Galleon Raja’s Edge

Raj Rajaratnam, founder of Galleon Group hedge fund, calls himself a warrior and believes that all is fair in war. Naturally he has been adopting various strategies to extract invaluable confidential business information from Silicon Valley executives, Wall Street analysts, and senior consultants while building a reputation for cutting edge research leading to above average profits year after year. As insider trading is illegal, you may disapprove his objectives but his approach is worth analysing for insights into successful persuasion.

After his MBA at the Wharton School, he joined Needham & Company, a small investment bank where he acquired a reputation for picking tech stocks. Soon he started his own hedge fund, the Galleon Group. Since then he has been cultivating a network of executives, analysts, and consultants to tap into confidential information ahead of the market and supplement his Group’s admittedly rigorous research. This network helped him make millions and grow his company into a multi-billion dollar hedge fund in a short while.

The first lesson is about the value of an active network. Many people do things for you mainly because you belong to their network. Otherwise you may not even get a hearing, however great your proposal.

Belonging to a network, however, doesn’t guarantee successful persuasion. How did Rajaratnam persuade well-to-do professionals to part with information illegally? Money did play a part, but its role is necessarily limited when the targets to be persuaded are not desperate for it.  

In a recent New York Times report  Peter Lattman and Azam Ahmed say that Rajaratnam “bolstered his formidable talents as a money manager by tapping the insecurities and desires of those within his circle for lucrative — and illicit — stock tips.” He framed his requests differently with different people after figuring out what they were after. According to the authors, “Rajaratnam alternately prodded, chided, ridiculed and flattered his sources.” 

It is educative to look at how Rajaratnam cultivated Rajiv Goel, one of his Wharton School classmates. Rajiv was apparently unhappy with his lot as a middle manager at Intel. He came to value the friendship with billionaire Rajaratnam so much that he wouldn’t want anything to dent it. Of course, Rajaratnam did help him generously with money, but what mattered most was the hand of friendship that the hedge fund superstar had offered him. During the testimony he said that when passing insider information he was worried not about being caught, but about the tips turning out to be wrong and jeopardizing the friendship. The power of friendship is so strong that it generally blanks out most minor points of hesitation or even resistance.

Rajaratnam dealt with Anil Kumar, a senior McKinsey consultant, differently, say Peter Lattman and Azam Ahmed. He told the hard working, widely traveling consultant that he was underpaid while others were making piles of cash riding on his work. Kumar was reluctant initially to moonlight for Rajaratnam. Even after making elaborate arrangements to hide the trail of any payments of ‘fees’ to him, Rajaratnam asked him only for the general insights into the technology industry. Later the questions became more specific. When the information Kumar provided made him a lot of money, Rajaratnam would call him and praise him apart from showing his gratitude through higher payments.

When our objectives are legitimate, do we explore the persuasion route or stick to a legalistic attitude that focuses on our rights as bosses or subordinates? Perhaps we underestimate the power of persuasion in management.