McKinsey struggles after involvment in the Galleon scam

By Rohin Dharmakumar/Forbes India

Will McKinsey follow its own rules to regain its corporate reputation?

As governments respond to the financial crisis and its reverberations-a company's reputation has begun to matter more now than it has in decades. Companies and industries with reputation problems are more likely to incur the wrath of legislators, regulators, and the public. From an article titled "Rebuilding corporate reputations" that appeared in the June 2009 issue of the McKinsey Quarterly.

McKinsey's critics often cherry pick those few instances when the consultancy firm gets its predictions wrong. But in this case, the firm was acutely prescient.

It was prescient because on October 16, 2009, US federal authorities arrested one of McKinsey's senior most employees, Anil Kumar, and charged him with securities fraud and conspiracy. Kumar was accused of passing on secret information about the reorganisation plans at one of his clients, computer-chip maker AMD, to Raj Rajaratnam, a billionaire and founder of hedge fund Galleon Group.

Though as stock tips go, it wasn't much of one. For the tip turned out to be worth USD 30 million to Rajaratnam, in losses, after global financial markets tanked in September 2008 as soon as the hapless billionaire had bought into AMD. Ironically even Kumar might have lost money on his own tip, as he was said to be an investor in some of Rajaratnam's hedge funds. But quantifying what the tip cost McKinsey might not be so cut and dry. That's because the charges against Kumar struck at the corner stone of McKinsey's reputation - confidentiality.
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