A Push to Tighten Oversight of Staffing in India

The recent revelation that executives at an Indian IT and outsourcing company were favoring certain staffing firms has highlighted the need for tighter oversight of the hiring and resource allocation process.

In India’s highly competitive staffing industry, experts said it is not uncommon to hear of instances of kickbacks between staffing firms and company executives who are involved in hiring. “You need to make it more difficult to happen,” said Shiv Agrawal, managing director at ABC Consultants, an executive search firm in Delhi.

In October, IT company Tata Consultancy Services (TCS), which has more than 600,000 employees, said in a stock exchange filing that it would enhance its governance standards after an internal investigation revealed irregularities in its hiring of business associates. The company said 16 employees had been asked to leave due to code of conduct violations.

“While we cannot quantify what favors they got, they certainly behaved in a way that they were favoring certain firms,” TCS Chairman N. Chandrasekaran said during the company’s annual general meeting in June.

The company has also debarred six “business associates” (BAs) from doing business with TCS.

Business associates are contractual workers who are hired if a particular talent is not available within the organization, and they make up 2 percent to 3 percent of overall resources at TCS, Chandrasekaran said. “There is a rigorous process in the company to … empanel a firm to be called as a BA firm,” he said, adding that more than 1,000 such firms across the globe work with TCS.

Booming Industry

India’s staffing sector has grown rapidly over the last two decades into a multibillion-dollar industry, riding largely on the back of the growth of the country’s outsourcing and IT services industries.

These companies hire tens of thousands of software engineers and analysts, largely at the entry level, to fuel corporate growth and to manage high attrition levels of around 20 percent a year. Around 50 percent to 60 percent of the total costs of these companies is for human capital.

In large IT companies, there is also significant hiring for short durations, such as specific projects, which is done by subcontracting the work to flexi-staffing companies. Some large Indian IT companies spend $1 billion a year on subcontracting, and 80 percent of that is on people, estimates Xpheno, a Bengaluru-based specialist staffing firm co-founded by Kamal Karanth. (He is the former head of Kelly Services in India.)

With such large stakes involved, Karanth said it is not surprising to hear about kickbacks. “This is only the tip of the iceberg,” he said.

Other experts concurred. “I don't think this came as a shock to anyone in the recruiting industry,” Agrawal said. Neither he nor Karanth commented specifically on the TCS case.

More Checks and Balances

With thousands of staffing firms to choose from, including mom and pop shops, companies must conduct due diligence when picking vendors, experts said. But often, recruiters said, there is not enough vetting. “You just end up doing business with whom you have relationships,” Karanth explained.

Companies should do more to assess the background of staffing providers, experts said. 

Often, organizations are not working closely with vendors in terms of assessing them, understanding their capabilities and challenges, and figuring out how to partner with them, said Vinu Nair, Chennai-based managing partner at Antal International, a global executive search firm.

Nair said companies should have guidelines for contracting with staffing firms, and their work should be reviewed periodically based on metrics such as how many of the staffing companies’ employees were given job offers and how many joined. “The talent acquisition process has to be audited very well,” he said.

Also, the process of hiring and subcontracting should have multiple layers to ensure that no single person can influence major decisions about which candidates to hire, Agrawal said.

“The more touch points you have in a process, the less you’re likely to have a fraud,” he explained.

To limit the chances of company executives cutting deals with staffing companies, there should be periodic rotation of employees involved in the process of onboarding staffing firms, Karanth said.

He added that companies should be wary of giving too much of their business to any single staffing provider.

Analysts also emphasized the need to have a transparent whistleblower policy under which employees and managers can anonymously report any untoward practices they observe.

Shefali Anand is a New Delhi-based journalist and former correspondent for The Wall Street Journal. You can follow her on X.