TCS Puts All External Staffing Contracts Under Review. There Is Still A Lot To Answer

India's largest software firm Tata Consultancy Services Ltd. has put all vendor contracts pertaining to staffing under review, according to a senior executive aware of the development.

The agreements have been opened up for comprehensive scrutiny which would involve review at manpower pricing, the executive said seeking anonymity as the information is confidential. All vendors have been asked to sign undertakings.

It is not clear whether this review will impact on the ongoing projects or who will conduct it. The executive refused to divulge details.

The scandal leaves a lot of questions and very few answers. Fees to external consultants have risen from Rs 17,409 crore in FY22 to Rs 21,337 crore in FY23, according to its annual report 2023. A major part it is accounted by subcontracted manpower for IT projects. TCS does not segregate these costs.

The software major has been in the eye of the sub-contracting scandal resulting from a whistleblower letter. It pertains to the company's resource management group which deploys manpower for project execution. Key officials of this group allegedly favoured certain vendors and subcontractors for staffing needs. Final approvals were cleared by a unit under the Human Resources Department headed by Executive Vice President and Chief Human Resources Officer Milind Lakkad, who is not a key managerial personnel.

TCS has said in its statement to the stock exchange that no KMP was involved in the process. According to a FY23 annual report, Rajesh Gopinathan, former chief executive officer and managing sirector; NG Subramaniam, chief operating officer and executive director; Samir Seksaria, chief financial pfficer; and Pradeep Manohar Gaitonde, company secretary, are the key managerial personnel as on March 31. New CEO K Kirthivasan has been desginated a KMP after Gopinathan stepped down.

With only four KMPs, who is responsible for the cost approval for sub-contracting?

The IT major will also have to address what kind of work is assigned to these subcontractors—in many cases TCS handles critical technology and transformation process for its clients.

TCS is yet respond to detailed emailed queries.

According to TCS policy, a whistleblower complaint needs to be addressed to the chief ethics officer, who will investigate and report to the chairman of the audit committee. The chairman of the audit committee has the powers to institute an external investigation.

The company has said it is investigating the complaint and has taken action against some executives, including sending the head of the resource management group on leave pending investigation. It also suspended the vendors involved.

A whistleblower complaint that alleges bribery against services of vendors and subcontracts is not considered material to be reported. But what is the costs are significant? The company has claimed in its statement that there is no financial impact. But how does bribery that could possibly inflate sub-contracting costs not have any financial impact?

TCS has a lot to explain on internal processes, the role of senior managers in deciding expenses and the responsibility of KMPs in approving these expenses. The audit committee may have to step up scrutiny.

Sajeet Manghat is executive editor at BQ Prime.