October 26, 2012

Philanthropy can do better than Rajat Gupta

Few days before I was watching a YouTube video in between playoff games (both of which disappointed). Conan O’Brien was accepting an honorary patronage at the philosophical society of the University of Dublin. His speech was hilarious, and there was an extended, intimate Q&A session afterwards.
One thing he mentioned was an amended version of the (to me, very moving) words he had closed his last NBC Tonight Show with, “If you work really hard and you’re kind then amazing things will happen.” Namely, he wanted to add this sentence: “If you work really hard and you’re a huge asshole, then you can make tons of money on Wall Street.”
These wise words came back to me this morning when I read about Bill Gates and Kofi Annan’s letters to Judge Jed Rakoff regarding Goldman Sachs insider trader Rajat Gupta. The letters were intended to reduce sentencing, considering how unbelievably philanthropical Gupta had been as he was stealing all this money.
I’m not doubting that the dude did some good things with his ill-gotten gains. After all, I don’t have a letter from Bill Gates about how I helped remove malaria from the world.
But wait a minute, maybe that’s because I didn’t steal money from taxpayers like he did to put myself into the position of spending millions of dollars doing good things! Because I’m thinking that if I had the money that Gupta had, I might well have spent good money doing good things.
And therein lies the problem with this whole picture. He did some good (I’ll assume), but then again he had the advantage of being someone in our society who could do good, i.e. he was loaded. Wouldn’t it make more sense for us to set up a system wherein people could do good who are good, who have good ideas and great plans?
Unfortunately, those people exist, but they’re generally poor, or stuck in normal jobs making ends meet for their family, and they don’t get their plans heard. In particular they aren’t huge assholes stealing money and then trying to get out of trouble by hiring hugely expensive lawyers and leaning on their philanthropy buds.
The current system of grant-writing doesn’t at all support the people with good ideas: it doesn’t teach these “social inventors” how to build a charitable idea into a business plan. So what happens is that the good ideas drift away without the important detailed knowledge of how to surround it with resources. And generally the people with really innovative ideas aren’t by nature detail-oriented people who can figure out how to start a business, they’re kind of nerdy.
I’m serious, I think the government should sponsor something like a “philanthropy institute” for entrepreneurial non-revenue generating ideas that are good for society.  People could come to open meetings and discuss their ideas for improving stuff, and there’d be full-time staff and fellows, with the goal of seizing upon good ideas and developing them like business plans.
Rajat Gupta joined McKinsey & Company, the elite and secretive management-consulting firm as an earnest, under-stated young man, fresh out of Harvard Business School, and IIT Delhi before that. He rose rapidly through a competitive system, going on to rule boardrooms, chair nonprofit boards, and move with CEOs and heads of state from Bill Gates to Bill Clinton. Rajat Gupta broke through racial glass ceilings in the corporate world in a way that no other Indian and few people of colour had done before. 
Upon retiring from McKinsey, in 2007, after nine years as its managing director, Mr Gupta was a sought after figure on corporate and nonprofit boards, and joined those of Goldman Sachs, Procter & Gamble, American Airlines, and Harvard Business School.
Despite his stupendous success in America he never forgot his Indian roots. He created the American India Foundation, which brought in millions of dollars in philanthropic contributions from NRIs to development programs across the country. He founded the Indian School of Business and the Public Health Foundation of India. And he ensured McKinsey worked, pro bono, with India's leading NGOs, including Sewa and Pratham, to help them learn from international best practices.
But Mr Gupta's philanthropic work did not sway the Judge who sentenced him to two years in prison today. He is accused of leaking Goldman Sachs boardroom secrets to a hedge fund manager at the centre of the US government's crackdown on insider trading, Raj Rajaratnam. Mr Gupta had hoped that the sentence would involve only community service; the prosecution had pressed for  years in prison. 
Before today's sentencing, Rajat Gupta himself summed it all up in a statement to the court. He said, "The last 18 months have been the most challenging period of my life since I lost my parents as a teenager. I have lost my reputation that I have built over a lifetime. The verdict was devastating to my family, my friends and me. Its implications to all aspects of my life -- personal, professional and financial -- are profound."
The judge overseeing the case had earlier warned that "If Mother Teresa was charged with bank robbery, the jury would still have to determine whether or not she committed a bank robbery." Today Judge Jed S. Rakoff  said, "He is a good man. But the history of this country and the history of the world is full of examples of good men who did bad things."

Mr Gupta's fall from grace began in April 2010, as part of the investigation into Raj Rajaratnam, a Sri Lankan hedge fund manager accused of insider trading. The government accused Mr Gupta of tipping off Mr Rajaratnam of Warren Buffet's decision to invest $5 billion in Goldman Sachs. Mr Gupta allegedly learned this information on September 23 in 2008 at a board meeting. His tip allegedly allowed Mr Rajaratnam to buy the stock before the news was made public the next day. Mr Rajaratnam made a profit of $800,000 in just 24 hours.

Managing Partner of Westwood Capital, LLC Daniel Alpert calls this a "very disappointing episode because Rajat Gupta was an extremely senior guy and clearly was living the life of jealousy of the enormous returns that were being made by the people who did not quite have his CV but nevertheless were making enormous profits"

The difficulty for the government is that they don't actually have hard evidence of this. They have proof that Mr Gupta called Mr Rajaratnam after the board meeting. And they have one tape of a separate conversation between Mr Gupta and Mr Rajaratnam where Mr Gupta summarises the discussion in a Goldman board meeting. But that tape did not lead to any trades being made, nor is it clear that it leaked inside information. And the trade that was made a few minutes after a Goldman board meeting concluded cannot be traced to a recorded conversation between the two men. 
But the tapes are still very embarrassing for Mr Gupta.
First, they showed that he earlier had conversations with Mr Rajaratnam where confidentiality had been compromised, even if securities laws had not been violated.

On July 29 in 2009, Mr Gupta discussed the offer Goldman Sachs was thinking of making to purchase Wachovia, another American bank, with Mr Rajaratnam.

Second, they showed that Mr Rajaratnam had bragged to someone else that he had inside knowledge of the Buffett deal from someone on the Goldman board.

Third, Mr Rajaratnam, in a conversation with Mr Gupta's former partner at McKinsey, Anil Kumar, who pleaded guilty to leaking confidential information to Mr Rajaratnam in exchange for payments, speculates that Mr Gupta's motivation was financial greed.

Mr Rajaratnam can be heard on the tapes talking about Rajat Gupta saying. "I think he wants to be in that circle. That's a billionaire circle, right? Goldman is like the hundreds of millions circle, right? And I think here he sees the opportunity to make $100 million over the next five years or 10 years without doing a lot of work."

However, Mr Gupta's friends claim that these leaks are selective and the charges completely without basis. 
Atul Kanagat a former director at McKinsey himself counters "None of the tapes have a mention of Rajat by name. It is a careful selection of a handful of facts out of a mountain of fact to paint a picture that they want you to see. How many other calls did he make to Rajaratnam? How many calls did he make to other people? Right after a board meeting? Is Rajaratnam the only guy he called after a board meeting? If he calls me after a board meeting does it mean that he is giving me insider information this is all complete conjecture by withholding relevant information that fits your narrative. I think it is all nonsense."

Mr Gupta has been convicted of conspiracy and three counts of securities fraud. A jury acquitted him on two other securities fraud counts. The case had gone on trial on May 21, less than a month ago - an interesting reminder to us in India that it shouldn't take years to decide if someone is innocent or guilty.
Source: NDTV Online Edition

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