ISB Chairman Rajat Gupta fraud : Foundation shaken by scandal

This is the third time that the Indian School of Business, Hyderabad, one of India's most noted and prestigious B-schools, has seen its senior leadership embroiled in issues concerning integrity and ethical behaviour. This time, crisis has struck the office of none other than the ISB Chairman, Rajat Gupta, shaking the very foundations of a school that has the Kellogg School of Management, The Wharton School of the University of Pennsylvania, the London Business School, MIT Sloan School of Management and The Fletcher School of Tufts University, as founding or associate schools.

That pedigree comes along with big names in Indian and international business and management studies, many of them landing at ISB through the efforts, connections and stature of Rajat Gupta, who is the founder of the Hyderabad institution and has retained a keen interest in its activities.

The odd peacock roams ISB's 260 acre campus, with IT majors like Infosys, Wipro and Microsoft as its neighbours. The 10- year- old school says it was ranked no. 13 in the Global Top MBA rankings of 2011 by the Financial Times, London.

Among its 43 member board headed by Rajat Gupta are such well known names as Scott Bayman, former CEO of GE India, Vinod Khosla of Khosla Ventures, Vikram Pandit, CEO of Citigroup, and Arun Sarin, former CEO of Vodafone group plc. The Executive board has the Who's Who of India Inc, like Anil Ambani, Rahul Bajaj, Adi Godrej, Chanda Kochar, Sunil Mittal and others.

None of these have openly called for the resignation of Gupta, who has quit the boards of other companies as the US Securities and Exchange Commission tries him on charges of insider trading. Gupta denies the charges but quit from corporate boards ahead of the launch of court proceedings against him. He has not resigned form ISB, the School said on Wednesday, and refused to be drawn into questions on whether he ought to have stepped down voluntarily.

The only formal response of the ISB has been a statement it issued on March 2, in which the School said: " We note that the U. S SEC has initiated administrative and civil proceedings against our Chairman, Rajat Gupta. We also note the statement of the counsel for Rajat Gupta, which asserts that the allegations are totally baseless. The ISB community is confident that Rajat Gupta will be vindicated. He continues to be the Chairman of the ISB Executive Board." Rajat Gupta is the third in the ISB leadership team to be touched by scandal.

In Jan. 2009, M Rammohan Rao resigned as the Dean of the ISB a day after Ramalinga Raju, the disgraced Chairman of Satyam Computer Services Limited, confessed to financial fraud in the company.

Rao was an independent director of Satyam and the Chairman of the board's audit committee. He had presided over the controversial meeting of the Satyam board which approved the acquisition of Maytas Properties and Maytas Infrastructure, decisions which had to be reversed after they were widely questioned.

Satyam Chairman B Ramalinga Raju was himself on the ISB Executive Board.

In October 2009, Anil Kumar, who was a co- founder and a member of the executive board of the ISB, went on leave after being charged by the US investigators with insider trading. That case had marked a second exit by a key member of ISB in the face of serious charges.

Kumar was also a director of the global consulting firm McKinsey, where Rajat Gupta made his mark as global head for three terms of the years each.

The ISB Dean Ajit Rangnekar was then quoted as having described the case of Anil Kumar as " stray". Incidentally, reports have quoted US prosecutors as saying that that they intend to call Anil Kumar as witness in the case of insider trading against Raj Rajaratnam, who is being tried in criminal courts. In contrast, the case against Rajat Gupta, who is alleged to have given inside information to Rajaratnam, is in an administrative court.