THE BILLIONAIRE’S APPRENTICE: THE RISE OF THE INDIAN AMERICAN

ELITE AND THE FALL OF THE GALLEON HEDGE FUND BY ANITA RAGHAVAN -

A book review.

The Billionaire’s Apprentice is a riveting and sometimes gripping real life story of the rise of the

South Asian American community and in particular the Indian American community. As the

prosecutor in United States Vs Raj Rajaratnam summed up to the jury, this book is all about

greed and corruption with the main perpetrators being mainly from the South Asian community.

Insider trading, which is illegal, immoral and unethical, was the medium through which greed

and corruption manifested itself. The main cast of characters is Rajat Gupta, the former

Managing Partner - CEO - of McKinsey & CO, Rajaratnam CEO of Galleon Hedge Fund, Anil

Kumar of McKinsey, Preet Bharara, the US Attorney of the Southern District of New York and

Sanjay Wadhwa, the SEC prosecutor.

Insider trading is defined as the act of using privileged information from inside a company to

trade its securities on the stock exchange for profit. The profits thereof are ill gotten due to unfair

advantage from using insider information not available to the general public. The Securities and

Exchange Commission and the Federal Justice department take a very serious view of insider

trading. Rajaratnam, Rajat Gupta and a whole host of their associates were convicted of insider

trading. The US Attorney’s Office of the Southern District of New York successfully argued that

Rajat Gupta passed on insider information to his friend Rajaratnam of Galleon Hedge Fund

following a Goldman Sachs Board Meeting. The tip off to Rajaratnam was just the tip of the

iceberg. Anil Kumar and another bit player indulged in insider trading feeding the insider

information pipeline to Rajaratnam.

It is also about the rise and fall of isolated but stand out individuals - isolated because they form

an infinitesimally small percentage and standout because they are highly visible examples, even

role models. Like the Irish Americans, Italian Americans and German Americans, Indian

Americans have come of age and become a force to reckon with. It started in science and

technology and moved on to management and business and now includes the political arena.

Eminent scientists, technologists, doctors, jurists including representation in the federal justice

department and the DC Circuit Court of Appeals, politicians including Congressmen and women

and now the Surgeon General of the United States, South Asian Americans and more

particularly, Indian Americans have scaled impressive heights.

No success can be complete without some fantastic, stunning and spectacular failure, even

disaster. Such is the case here with Rajat Gupta - one of the *twice blessed* who through sheer

brilliance combined with hard work, persistence and discipline made it to the big league only to

experience a breathtaking fall. The book is also about Rajaratnam - a Sri Lankan - and the rise

and fall of Galleon, a hedge fund. Rajaratnam and Galleon are more than side stories to the main

plot. Arguably, Rajat Gupta may yet have held on to his reputation had it not been for

Rajaratnam’s machinations and successfully enticed Rajat Gupta.

The author Anita Raghavan, takes the reader slowly and methodically through Rajat Gupta’s

formative years, his personal trials and tribulations and how he painstakingly paved his path to

success - material and otherwise - through a combination of raw intelligence, diligence and hard

work even as an orphan at the young age of 15. The author describes an incident in high school

that was to foretell Rajat Gupta’s innate drive to excel and be the best in everything.

Like his father, Rajat worked hard, putting in long hours to overcome deficiencies in

subjects such as written English. Once when a classmate scored a perfect mark on a pop
 quiz in physics on the topic of momentum, the young Rajat insisted on sitting next to the

classmate to examine the work he did. He later borrowed the classmate’s paper to review

the work further. That was the first and last time the classmate got the top marks in Rajat’s

class.

One can excuse the author’s uncritical narration of Rajat Gupta’s religious leanings. Recounting

his formative years, Anita Raghavan characterizes him as a “living embodiment of the school’s

motto, a Sanskrit saying that translates into English as *self-realization cannot be achieved by the

weak-willed*” and later cites his reputation for applying Indian philosophy to the Western

business milieu. First, the school’s motto and Rajat Gupta being a living embodiment of it, is a

contradiction in terms. The Sanskrit saying “ Nayaamatma balahiine na labhyaha” is a lofty

spiritual concept that cannot be brought down to the secular level. Second, as Sri Adi Sankara,

arguably the greatest philosopher India has produced, says in his famous work, Vivekachudamani

( The Crest Jewel of Discrimination ), the ability to bring forth torrential words and cite scripture

with great ease and felicity yields material wealth not spiritual liberation. It for sure yielded great

material benefit for Rajat Gupta. There is no doubt that Rajat Gupta imbibed solid middle class

values from his father and making use of his innate intelligence even brilliance, combined with

industriousness and relentless perseverance, made it to the elite Indian Institute of Technology,

Delhi and then on to Harvard Business School and McKinsey eventually to become it's Managing

Director. His ascent to the top was nothing short of meteoric; his fall was equally remarkable and

spectacular.

The book is not all about Rajat Gupta, though. Whereas Rajat Gupta is at the heart of the book,

Rajaratnam, the Sri Lankan billionaire is the main artery. Overflowing with hubris, self absorbed,

self assured and driven to material success, he comes off as one not concerned with the means as
much as the ends, of making it real big. Anil Kumar, a McKinsey consultant and protégé of Rajat

Gupta adds spice to the story but comes off as a greedy small time hogger of attention. Although

Kumar played an important role in the prosecutors’ case against Rajaratnam having turned in to a

cooperative witness for the prosecution, Kumar was as at ease giving Rajaratnam insider

information as he was assisting the prosecution. It was all about Anil Kumar. The author gives a

telling description of him walking out of the courthouse after sentencing - to probation - walking

out with a smile! Then there are others such as Sanjay Wadhwa, the SEC prosecutor and the

redoubtable Preet Bharara, the US attorney for the Southern District of New York. A common

characteristic of all these actors in this real life drama might be termed

*driven*. Whereas Rajat Gupta and Rajaratnam were driven by power and money, Sanjay

Wadhwa and Preet Bharara were driven by service to community, doing justice and establishing

the rule of law.

The Billionaire’s Apprentice showcases lessons to be learned from an HR perspective. As one of

the prosecutors in United States Vs. Raj Rajaratnam characterized the case as one of greed and

corruption, this book affords us opportunities to reflect on the need for setting up an ethical

infrastructure as part of the HR process. Driscoll & Hoffman (1988) maintain that a sound ethics

initiative rightly belongs in the HR function in any company. They maintain that the HR

department has to take a stand for business ethics in safeguarding the company. A company does

not exist as an entity without the personnel that make up the company. The question then becomes

- what is the right ethical infrastructure for the organization, what is it and who is to set up the

infrastructure? According to Driscoll & Hoffman (1988) the HR function should be the driver in

setting up the ethical infrastructure. White & Lam (2000) proposed an ethical infrastructural model

containing three dimensions - means, motivation and opportunity. Applying the White & Lam
(1988) ethical model to both McKinsey and Galleon, it is clear that there weren’t any visible signs

of means to prevent unethical behavior. Certainly within Galleon where the sole purpose was to

enhance profit there was a complete lack of a robust ethical infrastructure. As the McKinsey

consultants were left unguided by senior partners and the Galleon CEO was himself running

roughshod acting as a catalyst for insider trading, encouraging and even coercing industry contacts

to divulge insider information, there was every motivation for the individuals to indulge in

unethical behavior. The opportunity for the individuals to take the wrong path in an unethical

dilemma was ever present making it a perfect conspiracy of circumstances for unethical conduct.

The stresses and strains of modern day business present the confluence of means, motivation and

opportunity to be unethical. Consequently, it is critically important for HR to establish a sound,

robust and workable ethical infrastructure. Interestingly, as Rajat Gupta was exiting the Managing

Partner (CEO) role at McKinsey, his successor was already setting up plans to dismantle the edifice

that Rajat Gupta had depended on to grow the company. Ian Davis, his successor wasted no time

in asserting that McKinsey under Rajat Gupta had strayed from the values of Marvin Bower. For

a man supposedly steeped in Indian philosophy Rajat Gupta had this to say of himself

When I look at myself, yeah, I am driven by money, I like creature comforts. I am more

materialistic today than I was before and I think money is very seductive.

Opportunity to be unethical is an occupational hazard and is a function of occupational category

(White & Lam, 1988). Because money is seductive and CEOs have the most opportunity to engage

in unethical conduct, HR has the onus of establishing a sound ethical infrastructure in which the

Board of Directors takes an active part.

I had an opportunity to visit Galleon in 2007 as the CEO of a small Analytic company. I had a

concept in mind that I wanted to bring to market partnering with Galleon. My then Chief Marketing
Officer and I met with the middle brother of Rajaratnam, a very upright gentleman well known in

the CPG industry as a man of impeccable integrity. Fortunately for my company and me,

Rajaratnam was out that evening and the concept did not come to fruition. As I toured the Galleon

office, I could see and feel the success of the Hedge Fund. There were no visible signs of a values

based company and I did not get the sense of any major role that HR played. In fact, may be I

missed it but I did not get any sense of an HR function at Galleon.

The book makes for good, fast paced reading. Apart from the thrills, the courtroom drama and the

overall tragedy, there are important takeaways both for individuals and organizations:

1. Ethics is so important that there has to be an Ethics Committee made up of

Independent Directors of the Board. Even the CEO of a company needs monitoring.

2. There has to be a Board review of the company's ethics on a quarterly basis in which

the Head of HR presents to the Board company performance on an Ethics Scorecard.

The CEO should be asked to leave the Boardroom so there is no pressure on the Head

of HR.

3. Ethics should be a key dimension on the company’s Balanced Scorecard and HR

should be the functional lead on Ethics.

4. The company needs to put out its values and ethics in full display within the

Company and outside of it. This will signify that ethics occupies an important place in

the company. The Board has to embrace it, be advocates for it and hold the CEO

accountable for it. The Board has to hold itself accountable for it as well.

5. CEO remuneration should be based not just on financial measures but all Balanced

Scorecard dimensions including Ethics.

6. HR should be the moral and intellectual leaders in the Company on Ethics.

 7. HR should be held responsible for creating an atmosphere conducive to the highest

ethical standards. The CEO and other senior leaders should be role models.

8. Performance reviews should place a lot of emphasis on ethical conduct.

9. Ethical conduct should be a necessary condition in performance reviews. Sufficiency is

established by other financial and non-financial measures.

10. Ethical conduct should be in the very DNA of the company.

References:

Driscoll, D-M. & Hoffman, W. M. (1988). HR plays a central role in ethics programs.

Workforce, Vol. 77, No. 4.

White, L. P. & Lam, L. W. (2000). A proposed infrastructural model for the establishment of

organizational ethical systems. Journal of Business Ethics, Vol. 28, No. 1