Thursday, July 25, 2024

Inside the nightmarish ethics breach at TCS

“Sir,” Chavda started, speaking in Hindi, addressing TCS chairman Natarajan Chandrasekaran, who is also the chairman of parent Tata Sons, one of India’s largest and best-regarded business houses. “There was this news in the media where it was mentioned something was wrong with the recruitment process.”

Chavda was referring to the bribes-for- jobs scam at TCS, which was first reported by this paper on 23 June.

“Sir, the strictest of action should be taken and no leniency should be offered. So that no one can ever think of repeating the same.” Chavda was not the only worried shareholder; four other shareholders expressed their bafflement over how such an episode could occur.

For Chandra, as he is addressed by colleagues, and for TCS, this was an unusual and somewhat unfortunate moment. The man and the institution in many ways represent the best of Indian capitalism. Chandra, who started as a trainee at TCS in 1987, worked his way up to become not just the company’s CEO, but eventually the chairman of the $128 billion parent, which employs more than a million people.

TCS is as unalloyed a success story as it gets in corporate India. Founded in 1968, it grew to become India’s largest IT services company and a flagbearer for this critical industry. It counts close to 60% of Fortune 500 as its clients. With $27.9 billion in 2023 revenues and $5.2 billion in profits, it’s the crown jewel of the Tata empire. Landing a job at TCS straight out of college, in many parts of the country, is nearly as effective a booster for a young man’s marital prospects as a government job.

If Chandra epitomises meritocratic success, TCS is something of a shrine to it.

That’s why revelations last week that some employees of the company took bribes from third-party staffing firms were met with widespread shock and disbelief.

It was that disbelief that shareholders at the AGM channelled in their questions to Chandra.

A visibly distraught Chandra, who was sitting in the TCS House in Mumbai, heard all the questions from the shareholders. And then he broke his silence on this subject, in a rare public expression of anguish.

“[W]henever there is a violation of ethical conduct by any employee it pains us. And pains me. And all the leaders very deeply. And we take it extremely seriously. We deal with it (with) very strong action,” said Chandrasekaran.

He added that two complaints were about certain “favouritism being done and certain favours being received in recruitment” of temporary workers from contract staffing firms. Consequently, TCS sacked six employees and blacklisted six staffing firms even as a probe continues against three more employees.

“We cannot quantify what favours they got but they certainly behaved in a way that they were favouring certain firms,” Chandra said.

TCS continues to probe this episode. One immediate fallout, according to one executive who spoke on the condition of anonymity, has been that senior executives are fielding questions from top clients about the episode.

TCS did not respond to questions for this story.

The Whistle Blows

In the last week of February, a whistleblower wrote to the then CEO Rajesh Gopinathan, bringing to light that the then head of Resource Management Group (known within the company as RMG) and certain executives in his team were taking bribes for hiring contract workers. A few weeks later, another email was received by Gopinathan, pointing to the mess inside RMG in India.

These two emails couldn’t have come at a worse time. The senders couldn’t have known, but TCS was on the cusp of a surprise leadership change.

About a fortnight after the first email landed, on 15 March, TCS appointed K. Krithivasan after the surprise departure of Gopinathan.

To TCS’s credit, the company quickly swung into action and set up two probe teams.

After five weeks of inquiry, heads began to roll. In the third week of April, the first executive to be sent on leave was the then-head of RMG, E.S. Chakravarthy. Later, the company appointed Sivakumar Viswanathan, a veteran of about 30 years, as the head of RMG.

At least four other current and former RMG executives have moved out of the company in the last five weeks. Mint is not disclosing their names due to our inability to independently ascertain as yet if all these departures were related to the scandal. The executives who have moved out of TCS include a senior RMG leader in New Jersey and Bengaluru and a former RMG Head in Hyderabad.

Arun G.K., a member of the RMG Team in the US, was summoned by TCS to fly down from New Jersey. Arun, who had moved to the US from Canada at the start of the year, was subsequently asked to put in his papers.

Sometime after 24 June, he deleted his LinkedIn profile.

All the above executives had been with TCS for more than 15 years.

The role of RMG

Tech outsourcing firms such as TCS need to possess one critical trait in their human resource operations—agility. They need to be able to quickly deploy and redeploy large numbers of people with very specific tech skills into projects.

RMG is in that sense the heart of TCS. Like the organ that pumps blood to various parts of the body, RMG determines how its 614,795 employees are deployed to projects. It also augments its large workforce by recruiting contract workers. The task of recruiting permanent staff to the company is done by Talent Acquisition Group (TAG), which is part of the company’s HR department. RMG, even as it collaborated with HR, rolled up to the company’s chief operating officer (COO), N Ganapathy Subramaniam. Chakravarthy, the suspended RMG head, reported to Subramaniam, who has worked at TCS since 1982 and is due to retire next year. He also happens to be Chandrasekaran’s elder brother.

Inside TCS, RMG puts almost 1,400 engineers into projects, every day, averaging one placement every minute.

Because you can’t hire people after a project lands, IT firms typically have a floating population of staff that are not deployed to any project. If 100 people are employed by a firm but only 90 are allotted to billable projects, in industry parlance, it’s said the firm’s current utilization rate is 90%. Keeping the utilization rate high is critical to profitability, as you don’t want to pay more staff than what clients are paying for. The task of keeping the utilization rate consistently high, while ensuring projects are not delayed due to lack of manpower, is one of the delicate dances IT firms must perform well. At TCS, RMG’s efforts determine the utilization rate.

Because delivery in tech services hinges on steady and timely supply of manpower, the head of RMG is a powerful leader within the company. As RMG is critical to their ability to deliver, leaders within the company tend to keep the RMG head and senior leaders in good humour, two executives who spoke on the condition of anonymity, said.

“Say TCS wins a $50 million deal. Before the company looks to hire from outside, people within the organization are deployed on the project. This is where the RMG head plays the most important role. Now, the profitability of any contract is a function of the people deployed on a project. He (RMG Head) can redeploy people and no one can question his decision,” said a former executive. “Inside TCS, no one can question the RMG’s authority. The RMG can always fault the profitability of a current project and take out people from the project,” one executive said.

‘You are my nuclear reactor’

For this reason, the role of Chakravarthy, or Chaks, as colleagues called him, is at the heart of this episode. Before taking over as the global head of the RMG in 2018, Chakravarthy served as the head of the company’s Bengaluru centre for a little more than eight years.

“Chaks has always been the brand ambassador for TCS in colleges in Andhra Pradesh, Karnataka and Tamil Nadu,” said a second executive. “Him getting embroiled in this case is the biggest setback as the company’s reputation built over the last two decades in colleges will take a beating.”

An engineer by training, Chakravarthy joined TCS in 1997 and climbed up the ranks through what his former colleagues describe as an uncommonly efficient work ethic.

“Once Chaks got a message from Rajesh (Gopinathan, the former CEO), complimenting him for his work. It said: ‘You (Chakravarthy) are my nuclear reactor,” said one executive with direct knowledge of the message.

“His ability to get people deployed on projects is unparalleled,” he added.

Chakravarthy’s proximity to the top brass of TCS (read the CEO and COO), the extent of which he never shied away from letting others in the company know, combined with his own influence as RMG head, made him an intimidating figure in the eyes of many peers, according to two executives.

“Chaks is a micromanager and he ran it (RMG) like a tight ship,” said one of the executives. “He (Chaks) picked all the people in key leadership roles at RMG. To give you an example, typically, RMG and HR staff people get relatively fewer opportunities to work overseas. Even if they go, there is a rotational policy designed to extend overseas postings to as many staff within these departments as possible. In the last decade, Arun spent more than seven years overseas—first in Chile, then in Canada and most recently in the US. All this makes me believe it is highly surprising he (Chakravarthy) was not aware of what was going on inside RMG,” one executive said, implying Arun was favoured by Chakravarthy.

Another executive was more scathing.

“If the DCP of an area is not doing his job, then what is the incentive for the station in-charge or constable to maintain order?”

Calls and text messages to Chakravarthy seeking comments went unanswered.

Anatomy of the scam

How could something of this nature happen at TCS, reputed for water-tight corporate governance practices, internal audits and other checks finetuned over decades of working with top global corporations and their compliance teams?

The simple answer is that even best in class processes can be hoodwinked by people determined to abuse their authority.

In the aftermath of Covid-19, as the world went virtual and remote, companies around the world scrambled to deploy solutions that allowed them to carry on their business with limited physical contact with customers. This means building more digital applications, chatbots and web interfaces, along with reconfiguring internal process to meet new realities.

To build these solutions, they turned to trusted technology partners they have worked with for years—Indian IT services firms. This meant a groundswell of business for India’s IT sector and despite the forces of automation winding their way through the industry, projects needed manpower in unprecedented numbers.

“Typically if you ask recruitment teams, it will take 90-120 days for you to get a batch of candidates,” said a fourth TCS executive interviewed for this story. “What is a company supposed to do? Twiddle its thumbs and wait for the contract to get scrapped or incur billing losses? No, right?”

It is here that contract staffing firms or Business Associates, the nomenclature that TCS uses, come into the picture. “Business Associates can help you with resources in 15-30 days,” said the executive cited above.

IT firms, like most companies in the manufacturing space, have an empanelled list of vendors, including contract staffing firms.

But TCS’s RMG runs a tad differently, according to two former company executives.

At most companies, the procurement department does the verification checks and decides which staffing firms to register. At TCS, the RMG team is empowered to enlist contract staffing firms, said one executive.

This authorization appears to have been misused by a few people. As for staffing firms, in a high-demand environment, getting empanelled by such a major employer was a sure ticket to business volumes.

“For the last two years, it was an open secret that many people of RMG were allegedly abusing their power by demanding an upfront commission for the empanelment process of staffing firms,” said the fourth executive.

Mint learned of another episode, as recounted by two executives, that pointed to ethical breaches around the empanelment of new staffing firms.

Early this year, Sage IT, a staffing firm headquartered out of Chennai with offices across the world, wanted to work with TCS. A few weeks after it reached out to the company, co-founder Sagar Pelaprolu got a call from an executive claiming to be from TCS, according to a former TCS executive with direct knowledge of the incident.

The caller demanded a hefty sum (seven-digit sum in rupees) in return for empanelling the company. Pelaprolu declined to pay, the executive cited above said.

Multiple emails sent to Pelaprolu seeking comment went unanswered. The second executive confirmed he was aware of concerns of an ethical breach involving Sage IT but was not aware of the details. It’s unclear if Pelaprolu ever made an official complaint about the incident.

Another way in which some TCS executives have allegedly profited is by sharing information about staffing needs with a few favoured vendors ahead of others.

Inside TCS, the leader of a business unit raises the request for the number of people and skill sets that are needed.

Ideally, the RMG team should have shared this information on the company’s internal portal, called Ultimatix, an enterprise resource planning platform. Ultimatix has over 200 apps, including Global Business Associate Management (GBAM) System, that the 1,000-odd empanelled contract staffing firms can access.

Whenever a business unit head inside TCS needs people, a request is raised and it shows up in the GBAM app. Subsequently, all BA firms would upload the resume of people on GBAM.

But over the last two years, contract staffing firms that allegedly paid commissions to some of the RMG executives got to know the requirements ahead of others. This allowed these staffing firms to directly email the resumes of the candidates to the RMG executive, who then secured approvals from the business unit heads, who might not have known about the process bypass.

Unlike permanent workers, when staffing firms supply temporary manpower, they typically don’t go through a stringent interview process within tech firms.

In effect, the Ultimatix platform, designed to offer a level playing field to TCS vendors, was bypassed for personal gains.

Which contract staffing firms benefitted thus?

According to multiple executives familiar with the situation, two of the five staffing firms that have been thus far been blacklisted by TCS may have ties with Chakravarthy amounting to inappropriateness, if not outright conflict of interest.

Chakravarthy’s first cousin Rakesh Edupuganti is director of operations at Foray Software Pvt Ltd, a Hyderabad-based staffing firm that has been barred by TCS. This relationship between Chakravarthy and Edupuganti was never disclosed to TCS and was discovered by the company in its ongoing probe.

Taltech Technologies Pvt Ltd is a Bengaluru-based contract staffing firm that is the second staffing firm that has been blacklisted by TCS. Taltech was founded by Sudhakar Rao Puchakayla and Kranthi Sagar Puchakayla in December 2018.

Kranthi Sagar, a former TCS executive, left the company in the summer of 2018 and set up a staffing company, which in about two years managed to get drafted with TCS.

The founder of Taltech and Foray Software and Chakravarthy are all from Ongole town in Prakasam district of Andhra Pradesh.

One executive said the firm was blacklisted as it has emerged that Chakravarthy’s wife is related to Kranthi Sagar’s wife Gurram Soudami, also a director of Taltech.

It is important to mention here that Taltech and Foray Software are the biggest BA firms or contract staffing firms for TCS in all of South India, placing thousands of engineers at the marquee IT firm.

“We could not get onto TCS’ contract hiring list for more than five years, despite being one of the fastest-growing recruitment firms. We did not accept some of their demands made from the RMG team,” said the chief executive of a Bengaluru-based staffing firm.

Three other contract staffing firms that have been blacklisted by TCS are IDC Technologies Ltd, USG Inc. and Tech Orbit Inc, according to executives with knowledge of the developments.

IDC Technologies, Tech Orbit and USG Inc. (through Stratosphere IT services in India) have been enlisted by TCS both in the US and India. Now, India’s largest IT services firm has blacklisted them in both countries.

An email sent to Taltech and Tech Orbit went unanswered while USG and Stratosphere IT could not be reached. Foray and IDC Technologies deny that their engagement has been terminated.

More ways than one

In addition to seeking upfront money for the empanelment of contract staffing firms and sharing insider information with a few contract staffing firms, there were two other ways errant executives are alleged to have profited themselves.

One is by taking a commission from staffing firms on the total billing. Some employees in the US are alleged to gave taken commissions on the per-hour rate.

“If the rate for someone having proficiency in Java (a coding language) is say $50 an hour, the company paid up to $60-$65 an hour for the person. This is because both the contract staffing firm and RMG executive split the extra $10-15 an hour,” said the fourth executive.

Unfortunately, there is more.

After all the temp hiring, the approving authority on the invoices is Chakravarthy. In times when there is a huge demand for talent, a company’s cost for hiring a contract worker shoots up and so IT services firms budgets for a cost overshoot of 5-10%. TCS, like its peers, calls it a deviation from the pre-fixed rate of contract hires to be offered at the time of enlisting of contract staffing firms. But over the last year, deviation rates of almost all the temp hires were about 25-30% higher.

No red flags?

A disconcerting issue for many is how the company’s audit process missed all these red flags.

Engagement of staffing firms with IT firms like TCS involves compliance audits and process audits. The compliance audit happens on a quarterly basis and is a check if the staffing firm is paying salary, Provident Funds, and following statutory guidelines.

Process audits deals is a review of which vendors got contracts, the reason why contracts were awarded and importantly if any group of vendors is getting a larger share of the pie.

According to multiple staffing firms that Mint spoke to, IT companies had started to neglect process audits during the boom time.

“During the period of hiring frenzy, they were guzzling talent and the audits were taking place sporadically. But now that there is a lull, we expect more questions on processes involved—how we sourced the candidate, did we follow all vendor-related protocols and that no unethical means were used,” said a head of a Bengaluru-based staffing firm.

Where does TCS go from here?

Last year, Chakravarthy was the chief guest at an event organized by an engineering college in Guntur. During his speech at the Vignan’s Foundation for Science, Technology, and Research, Chakravarthy prodded students to follow their dreams, bragging: “Today, I have a currency of respect because I belong to TCS, the most trusted IT company in the world.”

Trust that was built over decades and one that the firm must now act quickly to protect.

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Updated: 05 Jul 2023, 01:03 AM IST

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