Welcome to GlobalLogic Blogs

A week ago, I came upon an article by InformationWeek’s Marianne Kolbasuk McGee, citing John Castleman, the CEO of Alliance Global Services, an IT outsourcing firm, regarding a proposal that the company has made for an Outsourcing Bill Of Rights.

The motivation for the ‘bill of rights’ for outsourcing clients appears to be a counter to concerns about outsourcing arising from the recent Satyam fraud. That outsourcing giant admitted to more than $1B in faked revenue and profits, raising questions about the entire industry.

Below is the full list of Alliance’s proposed IT partner “rights.”

1. The right to demand transparency throughout every step of an engagement — from sales to contracting to delivery and termination

2. The right to fully understand the nature and character of an IT partner and the service that it provides to them
3. The right to fully understand the financial viability of an IT partner
4. The right to be made aware of any impending legal charges against an IT partner, should they arise, as soon as they occur
5. The right to arrive at a mutually agreed upon definition of the term “trusted partner”
6. The right to expect a clear contract that defines fees and expenses up front before any agreement is signed
7. The right to terminate a relationship with no financial penalty in the event of any admitted fraudulent activity
8. The right to demand the existence of a truly independent board of advisers
9. The right to expect the presence of an independent financial auditor accompanied by a set of checks and balances
10. The right to demand accountability for any actions taken within the scope of a technology project or as part of a firm’s broader business practices

I am a bit skeptical of 12 point plans and 10 point manifestos, but I thought I would try to judge the notion of a bill of rights on its own merits. And to do so, being inherently lazy, I thought to ask Peter Harrison, the CEO of Globallogic, and a long-time friend, what he thought about the idea.

Peter started by pointing out that there is ‘negative impact of bad apples’ in the industry, so that the effect of the Satyam disclosures has colored people’s perceptions of the industry as a whole.

He also pointed out that Alliance is a relatively small firm, with only 500 or so employees, while the industry giants employ thousands or tens of thousands of people. The actual impacts of Satyam’s fraud on their client’s projects has yet to be ascertained, and the largest impact is likely to be shareholders of the company. Satyam’s executive team broke the law, but it does not mean that work isn’t being performed according to contractual agreements. Peter was not condoning fraud, just pointing out that many of Satyam’s clients have thus far chosen not to shift operations, because of the costs and difficulties involved. That fallout is likely to occur later.

Turning to the 10 points of the bill of rights, Peter wondered first about the meaning of some of the ‘rights’, such as the ‘truly independent board of advisors’. “What does ‘truly’ mean, in this context?” he wondered. He suggested that it might be possible to boil the list down to only 4 or 5 really critical items, but then made an observation upon which the whole discussion lies: “What is the value of these ‘rights’ in the absence of some sort of certification, some sort of independent audit?” he asked, pointing out the inherent difficulties in offshore outsourcing: cross border agreements, different regulations in different regions, the difficulties in verification of companies’ claims, and so on.

As one example of the difficulties in matching up business practices and expectations, India doesn’t have bankruptcy laws as we do in the US. It is very difficult for a company to seek protection from creditors in the courts, to reorganize when credit is hard to find.

Peter made a strong case for outsourcing companies — actually all companies — to create and explicit codes of ethics to govern its business practices and dealings with clients. Globallogic does, and most others do too. And of course, companies should work hard to live up to the ethics that they — and the greater international business community — has come to expect. This is perhaps just as important internally, so that employees know what the company stands for, as it is for customers.

Most important to any outsourcing client, Peter believes, is the pragmatics involved in the contract. The implicit ethics that shape an outsourcing firm’s culture are important, but they should manifest themselves in a concrete form in the contract. So, both the outsourcing firm and the client need to be very specific, and to make sure that all critical issues are treated in detail in the contract negotiation and the final wording of the agreements signed.

It would be of benefit to the greater business community if a code of ethics could be developed and ratified by the leading outsourcing firms, but Peter believe that there is no organization, no trade group, to which the majority of the largest 100 outsourcing firms all belong. The industry is still fragmented by geography and industries served.

Peter also suggested that it would not be beneficial to try to get governments involved, simply because there are far too many nations involved, and building any sort of consensus would possibly take years if it were possible at all.

So, while the spirit that animates the thinking behind a bill of rights for outsourcing clients is reasonable, Peter points out that the client will still be left with the need to find reputable and trustworthy outsourcing partners, and simply agreeing to a proposed ‘bill of rights’ doesn’t actually make a company ethical. Trust to the company reputation and work hard to develop sound contracts: that is likely to be more helpful than a PR exercise.

Popularity: 21% [?]