Mind Without Fear

by Rajat Gupta

  In truth, at the time, most partners seemed happy about the firm’s growth. They enjoyed the higher profile, greater global impact, and the increase in partner compensation that came with it. In the end, during my nine-year tenure as managing director, we more than doubled the size of the staff and tripled our revenue.

  Along with the concerns about growth came criticisms that the firm was becoming overly commercial. Certain older partners looked back fondly to earlier days and bemoaned the changing times. What they didn’t always take into account, however, was that in those good old days we simply did not have the same stature of clients, nor did we work on cutting-edge problems. I could feel this just by comparing the kinds of issues I worked on in the 1970s and the ones I was working on now. Yes, our profits were growing but that didn’t necessarily mean we had become profit-driven. There was a fair amount of revisionist history going on.

  I don’t mean to imply that there was no profit motive in the firm or that we were unconcerned with financial success. McKinsey charged some of the highest consulting fees out there, and its partners were very well compensated. I appreciated that, as did my colleagues. I also firmly believed it was necessary if we were to stay ahead in the talent game. If our partners were paid only a fraction of the average C-suite executive, what incentive would they have to stay with the firm and not leave for an executive job?

  On the whole, I felt that the accusations of over-commercialism during this period, both at the time and in hindsight, were disingenuous and lacking context. Our increased profits, from my perspective, were a natural outcome of doing the best work we could for our clients, during a unique moment in economic history. The firm’s overriding creed had always been: We will be successful if our clients are successful. From my very first interview, this message had been reinforced. McKinsey consultants are professionals, and they put client interests ahead of the interests of the firm. If we served clients well, we trusted that financial rewards would follow. And rather than measuring our performance by revenue, we measured it by impact—both on our clients and on the firm. Partners were evaluated on the difference they were making to the performance of our clients and the contributions they were making to building the institution. We never had budgets and we never had targets; in fact, some partners were criticized for bringing in too much revenue at the expense of working on the development of the partnership.

  If growing revenue had somehow eclipsed client service and become our primary goal, at the expense of our values, I think it would have been evident very quickly in the form of a loss of impact. Instead, the very opposite was happening—McKinsey was increasing its global impact and, wherever I traveled, I felt people’s respect for the values the firm represented and their hunger for our expertise.

  Breaking Up the Fiefdoms

  When my first term came to an end, in 1997, we were riding high, and I was re-elected. With our strategic priorities clear, and having won the confidence of the partners, I decided it was time to turn our attention inward and re-evaluate our governance. The firm’s governance systems had not been overhauled in decades. They had been designed for a much smaller and less globalized partnership; were they still appropriate for what the firm had become?

  In envisioning this initiative, I had a very specific approach in mind. My idea was not to involve any senior people in the team, but instead to pick twenty young, high-performing directors who I believed were future leaders of the firm. These people, I reasoned, would have a greater stake in the governance system than those within ten years of retiring. They should be the architects of the system that would shape their working environment. This caused some ripples, to say the least. Several senior directors were personally affronted that they had not been included.

  I asked the task force to start from first principles and figure out what kind of firm they wanted, what it ought to look like, and how it should be governed. They were to take into account the current realities of the size, scale, and scope of the firm, but also bring fresh eyes to systems that had not been the subject of any serious consideration for decades. Out of their deliberation, several key principles emerged, including the principle of rotation, applied to all elected and appointed roles; a further reinforcement of our move beyond geographic organization into a “three-dimensional” governance structure embracing geography, industry, and business function; an expansion of the board from twenty to thirty to better represent our expanding population of directors, subdivided into four committees, dealing with clients, people, knowledge, and finance; and a new performance measurement system. Many of the principles and practices we established as a result of this process govern the firm to this day, and many of those young directors who led the task force went on to become leaders in the firm.

  A Return to New York

  My decision to be based in Chicago as managing director turned out to be no big deal. I was constantly traveling anyway, and those times when I was home, modern technology made it possible to do my job without a hitch. My girls were growing up fast, and I spent as much time with them as I possibly could—playing cards, helping with homework, supervising chores. For McKinsey, it was an unusual situation to have a managing director with young children. Most of my predecessors had been old enough when they took office that their children had already grown up and left home. My youngest was only four when I took office.

  Because my job required a lot of travel and didn’t allow for much vacation, I took my family with me occasionally, determined that they would see the world and grow up to be global citizens. The first couple of times, it was an adventure, but soon we all found it rather exhausting, particularly on long, multi-city trips. I have vivid memories of the six of us, dragging twelve suitcases, trying to squeeze ourselves into two hotel rooms. I’d told the firm that would be enough space for us, not realizing that European hotel rooms don’t match American ones for size. But we made the best of it, and I think the girls got valuable exposure to different cultures.

  In 1999, in the middle of my second term, I realized that my family was naturally drifting East. Sonu was at Harvard, getting her undergraduate degree. Megha was attending boarding school in New Hampshire and Aditi was about to transition to high school and considering a school in Connecticut. It seemed like the time had finally come for us to return to the East Coast. We packed up our things, sold the house we’d lived in for more than a decade, and moved to a new home in beautiful Westport, Connecticut, overlooking the Long Island Sound.

  Recession

  In the spring of 2000, as my second term as managing director was coming to an end, the dot-com bubble burst. All the new demand for our services from the tech industry suddenly ground to a halt. Consulting, I learned, is particularly vulnerable to recession because it’s a discretionary spend.

  Our challenges were exacerbated by the fact that almost every office had over-hired that year, complicated by a long hiring cycle and a belief that the growth would surely continue. In that era of growing demand, no one was worried about having too many new hires; they felt confident they could always be absorbed elsewhere in the firm. The usual acceptance rate for the firm’s job offers was about 70 percent, but with the economy shaky, we suddenly got 90 percent, which left us with far more people than we needed when the bubble burst. About 2700 young men and women had come on board and we didn’t have enough work to keep them busy. Plus, McKinsey’s infamous “up or out” policy had been less effectively implemented during the late 1990s, when the rising tide of the boom made everyone look good.

  In the midst of this turmoil, I came up for re-election. Most managing directors are re-elected off the first ballot, as I had been after my first term, but this would turn out to be different. I believe there were several factors at play. On top of the impacts of the recession, there was a large faction of partners who were disgruntled by the governance reforms, in particular those who had lost their board seats as a result of the newly instituted term limits. There were plenty of revisionists who were bus
y rewriting the story of the last few years through the 20/20 lens of hindsight. I think I was also contending with what I thought of as the “disappointment factor.” For every appointment you make, there are certain to be at least four or five people who thought they should have gotten the job. Over a few years, this army of the disgruntled adds up. Plus, the governance project had resulted in some changes to the rules for the managing director election. For all these reasons and more, the first ballot came out with a full slate of seven names, though two of these people, Peter Walker and Dick Ashley, withdrew their names right away, stating that they thought I was doing a good job and they had no interest in replacing me. We went through a few rounds until finally I won. Several people advised me during the process that I should pull out: I clearly didn’t have a mandate, they argued. I held my ground.

  I wasn’t too troubled by this turn of events, for several reasons. First, I felt that it was natural that there were naysayers; after all, I’d been making big changes. Second, I thought we’d created a fair process and it should be allowed to do its work. If I lost, then I would have to step down; if I won, I would serve a third term and then step down when I reached the term limit I had established. I would accept whatever the outcome might be with equanimity, following my creed of karma yoga. Third, I was happy to see seven names on the ballot. That gave me some extremely useful information: it told me who the future leaders of the firm would be. If I got elected, those other six candidates were the people to whom I needed to pay attention. Clearly, they had a lot of support and would be good choices for leadership roles. As always, I refused to relate to them as rivals and thought of them as fellow leaders.

  As my third term began, a certain faction of the partners was very concerned about the firm’s financials. They saw a simple way to get things back on track: lay off the army of young associates we’d recently hired and back out of some of our promised hires from business schools. “The last thing we need right now is more mouths to feed,” they told me.

  All around us, our competitors were reneging on offers, but it just felt wrong to me. It’s one of McKinsey’s guiding principles that people are only asked to leave if they are underperforming or not living by the firm’s values. That was not true of most of our new recruits—they’d barely had a chance to prove themselves. Were we going to let short-term economics (and, in some cases, concerns about partner compensation) drive us to fire good people who didn’t deserve it? I appealed to my partners on the shareholders’ council, which governs personnel issues, to take a longer view and hold firm to our values. Yes, our pay would suffer in the short term, and the balance sheet wouldn’t look so good. But we would honor all our promises and stand by our people. The council agreed, and over the next couple of years, while client work was scarce, we created research projects to keep our young associates busy. Total partner compensation went down a bit but the firm remained profitable and there was no financial distress. And when the markets came back, Ian Davis, my successor as managing director, would thank me, because we had the people ready and were the best placed to compete as demand picked up.

  During this period, India office manager Ranjit Pandit invited me to visit and participate in a day-long strategy meeting. It was still a young office, and the recession had hit hard. Revenues had dried up. As one partner after another addressed the meeting, I was shocked to hear each of them describe plans to focus on work outside India. They were planning to scatter around the world, effectively declaring the fledgling office a failure. “Why are you being so short-sighted?” I asked them. “This is not the moment to abandon ship. I’ll promise you the backing of the firm, even if you don’t make money in the short term. I’ll make sure you’re not passed over for election and so on.” The partners rallied, and that meeting became a turning point for the office, which under Ranjit’s leadership went on to become very successful.

  Turning the Focus Outward

  Traditionally, McKinsey had always maintained a low public profile—it was part of the firm’s mystique. As leader, in my third term, I felt it was time for a change. We had an opportunity, I felt, to extend our impact beyond the specific clients we served and have a voice in important conversations about the role and responsibility of business in a fast-changing, globalizing world. It was time to get over our reticence about the spotlight. Not everyone agreed with this assessment, but I felt strongly enough to persist. We began to invest time and energy in getting our research showcased at business conferences and seeking out seats in high-level conversations such as the World Economic Forum and similar venues. I joined the WEF board, eventually becoming a friend and strategic advisor to founder Klaus Schwab, and McKinsey was well represented at Davos.

  Personally, my focus shifted as well. During my first two terms, it had been natural to give most of my attention to internal issues of strategy, governance, and navigating the turbulent economic conditions. I’d always served clients, of course, and I’d spent a lot of time on other special projects, but as the new millennium got underway, I began to feel a calling to get out of my comfort zone and test my leadership capacity on a bigger stage. I’ve never been one to settle in a role or a place for too long, and my natural restlessness and drive for personal growth began to turn me toward new challenges. I felt I’d learned so much about how to solve strategic and operational problems in large companies, but I wondered, could McKinsey use its skills to address difficult or intractable societal issues? Could we serve a different kind of organization, like the UN, the Red Cross, or the World Health Organization (WHO), that had global impact?

  Energized by this idea, we established what we called the “nonprofit practice,” led by Les Silverman. Back in the 1990s, if you mentioned the words “McKinsey” and “pro bono” in the same sentence, you were likely talking about some politically popular but minimally impactful activity like a partner sitting on the board of the local symphony. McKinsey’s nonprofit activities, for the most part, were localized and limited to supporting cultural institutions. That was about to change. We’d always had an ethos of service, but it had been focused on our clients. Now, I wanted to expand that service into areas where it was greatly needed. I was determined that part of my legacy as managing director would be a dramatic scaling up of the firm’s investment in social issues. I wanted us to contribute our core expertise—management—where it could have maximum impact.

  After all, McKinsey was a management laboratory with insight into the best practices of hundreds of corporations. Nonprofits were notorious for lacking the rigor and efficiency of business. In many cases, they had enormous resources and critical missions, but fell short of making the difference that was needed. With our global network of partners and clients, we were perfectly positioned to make our expertise available to organizations that could make great use of it, and enable them to deliver much more effectively on their mandates. To this end, McKinsey began to serve the Gates Foundation, the WHO, the UN, and the US Department of Education. We decided we would accept these assignments independent of the organizations’ ability to pay, and we charged only what they could afford, without making any profit.

  A Call for Help

  On January 26, 2001, I was attending the Davos meeting of the WEF when I received some shocking news. On the 52nd anniversary of establishing the Indian Republic, disaster had struck the state of Gujarat in the form of a massive earthquake, killing close to 20,000 people by some estimates, injuring over one hundred thousand more, and destroying countless homes. It was surreal to be in the pristine beauty of Switzerland, surrounded by the rich and powerful, while watching images on the news of the devastation in the land of my birth. The scale of the destruction was hard to fathom, and I resolved to find a way to help.

  I’d just arrived home when my friend Vinod Gupta called and told me that Bill Clinton, fresh out of the White House, was seeking a way to help the earthquake victims. Victor Menezes, vice chairman of Citigroup, was also trying to do something, and I knew many other Indians fe
lt similarly. When I heard that Clinton wanted to meet with leaders of the Indian diaspora to devise a plan, I didn’t hesitate. “I’ll be there,” I told Vinod.

  Not only did I attend that meeting, which was held at the Citibank offices in New York, I ended up accompanying the president on a tour of India, including a visit to the affected region. I’d met him once or twice before, but had never spent this kind of time in his company. Although the entire event was rather an over-orchestrated spectacle, it left a lasting impact nonetheless. The devastation was unspeakable, and the response was chaotic and hampered by local government incompetence. We spent time talking to victims in hospitals, including a young boy whose face had been smashed and who had been through several reconstructive surgeries. The president sat with this boy for thirty minutes, and we could all feel his suffering. When we returned to Delhi, his speech to the assembled donors and supporters was all about that single encounter. He described in vivid detail what had happened to the boy and the impact on all of us. There wasn’t a dry eye in the room by the time he was done.

  As we traveled together over the course of eleven days, the president and I developed a friendship—and a fierce Scrabble and “Oh, Hell!” rivalry (“Oh Hell!” being a card game he loved and taught me how to play). He loved to keep score and would scrawl “Gupta wins again!” on the score sheets, along with his signature, as I won game after game. But he was always up for another. He slept very little, had an extraordinary memory for detail, and carried only two bags, of which one was entirely filled with books. He was a great conversationalist and I saw up-close what made him such an outstanding politician. No matter where we went, even when we stayed in fancy hotels or dined at some of India’s best restaurants, I’d always find him talking to the staff in the kitchen or the housekeepers or the organizers behind the scenes at the various events. He sought out the people who were invisible and made them feel heard and valued.