Rajat Gupta’s conviction and its larger impact

Good corporate governance requires people of integrity and personal integrity. It cannot be regulated—it needs to be internalized and practiced, especially by those who preach these values to others


The conviction of Rajat Gupta has sent shock waves throughout the business world globally. How could an achiever so brilliant and talented as him, manage a fall this steep? If there was no direct evidence against him, then was it fair and just to convict him based on circumstantial evidence? These and many other questions continue to bother many of us including myself.

That said, for any organization—profit or non-profit or mutual benefit—directors (or board equivalent) have to act honestly and in good faith and ensure that their actions (intended and unintended) are always in the best interests of the organization. They also need to ensure that they exercise the care, diligence, attitude and skill that a reasonably prudent person would exercise in comparable circumstances.

Now, when Mr Gupta telephoned Raj Rajaratnam several times after board meetings and brazenly discussed about what had transpired at the various board meetings, I am not sure that he was acting in the best interests of the concerned organizations.  That breach of trust and abuse of position, in my opinion, is certainly something that Mr Gupta is guilty of—he should have never done this in the first place.

That said, there are so many captains of the Indian industry who are unabashedly supporting Mr Gupta. Fair point as Mr Gupta has had significant success in the global corporate world, perhaps somewhat unparalleled, at least in terms of achievements by other Indians globally. Now, my question to all of them is how they will react if they were to find out that one of their high profile directors (independent or otherwise) has been routinely sharing confidential information with someone else? Will they condemn this breach of trust and confidence or will they cite the achievements of the key informant (the concerned director) and state that his stature puts him beyond such actions? This is a question that ‘the friends of the Gupta’ club certainly need to answer.

Irrespective of the fact that circumstantial evidence was used to nail Mr Gupta, the key point in this case is that he shared confidential information (willingly or unknowingly, whatever may be the case). Now that is downright bad governance practice as far a director of any organization or corporation is concerned. And without any doubt, it is unacceptable practice from anyone, especially from a person of the calibre of Mr Gupta, who used to provide strategic advice to CEOs and was widely acknowledged a leader and role model globally.

Now, there are many professionals who enter boardrooms of listed corporations as independent directors or otherwise. Imagine if they all were to engage in such practices—the consequences would be disastrous for the corporate world and investor confidence would be completely eroded (it already is by Mr Gupta’s actions). And this is something that all captains of the industry (in India especially) need to recognize explicitly. Without question, the fact that Mr Gupta—despite all of his brilliance and achievements—discussed what went on at the boardrooms with a rank outsider and manipulator such as Mr Rajaratnam needs to be condemned unequivocally. That single action of bad governance, in my opinion, is what Mr Gupta is clearly guilty about…

We all talk so much about corporate governance, good/best practices when we go to investors and otherwise. Ultimately, however, good corporate governance requires people of integrity and personal integrity cannot be regulated—it needs to be internalized and practiced, day in and day out and especially by those who preach these values to others. And this is where I think Mr Gupta’s actions may have literally broken the back of investor confidence globally and only time can tell what the real impact of his conviction is.

(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)

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