When the news broke late last month that Rajat Gupta, one of the biggest business stars ever to emerge from India, had been charged with insider trading by the Manhattan district attorney, a wave of dismay passed through Indian and other South Asian communities worldwide. Another wave hit on Tuesday with the news that a federal judge had ordered Sri Lankan hedge-fund manager and convicted inside trader Raj Rajaratnam to pay a fine of $92.8 million, which accompanies his 11-year prison sentence and other financial penalties, now totaling $156.6 million.
Gupta, in particular, was a model for Indian professionals. Dynamic young Indian men and women believed that exceptionally talented Indians like Gupta, who reached the top spot at consulting firm McKinsey when he was just 46, could lead global corporations—not just to greater glory but, given their upbringing in a developing nation like India, into emerging markets with a greater sensitivity than many Western executives. Most of the time they were right. For years, Indian and other South Asian executives have successfully run operations for their multinational bosses in China, Indonesia, Malaysia, South Africa, and the United Arab Emirates. Some, like Indra Nooyi of Pepsi and Vikram Pandit of Citigroup, have become bosses, as Gupta did. The confidence of the "Gupta effect"—the breaking of the ethnic ceiling—was keenly felt in the subcontinent. Every Indian believed it was possible to make it to the top.
Now, with Gupta possibly facing years behind bars, there is sure to be a chilling impact on the rise of potential South Asian CEOs in the world of global business. Those Indians currently being considered for high positions in multinationals will likely face greater scrutiny than before the Gupta arrest—especially for the company they keep—before being invited to the top job. And, says K. N. Vaidyanathan, the former executive director of the Securities and Exchange Board of India who earlier ran Morgan Stanley’s Mumbai office, “in a crunch, the next Indian CEO of a mainstream global company will not be given the benefit of the doubt.” Conversely, most first-generation Indian bright sparks will duck under the radar, afraid to be viewed additionally through the lens of ethnicity, not just ability.
It’s all very dispiriting. Indian-Americans are a much-touted model minority among the wider U.S. immigrant population. The largely professional group has generally kept its head down and worked hard, its members happy to pay their taxes and get their big homes, big cars, and, for their children, an Ivy League education. Few have as yet achieved national or international stature; those, like Gupta, who did were viewed with pride.
But what’s really hurting these law abiders—and their brethren back home who are in a battle with their own government over corruption issues—is not that Gupta was charged with insider trading. The government seems to have gathered a large body of incriminating evidence. What hurts is that Gupta’s punishment, if he is found guilty, will likely be disproportionate to his crime. And that he and Rajaratnam are being publicly shamed while the Wall Street perpetrators of the U.S. subprime crisis, which has led to massive joblessness and global economic recession, are being bailed out with taxpayer money and apparently forgiven their sins. “No one is punishing those who caused the global financial crisis through fraudulent means,” says Mohandas Pai, chairman of Manipal Universal Learning and former chief financial officer of Infosys Technologies, Bangalore. “Those business leaders are still not being arraigned.”
If the insider-trading cases that involve Indians are the first of a massive prosecution of Wall Street’s big fish, then the law will be seen to have taken its course. The youth of the Occupy Wall Street movement will also have some solace in their government’s acting in the public’s interest. For now, however, the impact of Gupta’s fall will be felt only in those areas where South Asia and corporate America specifically intersect.
One of those is the global CEO and entrepreneurial machine, to which India has been contributing its elite generously over the past years, and which will now slow down. Clever Indians may decide to stay home and devote their talents to resolving the pressing problems of India. This would be a loss to the United States. Pandit was appointed to bail out Citigroup, at an annual salary of $1, and he has succeeded so far.
There has also been much griping about the “South Asian mafia” in the worlds of tech, consulting, and investment banking. An estimated one third of the professionals in the moneymaking derivatives industry are of Indian origin. Gupta used his existing and expanding networks like anyone else. Once out of McKinsey, and apparently intent on making the same big bucks that his classmates in Silicon Valley had made as tech entrepreneurs, Gupta turned to the network he trusted the most—his old South Asian boys' club, including Anil Kumar, also of McKinsey, and Rajaratnam. These men constituted the first of the South Asian networks.
With Gupta’s arrest, the Indian networks in the U.S.—many of which start businesses the old-fashioned way, by borrowing from friends and family rather than taking on bank debt—will go underground or fragment. This will, in turn, affect the U.S. business and entrepreneurial scene. More than a quarter of all startups in Silicon Valley are Indian-owned, and many successful professionals like Gupta support Indian-American ventures.
The philanthropic world will suffer also. Gupta, Rajaratnam, Nooyi, and Pandit have all donated precious noncorporate time—and money—to support causes and policies in both South Asia and the U.S. Gupta was a founder of the America India Foundation, which invests in public health and education in India. He was an early and steadfast supporter of the Indian Business School, a joint venture of the Kellogg and Wharton schools of business.
There is a lesson in this sorry drama. While Gupta’s alleged transgression has certainly damaged the image of other exceptional Indians, they will, in future, be sure to hew close to the letter of the law in their careers. And India has plenty of other innovators and leaders to be proud of. Gupta was a role model who may have done wrong, but in that, says Manish Sabharwal, chairman and founder of TeamLease, India’s largest temp agency, “Gupta is not peculiarly Indian. He is just human.”