ISB asks Kumar to step down voluntarily

The Galleon hedge fund fraud, the largest insider trading scandal in US history, has had a fallout in India with McKinsey Director Anil Kumar, one of the six accused in the case, being asked to step down voluntarily from the board of Hyderabad-based Indian School of Business (ISB) today.

Kumar has been director on the board of ISB, which is affiliated to Wharton, Kellogg and London School of Business, for four or five years.

Confirming the decision of the board, which is headed by Rajat Gupta, a senior partner of McKinsey & Co, ISB’s current dean Ajit Rangnekar told Business Standard, “The board is scheduled to meet in January. Anil Kumar has asked for leave of absence for the board meeting. It is up to the board to decide. I am not a board member. There is no communication to me personally from Anil Kumar.”

Agencies report that Kumar, 51, was also on a leave of absence from McKinsey, a spokeswoman said. She said the firm “was looking into the matter urgently.” Kumar was permitted to be released on a $5 million bond by the US District Court in Manhattan.

Asked whether the B-school would review governance standards, Rangnekar described the incident involving Kumar as a “stray” one, adding that the B-school was not responsible for it.

This, however, marks the second time in less than a year that a senior ISB member has been associated with a financial scandal. Earlier this year, Rammohan Rao had to resign as ISB’s dean after Ramalinga Raju, founder of Satyam Computers, confessed to a long-term multi-crore accounting fraud. Rao was a director on the Satyam board at the time and stepped down along with other board members, including leading management consultant Krishna Paleppu, amidst questions over the role of independent directors on corporate boards.

Rao has also chaired the meeting of the Satyam board in December 2008 when the company had decided to acquire Maytas Infra and Maytas Properties, the two companies run by Raju’s family members, a decision that was reversed following strong shareholder protest. He was, however, not informed when the acquisition deal was called off.

Rao later resigned as the dean of ISB voluntarily as the ramifications of the Satyam scandal unfolded in quick succession.

Rao’s action has been stated to have aimed at upholding the prestige of the premier institution but the latest episode of Kumar’s involvement in another corporate fraud is likely to cast a shadow on a B-school that aimed to set new standards in management education in India.