Rajat Gupta exits federal court in 2012 | Bloomberg
One insider-trading scandal is suspicious. Two is a trend. Three is a message.
The feds charged a partner at the elite consulting firm McKinsey & Company of insider trading last week. It’s the third time a partner has been charged, and federal prosecutors allege the newest defendant, Puneet Dikshit of Manhattan, made about $450,000 from illegally trading options ahead of a Goldman Sachs acquisition he knew about.
“We have zero tolerance for the egregious conduct described in the criminal complaint,” McKinsey said in a statement.
Yet something about the zero-tolerance policy at the world’s largest consulting firm isn’t working. The head of McKinsey, Rajat Gupta, was sentenced to two years in prison in 2012 after leaking information about Goldman earnings to hedge fund manager Raj Rajaratnam. Another McKinsey partner, Anil Kumar, pleaded guilty in the same matter in 2010.
McKinsey, once the gold standard in management consulting, was compared to the Jesuits or Marines for its discipline and work ethic.
“They give projections, conjure up a scary future and tell clients you need our help and we’ll hold your hand as you work through the essential uncertainty that is existence,” said Duff McDonald, author of The Firm: The Story of McKinsey and Its Secret Influence on American Business.
“I don’t think it’s a rotten entity,” McDonald added. “I don’t think they know how to question their own motives.”
Insider trading, advising the Sacklers or working on a deal with friends of a scandal-plagued former president of South Africa, McKinsey’s problems come from the same place, McDonald said. The measure of a successful consulting job is the client’s financial performance improves. Nothing else matters nearly enough, like whether the client is doing the right thing.
Every professional services firm struggles with this. At the largest, the leaders were nearly all trained at Harvard Business School, an institution that McDonald expertly uncracks and unveils in The Golden Passport .
As to firm culture, McKinsey said: “Both the DOJ and SEC complaints outline our firm’s policies regarding personal investments as well as the steps the individual allegedly took to violate those policies and the law.”