by Rajat Gupta
During my travels, I’d also made an important personal decision that surprised a lot of people: as managing director, I would not relocate to the New York office. At first, I’d assumed I’d have to move. Leaders of the firm had been elected from the New York office and had run the firm from there since 1939, when Bower relocated from Chicago after the founder’s death. I wasn’t too happy about the idea of uprooting my family again, however. The girls were all settled in school, and we loved our home and community of friends. I was explaining as much over dinner to my Scandinavian friend Micky Obermayer, when he asked, “Why do you have to move? There’s no rule that says you need to be in New York.” Micky is a true out-of-the-box thinker, and to this day he comes up with unexpected perspectives on many aspects of life. The more I thought about his question, the more it made sense—and not just personally but philosophically as well. If the firm was truly a global partnership, then it need not have a geographical headquarters.
So I decided to stay in Chicago, while the rest of the administrative staff remained in New York. My first appointment as managing director would be to make Dick Ashley the Chicago office manager, giving him an opportunity he richly deserved.
They say “keep your friends close and your enemies closer,” but to be honest I never thought of any of the partners as my enemies, even those against whom I competed in elections. Those names that had appeared beside mine on the ballot, I reasoned, were there because they were the others most qualified for the job I was now doing; therefore, they would likely be my best sources of counsel. With this in mind, I decided to establish a “kitchen cabinet” to advise me in my new role, and the first person I invited to join was the man I had beaten out for the job—Don Waite. It was time for him to leave the New York office and let someone else take the lead, but I felt it was important to offer him a new position to move into. As a leader, I felt it was as much my responsibility to find roles for those displaced by my appointments as it was to make the appointments. Plus, I’d heard Don had been very disappointed after he lost the election; he couldn’t understand how he’d lost to someone so much younger and less experienced. I also asked my old friend Herb Henzler from Germany. Later, as part of our governance initiative, we expanded this group and established a more formal Office of the Managing Director (OMD).
The Eight Laws of Rajat Gupta
In my office there hangs a framed document that was presented to me at a party to mark the end of my tenure as Chicago office manager. My good friend Atul Kanagat and his wife, Bina, were responsible for its creation. Entitled “The Eight Laws of Rajat Gupta,” and inscribed in elegant calligraphy, it reads:
1.If someone else wants to do it, let him
2.If you have ten problems, ignore them – nine will go away
3.Being there is 90% of the game
4.You can’t push a noodle; find the right angle and pull
5.The softer you blow your own trumpet, the louder it will sound
6.There is no such thing as too much work or too little time
7.Listening takes a lot less energy
8.When in doubt, invite them home.
This made me chuckle; my friends knew me well. It also made me reflect on my leadership style, which they had succinctly captured, and how it might serve me in my new role. The “noodle” rule, in particular, was going to be critical. Leading McKinsey would require skillful pulling from many angles. The firm was a partnership, so while I was nominally its leader, in reality it had at least as many leaders as it had senior partners. You couldn’t just sit in a New York office—or a Chicago one—and direct the partners. Pushing had no effect. Even making appointments and selecting committees, the one power vested in the managing director, usually required consulting with a lot of people and gaining their support. It was rarely a unilateral decision. And once you appointed someone to a position, there was no expectation that they would vote with you or serve your agenda. Every partner was fiercely independent and entrepreneurial-minded.
I always thought of the managing director as “first among equals” and knew that my effectiveness in the role would be directly proportional to the strength of my relationships with my partners and my understanding of their viewpoints and the issues they were dealing with. Listening does indeed take a lot less energy than talking, and it also allows you to understand the aspirations of your partners and to effectively lead from behind.
However, I also knew that there was plenty of speculation, both in the papers and behind closed office doors, about whether I was tough and assertive enough for the job or too much of a “nice guy.” I did tend to blow my trumpet quietly. The Chicago Tribune, with reference to my admiration for Swami Vivekananda and Mother Teresa, mused that “running McKinsey & Co. with its gung-ho battalions of princely consultants with lofty degrees … would seem to require someone whose idols are Napoleon and Lucretia Borgia, not a swami and a nun.”1 Perhaps. But the folks at the Tribune didn’t seem to realize what determined characters both Swami Vivekananda and Mother Teresa were.
As I contemplated the challenges of my new job, I often thought of a phrase from Tagore that my father liked to quote: “unity in diversity.” Tagore spoke out fiercely against what he saw as the scourge of nationalism, affirming a greater human unity that embraced and celebrated our differences. It was an idea well-suited to McKinsey in that era—we were growing more diverse by the day and yet our success, as Marvin Bower had counseled me, would depend on finding ways to remain unified.
Clients First
One of my concerns, when I took office, was how bureaucratic the firm had become and how much time partners were spending on administrative tasks, rather than serving clients. I was a firm believer that everyone should be client-focused, including the managing director. We were a client service firm, first and foremost, and so if someone wasn’t really serving clients it was inevitable that they would slowly but surely lose the respect of the partners. I was aware that there were several older office managers who hadn’t served a client in a decade. Why should the young partners take direction from these guys if they were so out of touch with the actual work?
Previous managing directors had all stepped back from client work after election. I’d been the busiest client guy in Chicago even while running the office and I intended to continue to set that example. I made it clear that this was expected from every partner. The only person I allowed to be exempt from this requirement was my chief of staff, Jerome Vascellaro.
In line with this principle, I felt we needed to shake up the firm’s relationship to appointed positions. It was basically a collection of fiefdoms, and once someone was in an office manager role, for example, there was no simple way to move them on unless they weren’t doing a good job. I felt that every role should rotate regularly. After all, everyone had their own biases and particular strengths and weaknesses, so it was good for there to be regular change.
Managing directors tended to change regularly simply because of the age limit, but when I was elected, at forty-five, I realized I could end up serving five terms. It was a good test of my belief in the idea of rotation. Was I ready to impose term limits on myself? I decided I was. Eventually, as part of a governance initiative during my second term, we created a policy stating that the maximum time any individual could serve as managing director was three terms. This principle of rotation applied to all appointed and elected positions, with varying terms, including the board, which upset some long-standing board members.
True to my word, I continued to serve clients and to introduce new clients throughout my time as managing director. I loved the work and took great satisfaction in the networking that had once seemed so foreign to me. I would never approach it in the same way as my American counterparts, but I’d always find ways to use my difference to my advantage. Indeed, the last of the “eight laws” referred to my signature way to close a deal with a hesitant client: rather than taking them golfing or wining and dining them at trendy restaurants, I’d i
nvite them to my house for one of Anita’s home-cooked Indian meals. It worked like a dream!
Beyond Geography
One of my early attempts at unifying and aligning the partnership was a project known as the Firm Strategy Initiative. This was not a classic strategy project, which usually just involves a small team going away and thinking about strategic priorities. It was a broad-based, long-term initiative designed to get everyone, especially all the partners, involved in thinking about the firm’s strategy and developing initiatives to implement that strategy. Our guiding questions were: To whom should we provide our consulting services? What scope of services should we provide? And what kinds of delivery models and fee arrangements should we employ?
The strategy project was fruitful. Several key new directions emerged, including the establishment of our first virtual office, focused on the area of technology, which we needed to serve better. The dot-com boom was just beginning, and McKinsey was feeling tremendous pressure to improve our technology expertise and capacity, as our clients grappled with the changing landscape and looked to us for help. If we couldn’t offer it, there was a new wave of competitors, particularly among the big accounting firms, which were branching out into consulting.
Until now, the firm had always organized its offices by geography; this would be the first time we organized around function as well. A partner named Dolf DiBiasio, who was a good friend of mine, was leading our Stamford office. He was a very successful client guy, and I decided he was the perfect person to lead the new office. I called him up. “Dolf, I want you to say yes.”
“What am I saying yes to?” he demanded.
“Say yes, then I’ll tell you.”
“Yes,” he said. So I told him the idea. The business technology office would function like a multilocational office, with its own resources.
“Okay, I’ll do it,” he confirmed, “but you’ll have to give me the protection and support I need if it takes time to build and starts out losing money.” I agreed, and we took the idea to the board. It turned out to be a great success and quickly grew to over five hundred professionals. We would go on to create other virtual offices as well, focused on specific functions.
We also turned our attention to global expansion. This was the 1990s, the heyday of globalization, but while the firm was well established in the US and Western Europe, and had some offices scattered around the world, it was not yet truly global. Our clients, meanwhile, were becoming global, and we needed to keep pace. Our new strategy included moving into mainland China, South Africa, and Dubai, and expanding our presence in India.
By the time we formally announced the results of the strategy initiative, many of them were already well underway. But that was the idea—to get people involved and invested in the growth of the firm and to energize and unify the partnership. The culmination of the two-year project was a conference that stands out in my mind for two reasons that have nothing to do with strategy. The first was a deeply sad moment, when I had to announce to the partnership that our colleague Joel Bleeke, who had been a leader of the project, had passed away that very day after a courageous battle with cancer. We were all still reeling from the news when the time came for a big surprise I’d planned. The conference was being held in Florida because a special guest I had invited could not travel any more. An elderly gentleman made his way through the darkened auditorium toward the stage. The people in the front rows recognized him first and rose to their feet. The ovation moved through the room like a wave as more and more people realized that our guest was the ninety-four-year-old Marvin Bower. The applause lasted for ten minutes, and it remains one of the most emotional moments I’ve ever witnessed in my time at the firm.
The message was clear: McKinsey was looking to the future, but it would never forget its roots. Soon, however, that commitment to balance past and future would be tested like never before, as the firm found itself navigating one of the biggest sea changes the business world had ever seen.
The Internet Revolution
Providing IT systems expertise to our clients was just the first step as the Internet revolution ramped up. Soon, a debate was raging internally about how the firm should position itself in the midst of the frenzy. The traditionalists wanted us to stay in our professional ivory tower, above the fray, while many of the younger partners wanted opportunities to cash in on the riches that seemed readily available. Many good partners left the firm in the late 1990s, particularly in the San Francisco office, where they were lured by the promise of making millions like so many of their friends and colleagues seemed to be doing.
One suggestion that many partners favored was that we should create a venture capital or private equity arm, similar to our competitor’s spinoff Bain Capital. I was not keen on the idea, but I commissioned a study to weigh up the proposal, dubbed “Blue Capital” as a nod to our brand color. The issue became extremely divisive on the board and throughout the partnership. Some just felt it was too far from our core business. Others worried we’d be left behind if we didn’t take this step. Everyone else was doing it, why shouldn’t we? However, there was serious concern that we might create competitors to our own clients and conflict with our values. I was sympathetic to these concerns and was not in favor of the plan. Plus, it raised difficult questions for the partnership. Who would be the shareholders in this venture? If people left the partnership, would they still be owners? Above all, I just felt it was too divisive. The firm was essentially split fifty–fifty.
To my surprise and dismay, the board approved it. That night, I barely slept, thinking over how I could persuade the board to reverse the decision. I had no veto power, but I could appeal to the board to reconsider. I made my argument on the basis that the vote had been so close. For such an important strategic change in direction of the firm, I argued, we should have more than a simple majority. The board agreed, and the idea was scrapped. I think most people were quite relieved.
Another debate sprang up when some partners proposed that we change our fee structure so that we could accept equity rather than cash from some of the new and promising e-commerce start-ups that wanted our service but couldn’t afford to pay cash. Again, there were concerns about creating conflicts of interest with our clients if we became part-owners of their upstart competitors. We gave the issue a lot of consideration and in the end developed an innovative approach with limits and appropriate checks and balances, including a committee to approve potential equity clients and apply safeguards. We made sure that while the particular office doing the work got credit for the client, the equity was owned not by the office but by the firm, and it was managed by a completely different team than the client service team.
We also decided to cap the upside. I was concerned that if one of these companies was wildly successful as an accident of the marketplace, several years down the road, we would have difficulties handling an unexpected windfall. Who should benefit? What if the partners who actually did the work bringing in that client had left? This policy came into play with a start-up arm of the Spanish company Telefonica, where we took a 10 percent equity stake but capped it at $10 million. It became worth hundreds of millions, angering some partners who felt we should have been able to profit more. I never regretted the policy, however. The alternative would have been so much more divisive.
Overall, in our experiments with equity payments, I don’t think we strayed too far from our core values. Equity never amounted to more than 1 percent of the firm’s revenues, and we protected ourselves from potential downsides. There were some, however, who strongly criticized any departure from tradition and felt we had sold out.
Another divisive issue arose when some began to suggest that the firm itself should go public. Booz Allen had done so, along with a number of other boutique firms, including one headed by our former managing director Fred Gluck. It would have been a windfall of cash for the partners, but I was dead against it. The firm didn’t need capital. We liquidated the entire firm and distributed everythi
ng every year anyway. Why go to the market for money and give up control of our company? We were masters of our own destiny. It would be disastrous, I felt, to cash in for this generation at the expense of the next.
At the partners’ conference, I was definitive. “This will never happen under my leadership,” I told my several hundred assembled colleagues. “If you decide you want to do this, you should first elect a new leader.” Thankfully, they dropped the idea and did not test my resolve, but I have no doubt I would have stood by my words.
These polarizing debates would continue, challenging me again and again to perform a delicate balancing act. Underlying each issue was a central tension: How fast should the firm be growing, and how could it embrace change without compromising its values?
Too Far, Too Fast?
I felt that a certain amount of growth was critical to the vibrancy of any institution. Ideally, I thought we should be growing between 5 and 10 percent each year in size and 15 percent or so in revenue, depending on inflation. But these were just my own thoughts; we never set official targets. That would have contradicted a core value of the firm: Do right by your clients and results will follow. I believed in this, but I also believed that to do right by our clients, we needed to expand into new areas, like technology or risk management. We also needed to globalize. In doing that, we grew, and to me that was a natural evolution of the firm. But there were always dissenters who felt we should stay a very small, elitist organization. There had been people who felt this way decades earlier when we were one-tenth the size, and I was sure there would be in decades to come. The definition of “small” just kept changing.
The opponents of growth feared that expansion would inevitably mean a dilution of quality—both of people and of work. Growth tends to mean that the ratio of associates to partners gets stretched to the limit and partners worry that they have less time to serve clients because they’re managing and training new recruits. However, the truth was that our most successful offices were those with the highest associate to partner ratios. And the concerns about a decline in quality were not borne out by the evidence, in either client satisfaction or job satisfaction. In fact, the correlation was quite the opposite, which made sense to me, as a growing firm attracted better and more diverse talent.
