Godfather of KPO and McKinsey Director Anil Kumar Arrested

I usually don’t cover stories like this, but because of the importance of the subject and some personal connections, I thought it would be worth offering up an insider take (pun intended). Earlier today, as reported in the Wall Street Journal and Market Watch, a billionaire hedge fund manager was arrested for insider trading. "So what?" you might say. Another financial fat cat will end up in Club Fed. Madoff this year, Raj Rajaratnam next. But there’s a fascinating side note to this story in that a McKinsey Director, Anil Kumar, one of the industry's godfathers of knowledge process outsourcing (KPO), was also arrested as part of the scheme. A friend once told me that McKinsey does not make many mistakes when promoting to the partner level (I’ve worked with a number of former McKinsey consultants over the years and can vouch for this). But he told me they never make a mistake when promoting to Director (the equivalent of senior partner). Well, maybe not until now.

Perhaps a little bit of history is in order in this case. Kumar, who was arrested with a number of other executives earlier today in the same insider trading scandal, was no typical consulting partner. As mentioned above, he was a leader and innovator in the area of knowledge process outsourcing. According to the book Information Systems Outsourcing: Enduring Themes, Global Challenges, and Process Opportunities edited by Rudy Hirschheim, “The international consulting firm McKinsey initiated a project in 1995 led by Anil Kumar to exploit reductions in global telecommunications rates that would create opportunities for 'remote business services' … this led McKinsey to establish a knowledge center in Delhi whereby staff and researchers would develop models and analyse trends for McKinsey consultants worldwide.” Another Director, who I used to work closely with at FreeMarkets, Jane Kirkland, ran McKinsey’s global knowledge management operation (including overseeing the Delhi operation). And Amit Bhatia, who reported to Jane from Delhi and later served as our Indian country GM at FreeMarkets, ran the research operation for McKinsey in Delhi.

Both Amit and Jane were big fans of what the offshore model did for McKinsey’s ability to leverage existing intellectual property (e.g., research, frameworks, etc.) not to mention to rapidly turn around analysis to make their entire consulting organization more effective and profitable, allowing Western teams to deliver more quickly. This model has particular relevance in the procurement and supply chain sectors when it comes to researching such areas as global supply markets, commodity research, hedging strategies, running financial analyses, building financial models, and classifying / analyzing spend data, etc. More recently, many other offshore providers (e.g., Smart Cube) have tried to emulate -- sometimes successfully, sometimes not -- what Kumar, Jane and Amit originally created. But in the case of the copycat models, they're doing it both for end user clients and other consulting firms who leverage these KPO back offices.

In any event, I suppose only time will tell whether or not Kumar is convicted or exonerated. I suspect given the fact that McKinsey so heavily vets those moving into a Director level role -- on all levels, including the character of the individuals up for promotion -- that there is a reasonable chance that Kumar might be found innocent if his past behavior is any indication of the ethics he brought with him into his Director role. Regardless, one thing is most certainly for sure in this case and potentially others like it. And that is the fact that consultants should never compromise client data or trade -- or encourage others to trade -- on insider information. Granted, the compliance function at strategy consulting firms is usually not as tight as it is at an investment bank or a large accounting firm, but perhaps it should be.

Jason Busch