McKinsey & Co, one of the world's largest management consultancies that prides itself on reputation, has said it is "incredibly distressing and embarrassing" that two senior executives were caught up in the Galleon insider trading case involving technology shares.
The chief executive of McKinsey has admitted he was unsure as to what damage the scandal had done to the McKinsey brand. In an interview with the Financial Times, Dominic Barton, the company's global managing director, said, "I feel like some turpentine was thrown on the hood of the car."
Technology companies who saw share dealings tainted by the Galleon case included AMD, IBM, 3Com and Intel. Almost 30 people had pleaded guilty to insider trading charges, including consultants, analysts and technology company executives.
Anil Kumar, a former McKinsey partner, has pleaded guilty to charges of providing confidential information to Raj Rajaratnam, the ex-head and founder of the Galleon Group hedge fund. During the case, Kumar testified in court that he shared insider secrets on chipmaker AMD's strategy. Rajaratnam was found guilty in May in spite of denying all the insider trading charges against him.
In addition, Rajat Gupta, a former head of McKinsey, has been charged with civil violations by the Securities and Exchange Commission (SEC), but he denies any wrongdoing. He has this week been given the all clear to sue the SEC, and has said he feels he was unfairly singled out.
Barton was asked about the effect of the Galleon case on McKinsey's reputation. He said it may not be until "10 to 20 years" until the firm knew what damage the scandal had done to its reputation for giving reliable and confidential advice to companies.
Barton told the FT that McKinsey had sometimes been "arrogant", and the firm had instituted a "rigorous external review of its values and practices". This had prompted "changes to policies, compliance and training", said Barton.
He said the firm now "felt good about where our standards are" in comparison to rival firms.
The inside information gleaned in the Galleon case is said to have generated $64 million in total profits and avoided losses on trades for Raj Rajaratnam.