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THE FALL of Rajat Gupta THE FALL OF Rajat Gupta: • Don’t Mix Personal Ethics with Professional Ethics. • Lessons to be learnt. Ram Mallar Prof. of Law & Governance January, 2013. IPR Unauthorized access to this document by anyone other than management students of Prof. Ram Mallar is prohibited. If you are not Prof. Ram Mallar’s student, any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be unlawful. Any opinions or advice contained in this document are subject to the standard terms and conditions of confidentiality. © 2012 Mallarr Law Associates LLP Email: [email protected] [email protected] Website: www.mlallp.com Blog: rammallar.blogspot.com Phone: +91 22 24328413 2 January 25, 2013 WHAT HAPPENED TO RAJAT GUPTA? • Found guilty of professional misconduct & offence of Insider Trading, securities fraud & conspiracy by Federal Jury in Manhattan on July 15, 2012. Mallar • Now on October 24, 2012, US Distric Judge Jed Rackoff sentenced Rajat Gupta to two years imprisonment and Ramalso ordered him to pay USD 5 million fine. Prof.3 January 25, 2013 WHAT HAPPENED TO RAJAT GUPTA? Contd…. • Rajat Gupta is one of the biggest catches so far for the Federal Government of USA in its 5‐year crack down on insider trading that has resulted in 69 convictions and shaken Mallarthe entire security market across the globe. • As Director of Goldman Sachs, he leaked price sensitive informationRam to his friend Raj Rajaratnam who made huge profits around July 2008. Prof.4 January 25, 2013 WHO IS RAJAT GUPTA, WHY SO MUCH CONCERN & SADNESS? • An Indian American of 63, Calcutta born, graduated IIT Delhi, MBA from Harvard, First non‐ American Managing Director of world‐wide McKinsey & Co, Director of GoldmanMallar Sachs Group, Director of Proctor & Gamble, Trustees of Rocketfeller Foundation and Bill & Melinda Gates Foundation, founder of Indian School of Business, Hyderabad, AdvisorRam to UN Secr etary General. Prof.5 January 25, 2013 WHO IS RAJAT GUPTA, WHY SO MUCH CONCERN & SADNESS? Contd…. • Gupta, at the peak of his career, could do no wrong, he was wining and dining with the likes of Bill Clinton, Bill Gates and Kofi Annan (former Secretary General of UNO) Mallar • He had everything what one possibly wants in the life. • PERSONALLY WORTHRam USD 84 MILLION. Prof.6 January 25, 2013 CONVICTION OF GUPTA IS TOTAL SHOCK TO THE WHOLE WORLD INCLUDING TO JURY WHO CONVICTED HIM. • It is rare for any JURY to feel sorry while convicting an Accused. In Gupta's case, Jury Foreman confessed, "I wanted to believe the allegations were not true". Mallar • Another Jury Member Ronnie Sesso was emotional and said "we wanted him to walk go home to his family and live Ramprosperous life. But the circumstantial evidence against him too overwhelming” Prof.7 January 25, 2013 CONVICTION OF GUPTA IS TOTAL SHOCK TO THE WHOLE WORLD INCLUDING TO JURY WHO CONVICTED HIM. Contd…. • The verdict shocked the entire 3 million strong Indian American community and hundreds of his admirers world around, moreMallar particularly in India. • Bill Gates, Kofi Annan are prominent businessmen who Ramurged Federal US Judge to be lenient sentencing to Rajat Gupta. Prof.8 January 25, 2013 REACTION OF RAJAT GUPTA • Gupta spoke for the fist time after his conviction recently and regretted terribly the impact of this on his family, friends and the institutions he worked for. • Even his defense Attorney Grary Naftalis lamented that he was a role model and iconMallar but now he is no more. • The Attorney also said that while Rajat Gupta’s friend Raj Rajaratanm benefitedRam from the illegal insider trading upto USD 75 million, his client earned no profit. Prof.9 January 25, 2013 REACTIONS OF RAJAT GUPTA Contd…. • The defense Attorney also had urged the court to a sentence of probation with instructions to perform community service, which the federal court found it difficult to accept as it wanted to send down tough message to those Mallarwho indulge in professional misconduct (pl. note in India, nothing would have happened to him). • There were also more than 400 letters written to the judge on behalfRam of Gupta which included Bill Gate and Kofi Annan. Prof.10 January 25, 2013 REASONS FOR DOWNFALL OF RAJAT GUPTA Domination of Personal EthicsMallar over ProfessionalRam Ethics . Prof.11 January 25, 2013 WHAT IS PERSONAL ETHICS ? • Ethics means study of Good & Bad, right & wrong, just & unjust. • Greek word “Ethos” – refers to character. • Personal Ethics – A code of conductMallar for personal behavior. Driving force – based on what he considers good. • A moral code based on generally accepted standards. Ram • But it may conflict with societal ethics/public good. Prof.12 January 25, 2013 ETHICS SCALE Mallar Ram Prof.13 January 25, 2013 BUSINESS ETHICS/PROFESSIONAL ETHICS • It is Ethics of Business/Profession, study of what is good or bad, right & wrong, just & unjust, fair & unfair in the business/profession as against in personal life. • Code of conduct/bestMallar practice for businessman/professional for carrying on business/profession consistent with what others follow in the industry for achieving the pre‐set goals. Ram • Different from Personal Ethics. Prof.14 January 25, 2013 PROFESSIONAL ETHICS OF MANAGER • Professional Ethics in Bhagwat Geeta: Krishna said “manager should look at the task set for himself, more for its satisfaction, the fulfillment that gives, rather than for personal gain or profit”. Mallar • Elliot Jacques, American scholar called professional manager as “Property‐less Manager”, who manages the company successfully, but does not own any part of it as personal property.Ram Does his job not for personal gain, but for satisfaction he derives. Prof.15 January 25, 2013 Inter-dependence and influence of: • Personal Ethics. • Business Ethics. Mallar • Good Corporate Governance. Ram Prof.16 January 25, 2013 Inter-dependence and influence of: Contd…. • Corporate Governance is operational framework for carrying on the business in Corporate Business Organisation. • Business Ethics (includes ProfessionalMallar Ethics) is philosophical justification of good Corporate Governance. • Personal Ethics of the promoter influences/flavours Business Ethics and CorporateRam Governances . Prof.17 January 25, 2013 MODERN BUSINESS ETHICS • Rules & Regulations by which business in corporate organization is carried on, directed and controlled by the Board of Directors for promoting & protecting the interest of Various stake‐holders which should be.Mallar • Fair, • Transparent Ram • Accountability. Prof.18 January 25, 2013 Aims and Objectives of Good Corporate Governance • Enhancement of long‐term shareholders value, and • To protect interests of other stakeMallar‐holders like: (a) Customers (b) Suppliers (c) Creditors (d) Depositors (e) Employees (f) Government (g) Society and (h) RamEnvironment Prof.19 January 25, 2013 FALL OF RAJAT GUPTA • Gupta's case is the failure of Professional Ethics by Professional Manager mainly caused by influence of Personal Ethics. • Gupta has mixed up his Personal Ethics with Professional Ethics/Business Ethics.Mallar • Federal Jury felt that Gupta was driven by his greed. Even Preet Bharara, Indian origin Federal Prosecutor, felt sorry for himRam and said “Gupta achieved remarkable success and stature, but he threw it all away”. Prof.20 January 25, 2013 FALL OF RAJAT GUPTA Contd…. • In 2009, Gupta’s friend Raj Rajaratnam, Hedge Fund Manager, co‐founder of Galleon Group LLC was sentenced to 11 years for Insider Trading, mainly helped by friends like Gupta. Mallar • He poked fun at Gupta for his greed saying Gupta wanted to make millions MORE without much work. • There is a speculation that Gupta wanted Raj Rajaratam to help hisRam Equity Fund: New Silk Route. Prof.21 January 25, 2013 FALL OF RAJAT GUPTA Contd…. • Gupta may have been influenced by his friend Raj Rajaratnam, but Gupta, the role model for all professionals in the world, should have realised the tenets of his Professional Ethics. Mallar • It appears what underlined his friendship with Raj is greed and barren selfish motive. Like Ramalingam Raju of Satyam Computers, Gupta wanted MORE, thisRam is sheer greed in personal life. Prof.22 January 25, 2013 WHAT ARE THE LESSONS FOR US ? • The need of the hour in corporate world is to understand and realise the distinction and interdependence of PERSONAL ETHICS, BUSINESS/PROFESSIONAL ETHICS AND CORPORATE GOVERNANCE. Mallar • All directors/professionals have clear and sacrosanct duties of Board Room Secrets and confidentiality. Gupta virtually provided open line into the Board Rooms he sat as RamDirector to his benefactor and business partner Raj Rajaratnam. Prof.23 January 25, 2013 WHAT ARE THE LESSONS FOR US ? Contd…. • Others guilty of professional misconduct in recent times are: Ramalingam Raju, Suresh Kalmadi, CEO of Reebok, Raj Rajaratnam and Raja in 2G case. • What is important is your determination and ability to discriminate Personal MallarEthics/Interest and Professional Ethics/Business Ethics regardless of lure and temptation of Personal Ethics. • Never allow PersonalRam Ethics to dominate the Professional Ethics. Prof.24 January 25, 2013 WHAT ARE THE LESSONS FOR US ? Contd…. • Please understand Personal Ethics need not necessarily be rooted in total selflessness or "only giving ", it could be dominated by self interest, tempered/influenced by public good. Mallar • It is always a big challenge when you start believing that you are so brilliant, so powerful and behave like youRam are above law, to adhere to your Professional Ethics. Prof.25 January 25, 2013 APPEAL OF RAJAT – Latest News • Immediately after sentencing in October, Rajat had filed Appeal to US Second Circuit Court of Appeal also for Interim Relief. • On December 5, 2012, 2‐Judge Panel granted Stay out of Prison on a US $10 million Bond until the Appeal is disposed off. Mallar • Otherwise his prison was to commence on January 8, 2013. Ram • Hearing of Appeal may commence from April, and it may take a year.
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