The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund (14 page)

Kumar was not a gifted sportsman, and he wasn’t much of an all-rounder either, the kind of boy who shone in drama and music as well as academics. As the years wore on, it was clear he lacked a natural charisma and the leadership qualities that would have more than made up for any other deficiencies. “If you were school captain or house captain you were a somebody,” said Dhruv Khanna, serving as school captain counting among his achievements. “If you were a prefect, you were barely somebody.”

The bookish and aloof Kumar was a monitor, a title below prefect that was as tedious and workaday as it sounded. Among the cognoscenti at Doon, it was a badge that inadvertently but very firmly sealed upon the beholder the official status of a “nobody.” Kumar had a clique of friends, mostly from Kashmir House B, where he lived, or Bombay wallahs, slang for guys from Bombay, who came from the big city as he did. But “he was not in the ‘in crowd,’” recalls Mitter. “He was academically very bright, but he wasn’t one of the people in that year who would stand out.”

Despite his quiet way, Kumar struck classmates as very ambitious. “He would go at it as if his life depended upon it,” says a friend. Though not much of a natural athlete—unlike his classmates, who reveled in the flamboyant pageantry of team sports like cricket—Kumar focused on a more solitary activity, the long jump. By the end of his time at Doon he surprised everyone—even his closest friends—by his level of accomplishment. “He came first in the long-jump event during the interschool athletics competition, demonstrating an athletic finesse that no one knew he had,” says Arjun Mahey, a classmate. Academics, not athletics, though, were where Kumar could truly shine.

Starting in 1971, after years of giving out games blazers, Doon began awarding black blazers to recognize academic excellence. In March 1974, a small headline in the
Doon Weekly
gave Kumar his first taste of fame. It declared that Kumar had won the scholars blazer. “For the next year, he walked around with a black jacket,” recalls Dhruv Khanna, a former attorney who has built two cricket pitches in the midst of a California winery he acquired. “It was a very big deal because they were so scarce.” But when the honors boards were hung up, Kumar’s name was not on them. To be celebrated at Doon, one had to be an achiever in
both
academics and athletics. Kumar had entered Doon as a nobody, and despite a grueling amount of work, he would exit the school the same way. His family was proud, but inside, Kumar burned more deeply than ever with drive and ambition.

In 1975, Kumar sat for the IIT entrance exam along with a hundred thousand other students. He tested in the top 0.1 percent of applicants and was admitted to IIT Bombay. In 1980, he graduated third in his class with a degree in mechanical engineering. During his final year at IIT, he applied to Wharton and was accepted. At the same time, he found out that he had won a scholarship to study applied mechanics at the University of London’s Imperial College. The scholarship was awarded by De Beers to one engineering student among two thousand graduating from the IITs nationwide. As torn as Kumar was by the opportunity to study at Imperial College, he had committed to Wharton so he declined the De Beers scholarship. When the dean of IIT Bombay learned of Kumar’s decision, he prevailed upon him to seek a two-year deferral of his place at Wharton.The De Beers scholarship was prestigious, and it was important to the reputation of IIT Bombay that Kumar accept. In 1980, after Wharton granted Kumar only a one-year deferral, he headed to Imperial College to finish the two-year program in applied mechanics in a single year. He succeeded, completing it in ten months and graduating first in his class.

Ironically it was India—his place of birth, which he left to make his name in the United States—that breathed new life into Kumar’s lackluster career. When he arrived in Delhi in 1993, India was only starting to emerge from the shackles of its tightly controlled economy. Against this backdrop, the blue-suited consultants from McKinsey stood out. They were often quoted in India’s business bible, the
Economic Times
; and their stars, men like Puri and Gupta, were revered. Whenever they appeared at conferences, they were feted with garlands of flowers and treated like heads of state. It was hard not to respect the McKinsey men. Besides their intellectual prowess, it was well known that they were among the best-paid executives in the country. In the early nineties, their compensation was on par with that of chief executives of some of the country’s biggest companies, and they lived like kings. Kumar rented a house in one of Delhi’s finest neighborhoods, Vasant Vihar, and he employed an army of servants on his return.

Operating out of McKinsey’s office in the Taj Mansingh hotel, Kumar worked his social network. He tapped his well-connected Doon School friends—the scions of India’s biggest business families, such as the Oberois—to send projects his way. And he built lines into the country’s oldest corporate dynasties, such as the sprawling Modi Group, with its interests in glass, rubber, and travel. No card in his Rolodex was left unflipped and no opportunity to network was squandered. He leaned on his father-in-law, Ratan Dayal, a longtime marketing executive at Burmah Shell, at one time regarded as the jewel in the crown of British companies in India.

Unlike the winner-take-all entrepreneurialism rampant today in Indian companies such as Reliance Industries, working at Burmah Shell was a genteel affair, an exercise in comfortable capitalism. Senior employees of Burmah Shell like Kumar’s father-in-law basked in perks that were scarce in the India of the 1950s. When on business trips, they traveled in AC cars—shorthand in the Indian railway system for air-conditioned carriages. If traveling by car, they were allowed to take their bearers, or servants, with them. When they were posted to cities like Bangalore, the company arranged for its senior executives to have memberships at the top clubs in town and housed them in spacious company flats in the best neighborhoods. Anil Kumar met his wife, Malvika, Dayal’s daughter, when the Dayals and Kumars lived in the same company quarters in Bombay. Kumar’s father, Virendra Kumar, was also a Burmah Shell executive. The two began dating when Kumar was studying at IIT Bombay. Every weekend, he would make the trek by bus, train, and another bus to be with Malvika.

When Malvika and Anil returned to India in 1993, Anil was often seen accompanying his well-regarded father-in-law to the exclusive Delhi Golf Club, an oasis of green dating back to the 1930s, which sits smack in the center of the dusty metropolis. Standing next to him, Kumar developed an instant sheen and a respectability that otherwise would have taken decades to cultivate.

Kumar drew on purported links with prominent people in government like the respected Indian economist Montek Singh Ahluwalia, a behind-the-scenes architect of the economic reforms of the 1990s, to show he was connected. All the hobnobbing paid off. Within a few years of arriving in Delhi, Kumar achieved what he’d never managed to pull off in America: he became a member of the club. He was now in a position to effect change, and he had an important backer.

Even though Rajat Gupta, Kumar’s new boss, left India in 1971, he was intimately familiar with India’s problems and passionate about fixing them. Gupta knew tapping into India’s English-speaking workforce to create a vibrant service industry would go a long way toward creating a viable future for India. He also knew Kumar was a controversial consultant. He had antagonized colleagues in New Delhi when he made a bid to poach a coworker’s high-profile client. It was antithetical to McKinsey’s storied culture to steal clients, but Kumar was Gupta’s dark-haired boy wonder. Instead of reprimanding him, Gupta backed him over others in the office.

Sensing Gupta’s fondness for him and receptivity to his ideas, Kumar approached Bhargava, who had worked on an important study that found that as global telecommunications rates dropped, work would migrate to low-cost locales such as India and the Philippines. Kumar suggested his colleague find other areas—corporate research, for example—where remote business services could be applied. “I’ll get this thing approved by the shareholders committee,” he told Bhargava, “but why don’t you figure out how to roll it out.”

Almost coincidentally, at the start of 1996, McKinsey hired Amit Bhatia, a former American Express executive in India. Bhatia’s assignment was to fix McKinsey’s Indian research department, then consisting of half a dozen people. Soon after arriving, he revamped the unit, hiring a bevy of MBAs. With the salaries McKinsey was offering—around $12,000 a year—“we could get tier-two and tier-three MBAs because we were McKinsey,” says Bhatia.

In February 1997, as McKinsey was in the midst of a cost-cutting program, its Asia-Pacific research and information managers gathered in Kuala Lumpur, Malaysia, to brainstorm about resource sharing in the region. Bhatia proposed a research-and-information factory where all requests from consultants—anything from mobile telecom penetration in a given country to estimating market sizes and growth rates—were fielded. He met with immediate resistance; few of the local managers were willing to abdicate their fiefdoms for a centralized system. Indeed, the idea would have died had it not been for encouragement Bhatia received from Roger W. Ferguson Jr., McKinsey’s global head of Research and Information.

“Let’s work on this idea,” he told Bhatia.

But before Ferguson could really run with it and sell it as a firmwide concept, it emerged that he would be nominated for one of two vacancies on the Federal Reserve Board. It was widely expected that he would be confirmed for the position. All of a sudden, Bhatia was on the hunt for a new champion.

Meanwhile, Kumar made a pitch to grow remote services. In 1997, a team from McKinsey India, coached by Kumar, presented their vision at an internal event known as the Practice Olympics. After taking over in 1994, Gupta had instituted the Practice Olympics globally as a way of encouraging McKinsey’s practices to develop and showcase their most innovative ideas.

For its submission, the team from McKinsey India stripped the gross domestic product of two countries, the United States and Germany, analyzed every profession and every industry, and looked at what work could be moved offshore. If a job depended on local know-how or connections, it couldn’t be transplanted, but if a job wasn’t location-specific, it could be moved anywhere. The steep fall in telecommunications rates meant that it did not matter if a job was shipped from New York to Bangalore rather than from New York to Florida. From a cost perspective, there was little difference.

Extrapolating the results from the United States and Germany globally, the McKinsey India team estimated that $1 trillion worth of work could move to lower-cost high-skills locations such as India over the next two to three decades. The McKinsey India team did not win the first-place prize at the Asian regional meet of the Practice Olympics in Bali, but it was given a special award for the most vivid imagination, meaning “great idea, but it will never happen.”

By now, Bhatia had found a new backer, Jane Kirkland, a partner in McKinsey’s Pittsburgh office, who was eager to run with the idea of a research hub. She enlisted Kumar, who took the proposition straight to his mentor, Gupta, and quickly sold him on it—not that it was a tough pitch. Bhatia was asking for only $250,000 at most in funding. (McKinsey says that to its knowledge, Kumar did not play such a role in the initiative.)

Thus the McKinsey Knowledge Center, or McKC to those in the know, was born. Just as blue-collar jobs moved outside the United States in the 1970s and 1980s, Kumar and Gupta advised McKinsey clients to export a host of high-end American business services—paralegal work, corporate research, financial analysis—to India. “Remote services became a big way to sell an engagement. They actually went to customers and said, ‘We will help you outsource. We know how to do this,’” says Bhatia. “Had Anil not put in a word to Rajat, the Knowledge Center might not have seen the light of day.”

As Kumar grew in stature at the firm, friends noticed a certain cockiness creep into him. Gone was the quiet, shy schoolboy who buried himself in his books. In his place was a man with a carefully groomed arrogance who wanted to impress—actually needed to impress—his friends with his newfound success. During his early years working in Delhi, he sought out old friends from his Doon School days. But by the mid-1990s, Kumar was established in town and his orbit of friends changed to match his growing power and influence. No longer was he willing to spend time idling with old school chums. Among his new circle were some of the leading lights of corporate India, men such as Sunil Mittal, the telecommunications magnate who would shoot into the global spotlight in 2008 when his company explored buying South Africa’s MTN Group, and the Ambani brothers, Mukesh and Anil.

Mukesh Ambani was said to be fond of saying that Anil Kumar was “like God. He was everywhere.” Certainly, wherever McKinsey’s new managing partner Rajat Gupta was, Kumar made a point of appearing. Though he did not know Gupta well because they worked in different offices while they were in the United States, Kumar used his presence on the ground in India to deepen his relationship with Gupta. Colleagues in the New Delhi office would marvel at the way Kumar finagled getting booked on the same flight to Mumbai as Gupta when he visited India. In 1994, shortly after Gupta was elected managing director, he was invited into the offices of the
Times of India
for a meeting with its top editor, Gautam Adhikari. To everyone’s surprise, Kumar showed up for the meeting too.

At McKinsey, a partner’s power base derives from the strength of his client relationships. As a consequence, most partners are outwardly focused and view internal politics as a chore. Not Kumar. “Anil cultivated Rajat as sort of a corporate person would fawn over a CEO,” says a partner. The two were a study in contrasts—Gupta was smooth and genial, while Kumar was abrasive and full of himself.

Vinit Khanna, an old friend from Doon, first noticed a change in Kumar in the mid-1990s. Khanna, fresh off a round-the-world trip that he completed in thirty days, marveled at being able to travel in business class and stay in luxury hotels on his own dime. Khanna had come to the United States in the early 1980s to attend Wharton; he was a year ahead of Kumar. Upon graduating from Wharton in 1982, Khanna struck out on his own and thrived importing Indian goods—such as the manhole covers ubiquitous in city streets—to America. When Khanna ran into Kumar, he recalled how it would have been unthinkable fifteen years earlier, when the two first arrived in America as somewhat impecunious college students, to even contemplate a trip like the one he’d just taken. Kumar quickly cut short his reverie and told Khanna he’d just returned from a round-the-world trip in seven days.