Gupta's Charges Latest Sign that Goldman's Board Too Cozy

By Eric Jackson03/01/11 - 04:35 PM EST

NEW YORK (TheStreet) -- The news that the Securities and Exchange Commission was charging the former head of McKinsey & Co., Rajat Gupta, with insider trading for tipping off hedge fund manager Raj Rajaratnam were shocking.

Gupta was a blue-chip business executive. McKinsey's corporate reputation as an adviser has been beyond reproach prior to this (although another lower-level McKinsey consultant was swept up in this sameGalleon probe earlier). He moved in rarefied corporate circles since leaving the top job at McKinsey.

Gupta had served as a corporate director forGoldman Sachs (GS_) and Procter & Gamble(PG_) and is also a board member of AMR(AMR_). He'd advised the World Economic Forum and the United Nations' Secretary General.

If Rajat Gupta is tipping off hedge fund buddies, an observer must ask: How pervasive is this kind of insider trading among other corporate executives and directors?

We will likely never know the full answer to that question, but I had previously criticized Goldman Sachs for allowing Gupta to serve on its board more than 18 months ago. I said the board was too cozy with old friends of Goldman and people who were ill-equipped to strongly question the strategy of the firm presented by CEO Lloyd Blankfein and COO Gary Cohn.

I said that Gupta was likely someone who had personally consulted for Goldman for years (for compensation, of course). Even though I thought that Gupta would try to fulfill his job as a director in a professional manner, any human would feel beholden to a former client (Blankfein and Cohn), especially in a role (as director) that brings good compensation and unspokenopportunities to invest in different opportunities that Goldman uniquely has access to (like the recent private investment in Facebook for example) and general prestige that would be associated with the job.

I also disliked that Goldman's board had five former or current CEOs who were also presumably former Goldman clients, including current ArcelorMittal (MT_) CEO Lakshmi Mittal, Colgate-Palmolive's(CL_) former COO, Lois Juliber, former chairman and CEO ofFannie Mae (FNM_) James Johnson, former CEO of Medtronic(MDT_) William George, and former Chairman and CEO of Sara Lee (SLE_) John Bryan.

They could also have a hard time saying "no" to Blankfein and Cohn, for the same reasons Gupta would.

.......

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Video: Gupta's Charges Latest Sign that Goldman's Board Too Cozy

Contributor Eric Jackson says that the SEC's charges against Rajat Gupta show that boards have become too cozy with directors who swap information and pat each other on the back for their brilliance. It's been obvious for a while that Goldman Sachs board - on which Gupta used to serve - needs major reform.

Tue 03/01/11 16:56 PM EST -- Eric Jackson

Stocks in this video: GS | MDT | WMT | SLE | PG | MT | CL

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Google's Shareholders Should Thank Patrick Pichette (and Shona Brown)

Google's (GOOG) investors quickly cheered yesterday's earnings out of the gate in the after-hours, bidding the shares up to $410 -- they've since fallen back to $385. We'll see what they do today in the broader session.

The reason for the fall back in share price? After initial investor euphoria over a top and bottom line beat and increase over a year ago, some cautious macro comments from Eric Schmidt and perhaps the announcement of the moving on of one-time sales rock star, Omid Kordestani, gave investors pause. Still, the results are impressive.

What GOOG shareholders should be thankful for is the hatchet the company took to expenses and cost rationalization. Trimming jobs and other expenses -- previously not a GOOG strength -- helped profit climb almost 9% from a year ago to $1.42B. $110MM here, $110MM there: it starts to add up over time.

Shareholders should directly thank Patrick Pichette, the new CFO who came over last summer after cooly and calmly driving costs out of Bell Canada in his previous stint. Pichette was clearly brought in with a mandate -- and he's delivering.

And if you want to thank the person for bringing in Pichette, thank Shona Brown, GOOG's SVP of Business Ops. Brown -- a Canadian like Pichette -- also was a McKinsey consultant in her former life, just like him.

Originally published in RealMoney.com on 4/17/2009 8:04 AM EDT

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