Emmitt MBA723 E1WW McKinsey Company Insider Trading Scandal APA Version
McKinsey & Company Insider Trading Scandal and Moral Hazard
James Emmitt
Assignment Wk. 3 – MBA 723 E1WW W15
Prof. Ed DeJaegher
Jan. 26th, 2015
The recent insider trading scandal at McKinsey & Company in 2010 provides an excellent example of the impact of a morally hazardous culture and climate within the internal environment of the organization (Raghavan, 2014). In 2010, Dominic Barton, Managing Director of McKinsey, an 87-year-old global consulting firm with annual revenues in excess of $7 billion, faced a problem never before encountered by the firm. Two senior partners, Rajat Gupta and Jain Anil Kumar, were found guilty of securities fraud when they contacted Raj Rajaratnam of the Galleon Hedge Fund and informed him in two separate instances of impending high value investment transactions before they were publically disclosed. These leaks resulted in personal profit as well as massive hedge fund gains (Dodds-Frank, 2011). This failure of integrity could easily impact the company’s bottom line by undermining the confidence of the company’s global client base – many of which were governments and institutions. While the results of the action, if uncontested, would have led to nothing but financial benefit for all stakeholders, the perpetrators assumed great risk to their personal integrity and the reputations of their firms for relatively minor personal gain. Mr. Barton needed to define and implement some culture and climate changing initiatives to reduce or eliminate whatever factors were facilitating this moral hazard. Why would three men with everything at their disposal (money, achievement, and prestige) risk all for such relatively small gain?
Character
To understand the depth, urgency and nature of the moral hazard, comprehend first the depth of trust engendered and what factors led to that trust. It is worthy to note that these men were all prior founding associates in a $1.3 billion private equity firm called New Silk
James Emmitt
Assignment Wk. 3 – MBA 723 E1WW W15
Prof. Ed DeJaegher
Jan. 26th, 2015
The recent insider trading scandal at McKinsey & Company in 2010 provides an excellent example of the impact of a morally hazardous culture and climate within the internal environment of the organization (Raghavan, 2014). In 2010, Dominic Barton, Managing Director of McKinsey, an 87-year-old global consulting firm with annual revenues in excess of $7 billion, faced a problem never before encountered by the firm. Two senior partners, Rajat Gupta and Jain Anil Kumar, were found guilty of securities fraud when they contacted Raj Rajaratnam of the Galleon Hedge Fund and informed him in two separate instances of impending high value investment transactions before they were publically disclosed. These leaks resulted in personal profit as well as massive hedge fund gains (Dodds-Frank, 2011). This failure of integrity could easily impact the company’s bottom line by undermining the confidence of the company’s global client base – many of which were governments and institutions. While the results of the action, if uncontested, would have led to nothing but financial benefit for all stakeholders, the perpetrators assumed great risk to their personal integrity and the reputations of their firms for relatively minor personal gain. Mr. Barton needed to define and implement some culture and climate changing initiatives to reduce or eliminate whatever factors were facilitating this moral hazard. Why would three men with everything at their disposal (money, achievement, and prestige) risk all for such relatively small gain?
Character
To understand the depth, urgency and nature of the moral hazard, comprehend first the depth of trust engendered and what factors led to that trust. It is worthy to note that these men were all prior founding associates in a $1.3 billion private equity firm called New Silk
References: Bateman, T. S., & Snell, S. A. (2013). Management: leading & collaborating in a competitive world (10th ed.). New York, NY: McGraw-Hill Irwin. Boardman, A. E., Greenberg, D. H., Vining, A. R., & Weimer, D. L. (2011). Cost-benefit analysis concepts and practice (4th Ed ed.). Upper Saddle River, NJ, USA: Pearson Education. Dodds-Frank, A. (2011, March 2). Rajat Gupta and Goldman 's insider trading bombshell. Retrieved from The Daily Beast: http://www.thedailybeast.com/articles/2011/03/02/rajat-gupta-at-center-of-wall-streets-biggest-insider-trading-scandal-ever.html Dow, S Ghoval, D. (2014, August 21). How to run a $1 billion fund after both your co-founders go to jail. Retrieved from Quartz India: The Hedge: http://qz.com/249120/how-to-run-a-1-billion-fund-after-both-your-co-founders-go-to-jail/ Jenkins, H McKinsey & Company. (2014). About us: our values. Retrieved July 5, 2014, from McKinsey & Company: http://www.mckinsey.com/about_us/our_values Morvillo, G., & Grand, P Natarajan, G. (2014, September 26). Indian economy and its "crony capitalism risk". Retrieved from Urbanomics: http://gulzar05.blogspot.com/search/label/Corporate%20India Raghavan, A The matter of Rajat K. Gupta, File No. 3-14279 (Securities and Exchange Commission November 5, 2009).