Indian School of Business Tries to Deflect Scandals

At the Hyderabad-based Indian School of Business, one of the most prestigious B-schools in the country, 579 supercompetitive students spend much of their class time locked in debate. They would do well to practice with their dean, Ajit Rangnekar, who has spent much of the year sparring with opinionated journalists and rancorous alumni about how often ISB—which until this year was known in the West for its alliances with top business schools such as Wharton, Kellogg, and London Business School—has found itself in the news for all the wrong reasons. The year began with ISB caught up in the Satyam scandal. On Jan. 8, then-Dean Mendu Mohan Rao resigned from his position after Satyam Computer Services (SAY), in which he was an independent director, had to be rescued from collapse by the Indian government when its CEO, Ramalingam Raju, admitted to overinflating revenues by more than a billion dollars. Rao was not charged with any wrongdoing, and was unreachable for comment this week. However, he resigned after a media outcry following news he had chaired a Satyam board meeting that approved the purchase of companies owned by Raju's family members at highly inflated prices. Just as that uproar died down, another member of ISB's board resigned. Anil Kumar, an ISB director and a consultant at McKinsey, stepped down as he faced criminal charges in the U.S. over the Galleon insider-trading scandal. Federal prosecutors allege that he leaked insider information on Sunnyvale (Calif.)-based chipmaker AMD (AMD). Kumar denied the allegations when they were first made on Oct. 16; his New York-based lawyers did not return calls made by BusinessWeek seeking comment. Rajat Gupta ConnectionAnd then, on Oct. 26, India's Economic Times reported that Rajat Gupta, the former head of McKinsey, and one of the founders of ISB and the chairman of its executive board, is being investigated by the Reserve Bank of India for being part of a group of investors "who acted in concert" when they acquired stakes in a small southern Indian bank. Neither Gupta nor the RBI would comment when questioned by BusinessWeek. Gupta has not been charged with any wrongdoing. It's clear that questions about these headlines exasperate Rangnekar, who was promoted to dean in January to replace Rao. "Firstly, none of these people are employees, graduates, or even faculty at the school," he says, pointing out that other than Raju, the Satyam CEO who wrote a confession, none of the other scandals has resulted in convictions. "The school doesn't even appoint directors, for God's sake." At ISB, the executive board consists mostly of the original group of business and political leaders who got together to form the school in the late 1990s. Instead, says Rangnekar, ISB should be judged by how well it prepares students for the rigors of the C-suite job, the way it attracts faculty members of international renown, and the fact that it is one of the few Asian business schools to rank so high in international surveys of MBA programs. That's probably a good angle to take, says Sunit Arora, the business editor of Indian newsweekly Outlook, which regularly ranks business schools. ISB is not ranked by Outlook because it only offers a one-year program, but Arora says ISB's reputation is still safe. "I don't think [the media coverage] will have much of an impact on how students perceive the institution," he says. "It's not that students don't care, or haven't registered the information about the director, but the board of directors is divorced," he adds, from how they judge the school. Moving Right AlongInstead, he feels that ISB may have handled the situation the best possible way by reacting quickly "rather than letting it fester," he says. "The school's reputation might have been affected if it had not acted with alacrity." And Rangnekar is eager to move right past the issue. He has, he says, other fires to put out. Enrollment is up, but career placement for MBAs all across India is weak, forcing him to remind students, their parents, and the newspapers that obsessively report the starting salaries of top MBA students that ISB is not a placement agency, but a place of learning. ISB is working on a new $40 million campus in the northern Indian city of Mohali that's scheduled to open in mid-2012, and as he looks through his application files, he still doesn't see the best Western teachers applying for permanent jobs. "What do I have against a Wharton or a Harvard?" he asks. "Well, I have to appeal to those who are curious about India. I can offer them research opportunities, a good student body." Above all, what Rangnekar is counting on is this: ISB is still a young school, and he's trying to uphold a reputation for the long run. It took in its first batch of students in 2001, and before this year it has remained free from the taint of any scandal. Instead, it has thrived by existing outside the Indian university system, which is itself seen as corrupt and incestuous by critics. That independence has allowed ISB to form alliances with the Wharton School at the University of Pennsylvania, the Kellogg School of Management at Northwestern University, and London Business School. To some extent, what Rangnekar has going in his favor is the rapid growth in demand for MBAs in India. At last reckoning, the country was short by some 250,000, according to government estimates. That's why each seat at ISB is contested by several hundred candidates, many with undergraduate degrees from other elite Indian institutions, allowing schools like ISB to pick out students with the best indicators for success. "There are some great teachers at these schools," says Shyam Sunder, a professor at the Yale School of Management. "But essentially, they are also serving as a screening service. If you take students who are in the top one or half percent naturally, you could throw them in the gutter and they would be just fine."

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