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Does Reputation Indicate Trustworthiness?

Should you believe that big names and big reputations really indicate that someone is trustworthy?

If media reports--originally in the Wall Street Journal--are to be believed, then NRI luminary Rajat Gupta turns out to have feet of clay. Gupta has long been feted in India as a shining example of the best that an Indian can achieve in the world. He has headed consulting firm McKinsey & Co. and has been on the boards of a number of big companies. He was instrumental in setting up the International School of Business, Hyderabad. Now, news reports claim that US authorities have evidence that he leaked privileged information to disgraced hedge fund manager R Rajaratnam on at least one occasion.

To anyone in India, the news seems unbelievable. However, whatever be the truth in this particular case, I think anyone accused of leaking inside information to a trader would turn out to be either innocent or to have done so routinely. The chances of such a thing being done just the once would be pretty small. Either the investigators are completely mistaken about Gupta, or they have barely scratched the surface. For Rajaratnam's inside-information based investment operation, insiders who are in the know about a large number of big companies (like McKinsey ex-director Anil Kumar, who has been arrested and has confessed to a USD 1.75 million payoff from Rajaratnam) would be far more valuable than company executives who would know about just one company. I'm sure US investigators are applying the well-known adage of there never being just one cockroach in a kitchen.

The particular case is remarkable for the sheer concentration of big names and big events. A former chief of the world's most reputed consulting company, on the board of Wall Street's most powerful bank, Goldman Sachs, is said to be suspected of leaking information about an investment in the bank by the world's premiere investor, Warren Buffett. The investment was designed to shore up confidence in the US financial system in the middle of the biggest financial crisis the world has seen in many generations. And the beneficiary of the leak turned out to be running the biggest known insider-trading racket on Wall Street. The wow factor is particularly strong here.

Meanwhile, Goldman Sachs itself has been accused by US authorities of creating investment products which it was itself betting against. These investment products were apparently designed to make losses for Goldman's customers and contribute to Goldman's own profits.

Events like these raise an obvious question in the minds of regular people to whom the higher reaches of business and finance are just media headlines. Is this kind of behaviour common? Have the biggest names in finance become big by routinely walking on the edge of legality; and by stepping beyond the edge whenever the temptation takes them. All in all, poor Lalit Modi and his travelling cricket circus must seem a positively saintly operation. I wouldn't blame anyone for thinking that the bigger and more reputed an outfit is, the more likely that it has decided to cynically exploit people's instinct of trusting size. Perhaps there is a greater risk in automatically trusting a large company or a big reputation than there is in taking a chance on a smaller one.