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26 October 2011

The Boomer Establishment Sinks Deeper Into Failure and Shame

 By Walter Russell Mead

The American corporate establishment is reeling today at the news that the government is bringing criminal charges against Rajat K. Gupta, for many years the head of the most trusted name in corporate consulting.  According to the government, Gupta passed insider secrets to the systematically dishonest Raj Rajaratnam, the disgraced and convicted former head of a major hedge fund.  McKinsey, the consulting firm Gupta led, is privy to the most sensitive information in American corporate life, and its reputation for discretion and integrity is the core of its business.  It is hard to imagine a more damaging development to the reputation of the firm.  It is not just that its head may have committed crimes that undermine everything the firm stands for; it is that those around him were so blind, so naive and so easily fooled that the self described master strategists of business look like gullible nitwits.  Physician, heal thyself; if McKinsey can’t keep its own top staff from undermining the company’s core mission, how can it help you manage yours?

The problem goes well beyond McKinsey.  If the government proves its case, it will demonstrate that the American establishment has lost its ability to discern character and demand integrity.  Gupta not only rose to the head of a firm that depends on reliability and discretion; he advised the Bill and Melinda Gates Foundation and served on the boards of directors of some of the biggest names in American business.

That a criminal could win the trust of so many of the ‘best and the brightest’ in philanthropy and business chillingly demonstrates the moral and intellectual vacuum in the corporate world.  Years of excessive payment for executives, okayed by go along to get along boards of directors, a culture of entitlement and a lack of personal character and strong moral codes have created a dead zone at the core of American life.

Economic bubbles generally involve more a confusion of financial values.  Long periods of easy money and boom times corrupt and confuse moral values as well.  The slick deal maker and the influence peddler get ahead; “liar loans” and the liars who make them pass for solid investments.  People accept tinsel for silver and gilt for gold.  Wealth passes for virtue; the serious man is taken for a fool.

The New York Times offers an explanation for why Gupta (allegedly) went over the edge:
Though he had an enviable résumé and earned millions of dollars a year at McKinsey, Mr. Gupta became fixated on the extraordinary wealth showered on hedge fund managers and private equity chiefs, according to trial testimony. Consultants are well paid, but the compensation pales in comparison to those Wall Street titans.
Envy and avarice, no doubt mixed with pride: if the charges hold up Mr. Gupta will have wrecked his life, shamed his family, caused serious harm to those who trusted him and gave him their confidence just because being filthy rich wasn’t enough for him.  He had to be richer still. A man who had everything chose to ruin it all.

McKinsey’s leadership and many other well placed people in American life have some thinking to do, some changes to make, and some humble pie to eat.  The populist rebellion against elites and establishments will acquire more momentum from Gupta’s fall; the emperor not only has no clothes, many people will conclude — he is also trying to steal ours.  The Boomer Establishment continues to bury itself in failure and shame.

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