajat Gupta: So, it’s a very good question. I struggled with it quite a bit when I finished my term as managing director. I was 54 years old. There were many opportunities coming at me from the business world, which were very, very lucrative opportunities, but I decided that—you know, I was enamored with the idea of business making an impact on society by bringing the skills that business brought together. So I got active in many things, whether it be the global fund or whether it be starting a business school or starting schools of public health in India. I worked with Kofi Annan on UN. I worked with Bill Gates. I was chairman of their advisory counsel, and so on. Some were making other institutions effective. Some were institutions created by me. Somehow I had this notion that I shouldn’t entirely leave the skill and the engagement with commercial business. I talked to many people on what I should be doing and so on, and I decided I was not gonna become a CEO somewhere where I had some opportunities and so on. I said, let me try to build a portfolio of activities in which more than half of it would be philanthropic and some of it would be business oriented. I did this analysis in my head, which was: Which is the business activity, for whatever set of reasons, actually per erg of energy produces the best results? And I concluded it was private equity because, it’s just, you don’t have to do a hell of a lot of effort, and you can make a lot of money. So I started a private-equity fund, which was actually also to help India because India needed investments. So I said, I’ll create an India-oriented fund and I’ll be chairman of it. I was not even an operating guy. I raised the fund. I had reasonable set of economics from it and I would spend about 15 to 20 percent of my time. I thought that was very smart of me, and very efficient, and, you know, I’ll keep a hand in business and the rest of the time, I’ll devote to philanthropic things. That was my logic. I could have, what you said, said, forget about business. I had enough money. I subsequently lost a good piece of it, but that’s OK. I still have enough money. (audience laughing) It’s not a problem. But I didn’t make that choice of saying, let me completely give up business.
John Paul Rollert: Well, you advert to, I think, the New Silk Road initiative as one of the business ventures that you go into. And, of course, these activities take you into the realm of Raj Rajaratnam, someone who in many respects has a past similar, but strikingly dissimilar, to you. Mr. Rajaratnam comes from Sri Lanka, came the United States, went to Wharton, again, we’ll forgive him for that. He is a tremendously successful hedge-fund trader, but as matter of, kind of, personal deportment and personal behavior, it seems as though you two couldn’t be more different. One of his former coworkers described him as being a man who was only interested in money and women. He’s a kind of a boorish character, bullying, and to a certain extent, it seems like the last type of person a man of your dignity would want to associate so closely with. And it seems as though, during your time as the managing director of McKinsey, he wasn’t really someone in your sphere and then afterward, he moved in, and if you’ll forgive me for saying, it seems as though the only reason you would want to associate with someone like that is probably for business opportunities.
Rajat Gupta: Well, the history of it is not quite like that. So what happened was, in fact, the association comes from a very different angle. I started the Indian School of Business in Hyderabad, of which I raised a lot of money. I mean, this was a school that was built from scratch. It now graduates a thousand MBAs a year. It is in the top 25 schools in the world. The best one in India. We needed to raise a lot of money. I raised a fair amount of money from various sources: Indian diaspora companies, Indian business leaders, so on. And out of the blue, Rajaratnam, through a common friend, said, “I want to give a million dollars to the school.” I never knew of him before. I never heard of him before.
John Paul Rollert: Is that 2001, is it?
Rajat Gupta: It was maybe a little bit before then because when we were raising money for this, late ‘90s. I thought the man was very generous at the start. I found out something more about him. He’s a great hedge-fund manager. But we were never great friends.
John Paul Rollert: You say that you never dined at his home.
Rajat Gupta: No.
John Paul Rollert: He never dined at your home.
Rajat Gupta: No, we never went on holidays together. We never did anything what you’d do with normal friends. I admired him as a hedge-fund manager at that time. Now, of course, he was--
John Paul Rollert: And not as a person?
Rajat Gupta: Not as a person. His style was completely different than mine. But his intellect was sharp. He was not . . . Anyway, so that’s kind of the history of how I got involved in it. I, of course, at this point, regret that I was. I also regret that when I discovered he had taken some withdrawals from this Voyager investment without giving me my share, I should have sued him immediately, but I’d never sued anybody in my life. I mean, I just said, how could this person who is worth 10, 20 times as much as I am, why does he want to rob me? I always trusted people so. It took me a long time to fully realize that he had really taken it away, and I should have sued him and didn’t, and I paid a price for that too because it would have been clear that I had absolutely no motive for tipping Rajaratnam of that stuff.
John Paul Rollert: You refer to the events that you get pulled into—so Galleon Group, his hedge fund, becomes the locus for the largest insider-trading ring in history. So 72 people are charged. You are actually one of three who pled not guilty, along with Rajaratnam. He, of course, goes up for trial first and is sentenced to 11 years in jail. I think he gets out in 2022. But you, unfortunately, get pulled in as well. And the account of the trial for a reader is just harrowing, and I encourage people who haven’t had a chance to read the book to go through it. And you describe as you go through the trial, a deep sense of frustration that a fuller story was not kind of getting across of your life and your experience, and you say something toward the very end, in the closing remarks of the prosecutor, Brodsky, as he’s responding to your defense lawyer. This is something that shot through the gloom and connected with you at a deep level. He says, and I quote, “To believe the defense team, you would have to believe “that Mr. Gupta is one of the unluckiest men in the world. “You would have to believe he is a victim “of these incredible incriminating circumstances “happening to him again and again.” This seemed to hit you, as you say in the book, at a very deep level, that it spoke to that particular moment as you’re sitting there in court.
Rajat Gupta: A couple of thoughts. One specifically to that question, then I’ll broaden the answer a little bit. It was a prosecutorial strategy. All they had was some circumstantial evidence regarding two Goldman board meetings. They expanded that to six or seven charges, other companies, because they wanted to kinda establish a pattern. There’s absolutely nothing to any of these other and the only ones I got convicted on were those Goldman charges.
John Paul Rollert: You were a board member of Goldman.
Rajat Gupta: I was a board member of Goldman.
John Paul Rollert: The charge was that you had passed along information
Rajat Gupta: Right.
John Paul Rollert: From a Goldman board meeting
Rajat Gupta: Right.
John Paul Rollert: To Rajaratnam.
Rajat Gupta: Right, right. But I wanted, you said two or three things. You started by saying there were many, many cases related to Galleon. In insider trading, you have to establish three things. One: that actual market-moving information was passed on. Second, you have to establish that there was a tangible benefit and a real quid pro quo. That I gave information; I got something in return. Third is that there should have be criminal intent. If you accidentally pass on inside information, it’s not breaking the law. On any of this, the best they had was the circumstantial . . . there was no direct evidence of any inside information being passed to Rajaratnam.
John Paul Rollert: This is only one time when they catch you on a wiretap, and that’s not connected to one of the charges.
Rajat Gupta: And there was no inside information.
John Paul Rollert: Right, privileged information perhaps, but not inside information.
Rajat Gupta: It was not even privileged. We demonstrated the client that it wasn’t—
John Paul Rollert: Mr. Blankfein, Lloyd Blankfein, disagreed with that at trial though.
Rajat Gupta: Except for the fact that we presented evidence that it was public information. Disclosed by themselves. Goldman. I’ll come back to that in terms of the role Goldman and Blankfein played in terms of building up the prosecutor’s case. That’s a different story. But the thing is that in every other case related to Galleon there was direct evidence, either on tape or on somebody else testifying that inside information was passed. There was always a quid pro quo, as payment of some kind, a benefit of some kind. There was repeated instances where they clearly stated the criminal intent of the conspiracy. I was the only one, amongst these 70 cases, that none of these three conditions were met. And yet, they were able to convince the jury. So hats off to them for doing a very believable but not true story. A couple of other things to point out. The first thing I would say is that, and that is, it was a sign of the times. We went through the worst financial crisis in a few generations. After the depression, it’s the worst financial crisis. The impact of people in the main street was overwhelming. They were losing their jobs. They were losing their homes. They were losing their retirement money. So there was a palpable anger everywhere, and justifiably so. The main culprits of the financial crisis were not hedge-fund managers. They had nothing to do with it. It was really the housing finance companies, the bankers, the rating agencies, and so on. It’s clear after the event, that all of these banks and institutions were fined heavily. They admitted wrongdoing. The fines were, of course, paid by the shareholders. The executives and these people. I mean institutions don’t do any wrong. People do. We were not able to hold a single person of note accountable for the financial crisis. I’m not against bailing out the financial institutions because you don’t want the system to fail, but to not hold accountable the executives who perpetrated that, gained enormous wealth because of that, to let them go is no justice. So the prosecutors were basically going after the wrong people to begin with. Not that I condone insider trading. Don’t take me wrong, but your responsibility as a public prosecutor is to prioritize what harm these executives did to the economy and to the population in general. There’s a book that was written call “The Chickenshit Club,” which talks about that problem. And to this day, we haven’t got justice. So in that context, they were going after, and certainly I would classify myself as prosecutorial overreach, and the strategy was a bit diabolic because what they did, they leaked stories in the press. So I first came to know about it at the end of 2009. I had no intimation other than somebody at Goldman, the lawyer told me that I heard your name has come up in some conversation regarding Rajaratnam’s case. Zero information for the entire year. I got a lawyer. He called SEC. He called, “Just tell us what . . .” Nothing, no. So I was living in the dark for, like, almost, I would say, 12 months plus, where there was absolutely, I have no idea. I’m fighting a shadow of some kind. Then I got a Wells notice from the SEC, which many of you know what it is. It’s sort of saying, “We’re investigating you. “Here are the potential charges. “Tell us your side of the story.” So you get, I forget, 30 or 60 days to do it. End of February was the time when I was supposed to submit my Wells notice, which I did. It was a well-thought-through 60-page memo describing why I should not be charged. I had nothing to do with any insider trading with Raj. The deadline for submitting that was a Friday afternoon, Friday evening, and we submitted it on Friday evening. On Monday, they charged me. There is no way anybody read or analyzed that Wells notice. The reason they charged me immediately was they wanted to charge me before Rajaratnam’s trial because what happened as a result of that was that it became my trial without my being able to defend myself. I was as much in the headlines without any possibility to refute anything in court or otherwise, when Rajaratnam’s trial was going on. And Rajaratnam himself was never charged on Goldman or P&G. So it was kind of a bizarre thing. You’re the principle who you are saying is the beneficiary. You don’t have enough evidence to charge Rajaratnam on Goldman insider trading, and you’re charging me. It didn’t make any sense to me.
John Paul Rollert: Well, if I can ask, in fairness to, say, the jury and their deliberations as well as the prosecution, you refer to Goldman, and to give a sense, ‘cause you said it is circumstantial evidence, that’s all that they ultimately have in order to prove their case. But let’s take, I think in many respects the most damning example, the $5 billion investment by Warren Buffet. So on September 28th, there is a conference call for Goldman board directors and the call ends at 3:54 p.m. Six minutes before the markets close. 16 seconds later, you call Mr. Rajaratnam on his direct line. The only call he’d had on his direct line since 2:27 that day. You’re one of five people who get VIP treatment so you get in directly to speak with him. You speak with him, the call lasts 35 seconds at most. Immediately after the call, he summons his lieutenant, Gary Rosenbach, and at 3:56:44, he starts buying. And within three minutes, until 4 p.m., he and his associate buy 267,200 shares of Goldman. They wanted to purchase an additional 30,000, but they couldn’t get there. The Buffet announcement is at 6 p.m., and, of course, Goldman takes off. Rajaratnam makes a million dollars. In a conversation the next day, Rajaratnam tells one of his fellow traders, quote: “So big drama yesterday. I got a call at 3:58, right, “saying something good might happen to Goldman.” Now, it is absolutely true that he had other sources connected to Goldman and it could be the case that within that six-minute period information came in otherwise. But for that to be true, you would almost literally have to be kinda of the most unlucky man in the world.
Rajat Gupta: Sure, sure.
John Paul Rollert: The circumstances are such that any reasonable person apart from knowing you would come to that conclusion.
Rajat Gupta: You definitely could come to that conclusion, but let me tell you. Some of the context that is not there in the narrative you just described. First was that the first call I made to Rajaratnam was that morning at, I forget, 10 o’clock or something, and because I needed to get information from Rajaratnam on my investment in Voyager, which he had been stonewalling me for months at this point. I said, “I need the information today.” So he said, “Oh, I’ll get it to you.” So I have a whole day of meetings going on, including the Goldman board meeting. I call my secretary. I don’t call Rajaratnam. I call my secretary and say, “Did Rajaratnam send the information?” She says, “No.” So I said, “Get me Rajaratnam.”
John Paul Rollert: This is linked to the $10 million that at this point you feel that you’ve lost because of his activity.
Rajat Gupta: Right, right. And what happens then is I don’t honestly know, four years later. The call was 30-some seconds. Rajaratnam’s secretary could not under oath say whether I actually. Rajaratnam was avoiding me at that time. It’s not even clear to me whether I spoke to Rajaratnam that call for 37 seconds. The call goes from me to my secretary, who often stays on the call. So if I were giving inside information, I had Rajaratnam’s number. I could call him directly. I call Rajaratnam. I call my secretary, my secretary calls his office, his secretary picks up and might have said, “Oh, I’m gonna try to connect you or that.” I don’t even know whether I connected or not, OK? I have no recollection of any information. By the way, another contextual thing, there were other sources he had. The third fact is that Goldman Sachs’s stock started going up.
John Paul Rollert: It was already going up in shares.
Rajat Gupta: At one o’clock. At one o’clock, when the board meeting was scheduled. So this business about information doesn’t leak is bullshit because the board meeting is scheduled, the stocks started going up. There’s no decision that has been made and the board meeting is at three o’clock. So if you ask me, I don’t even remember that call. I’ll give you another piece of evidence. At six o’clock, I call Rajaratnam saying I need to catch up with you pertaining to, you haven’t yet given me the information. If I had spoken to him two hours before then, why would I call him at six o’clock and say I need to catch up with you? Anyway, whether one.
John Paul Rollert: Can I . . . maybe asking one question about that, you say in the book, you said, “Raj has a way for fishing for information. “I considered myself adept at dodging these hooks.” I mean, could it be the case you were less adept than you thought? When you read the transcripts, he seems to always be pushing.
Rajat Gupta: Could have been, but I don’t remember anything. I don’t, you know it’s like, it’s . . . That conversation, I don’t even remember whether I talked to him. There is another conversation in October, which was a much longer conversation. He could have asked me, and this is pure speculation, and my lawyer said you can’t speculate about it. He could have told me I heard Goldman’s not doing very well. I said, just like everybody else. I used to always tell him when the financial crisis was going on, I said, “Goldman is the best investment bank, “it will be the last firm standing, “OK, so don’t worry about.” Because he wanted to take all of his accounts to European banks because all the financial system was a little shaky. Now this business about 16 seconds, I tell you, they made such a big deal about it. The fact is that I, after every board meeting, I made calls, and they were generally within 16 seconds. I would always pick up and call my secretary and say, “Who do I have to call?” If you look at my calender, every 15 minutes I was scheduled. I had enormous number of phone calls to return and all that. So in a funny exchange, if you look at the trial, there was an exchange with Lloyd. So my lawyer’s asking him.
John Paul Rollert: Lloyd Blankfein of Goldman Sachs.
Rajat Gupta: Lloyd Blankfein of Goldman Sachs. My lawyer asked him, “Do you make phone calls “after board meetings?” He said, “Yeah.” He said, “Do you make them within 16 seconds?” He said, “Yes.” So he says, “Sometimes those conversations “are nothing to do with the board meeting?” He said, “Yes.” There were many, many such 16-second calls. They didn’t look at all the other calls. I sat on five boards. Quarterly meetings of boards, 20 board meetings a year. After many board meetings, I would have made calls to Rajaratnam. It’s on their record. Why is it that in only one situation? Why is it, I’ll give you a couple of other examples. I was resigning from the Goldman board. I resigned from the Goldman board at that time because of other commitments and so on. They begged me to come back because the financial crisis was going on. I accepted. But before I did that, I did talk to Rajaratnam. It’s in one of the recorded conversations that I have an opportunity to join KKR, but if I join KKR as an advisor, I’ll have to resign from the Goldman board. “What do you think?” I asked him because he’s a player in the financial news. He said definitely go with KKR. If I’m an informant to him from Goldman inside information, why would he tell me to resign from the Goldman board? This is one month before this conversation. So, you know, yes, they put together a fantastic narrative and some of it was stitching together without context and some of it was outright lies. Now that we’re talking about it, I’ll tell you about the role that, the October call, which is if a call was damning, that was more damning than the—
John Paul Rollert: The $2 call.
Rajat Gupta: The $2 call, OK? The call, it was. The reason for that board meeting was that morning there was a story leaked in the “Wall Street Journal” that said Goldman is firing 10 percent of its employees. There was an extraordinary board meeting that was scheduled. There was a board meeting already the week before. Goldman management was embarrassed that it did not even tell the board that they were getting ready to fire 10 percent of its staff. The board was quite mad because it doesn’t happen like in one day you’re firing 10 percent of your staff. So he scheduled an emergency board meeting because of the “Wall Street Journal” leaked story and he was trying to explain what happened. There was no discussion of any financial results. By the way, we found out that the EPS that Raj was referring to was not true. It was $1.75 a share. You all are business students. Nobody rounds up EPS from $1.75 to $2.
John Paul Rollert: Not if they wanna keep their jobs.
Rajat Gupta: Yeah. So it’s like, but what did Lloyd do? It was a very interesting thing. We took a deposition of Lloyd before the trial in which he admitted he didn’t remember there was any financial discussion. He didn’t remember what the EPS was. He didn’t remember any of it. At the trial, he couldn’t reverse it, but the prosecutors rehearsed him again and again saying what you should be saying is, “I don’t remember, but it is my practice “to discuss financial results.” The truth of the matter is we were having a board meeting every week that time of that quarter. That board meeting, there was no financial results discussed and what did he say? He couldn’t lie, of course. He said, “No, I don’t remember, but it is my practice.” Now if that isn’t witness tampering by the prosecutors I don’t know what is.
John Paul Rollert: I have one final question related to your time in prison. So you’re convicted on four of the six counts. The prosecutor asks, from my standpoint, for a very kind of cruel sentence of eight to 10 years, which is an extraordinary amount of time. You’re ultimately given on the low end, the very low end of the scale. The judge, Rakoff, departs and goes down to two years. The parts of the book that, to me, are absolutely the most gripping are the stories of your time in prison. To a certain extent almost the sense of peacefulness you found there. The most striking moment is you spend this time, seven weeks in solitary confinement, in part because it seems as though the cruelty of frankly your captors to a certain degree. And this gives you an opportunity for a great deal of reflection and you write in the book, and I’ll quote you here. You said, “Now that my worldly goods had been stripped away, “some part of me felt that the enforced austerity “of prison existence might offer an opportunity “to return to my core values. “Was this a message from God, telling me that I needed “to change my way of life? “Had I been too driven, too busy, too focused “on making a bigger impact? “If this had not happened, would I have just continued “the same way for another decade or more? “Was it time to simplify, to focus on the inner life, “to spend more time with my family, to slow down?” Now being released from jail, I’m curious how you would answer that.
Rajat Gupta: Well, I think it is. I write in the book about different stages in one’s life. I’m now 70 years old and I’ve had close to a 50-year business career, part of it with all this thing happening to me. So I’d already made that shift. I was spending more than half my time on philanthropic activities. I will spend more than half my time on philanthropic activities now going forward, but I’ll probably spend the balance of the time on my own reflections, inner growth, and so on. But to give you, going slightly back on lessons I learned from prison were quite extraordinary. First is that I met people I would have never met in my life. There were drug dealers, there were various other. Some were framed. Some had harsh sentences. It didn’t make any sense at all. You’re selling marijuana on the street corner and you get 20 years. I mean it just. The underbelly of the criminal-justice system and the unfairness of it was extraordinary. If you haven’t been connected with it, you never know, really. I learned about that myself firsthand. But I also learned that these people were actually wonderful people with enormous adversity. And what they were going through, there was still human dignity in what they were and they were good people fundamentally. That’s an extraordinary life lesson. You also, when you’re in solitary confinement, as they say power corrupts, and absolute power corrupts absolutely. The prison guards there, not all of them, but most of them basically don’t necessarily . . . you get your basic necessities. You’re provided the basic necessities. Food and shelter and a place to sleep and all that, but they want you to be a sort of beaten person. Go around with your head bowed down and if you’re not a person who—
John Paul Rollert: They want your dignity.
Rajat Gupta: —would do that
John Paul Rollert: They want your pride.
Rajat Gupta: They want to kill it. They want to kill your dignity. For the flimsiest of excuses, they sent me to solitary confinement for seven weeks. And I tell you, I mean . . .
John Paul Rollert: A contraband pillow for your back.
Rajat Gupta: Well, it’s not even a contraband pillow. It was, you have a commissary. You can buy some goods there. And one of the things you can buy is you’re supposed to buy your own towels. So I had a back problem, so I rolled up a towel I bought at the commissary, stitched it up into a support pillow for my back, and he came to search my little premises and he didn’t find anything, and then at the side of my bed was lying this rolled-up towel. He said, “What is that?” I said, “That’s a towel that I’ve rolled into a pillow “for my back support.” He said, “No, you’ve altered government property.” So he put me in solitary confinement for that. And solitary confinement is just inhuman in terms of how they treat you. It’s a cell that is probably one and a half times the size of this platform. You’ve got a steel bunk bed. Everything is steel, completely steel, with sharp corners. It has a mattress, which once was probably one inch, but now it’s like this much because people have slept on it. It’s two plastic sheets basically. You have a toilet and a washbasin, all of steel. You have a big steel door in which there is a cutout, which has a locked slot through which they push food, and if you’re not quick enough to grab it, it’ll fall on the ground. You can pick up the food from the ground if you want to eat it. One of the most striking things to me was: I thought solitary confinement would be a very quiet place. You’re by yourself, what can you do? But it was the noisiest place in the prison because people were just going crazy. They would be banging on the doors. They would be shouting. There was all kinds of inhuman treatment. There was hardly a window in the cell, tiny four-inch-wide window, not enough light to read even. But they had a big neon light on top. The switch was outside. So whenever they wanted to put it on, they’d put it on. Whenever they didn’t want to put it on, they didn’t. They’d leave it on for the whole night. You had to sleep with these glaring neon lights at you, and on and on. I mean it was, I just can tell you that I couldn’t believe that this was the US and the criminal-justice system and the prison system, where we are basically putting people through torture for no reason at all. When I looked at it as all business analysts, the incentives are completely misaligned. The government paid more per prisoner if you were in solitary confinement than if you were in the normal bunk. So their own incentive was to keep the wing of solitary confinement completely full because that’s how they get paid more. Anyway, I can go on and go on about the criminal-justice system, but.
John Paul Rollert: Well, and that harrowing tale, which, again to me, makes for one of the most gripping moments in the book is something you all should have a chance to read, but as a way of closing, I’m curious, you’ve had this extraordinary life of incredible highs and really harrowing lows. Is there a bottom-line piece of advice you’d give to the students who are here? A group of kind of young leaders with their futures ahead of them.
Rajat Gupta: There are maybe two different buckets of advice. One is to do with as you start your professional lives or your business careers and so on. There I would say two or three things. I think I’ve mentioned them before. One I would say, very much is focus on improving yourself, to learn, to become a better professional at whatever you’re doing. Forget about career development, because if you focus too much on career development, you’ll go the wrong way. Second, I would say, is work through other people. I mean, it’s not everybody’s cup of tea. Steve Jobs was brilliant without that. So I’m not saying everybody has to be that, but generally if you make other people successful, they’ll make you successful. And a team-oriented approach, where you’re leading from behind, I find much more effective and more satisfying in the end. I would say that always get out of your comfort zone. If you’re getting too comfortable in something, you’re not learning. You’re just existing and you’re enjoying, but you’re not learning. I think it’s very important to get out of your comfort zone from time to time and make sure you do that. Then, of course, live by your values. It’s not always easy. You will suffer sometimes from time to time in terms of whether you’re sticking to your position, but in the long run, you know, you have to live with yourself more than you have to live with anybody else. So you have to be true to yourself and don’t make compromises on that score. As a leadership point, I’ll make just one point, which is that whatever you’re doing, you have to look beyond it. The idea of leadership is actually to not focus on your immediate assignment or what you’ve been asked to do, but to look around the greater system and look at how you can improve it. The last thing I would say is that just remember business works with the permission of society, and you must give back to society. The skills and things you acquire and make society overall better. It needs the skills you have. The earlier you start that, in whatever way, it doesn’t matter, is gonna be very important. So those would be my, I’ll stop on the other side, which has got to do with life’s lessons and life philosophy, maybe for some other day. (Rollert chuckling)
John Paul Rollert: Well, we will have to look for it. Mr. Rajat Gupta, thank you for sharing your life, your wisdom, and your book.
Rajat Gupta: Thank you. (audience applauding)
Hal Weitzman: That’s it for this episode of the Chicago Booth Review Podcast. It was produced by Josh Stunkel, and I’m Hal Weitzman. If you enjoyed this episode, please subscribe and please do leave us a 5-star review. And for more insights from Chicago Booth faculty, visit us online at chicagobooth.edu/review. Thanks for listening—until next time.
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