CEO outsourcing

 

I thought I would weigh in on this already weighty subject as an interesting discussion this week.

 

Of course, headlines at the beginning of this week were centered around the activity of the Royal Bank of Canada and a decision to replace domestic, loyal employees with foreign workers who would be transferred back to their country of origin after a few years and the department would be completely dismantled.

 

As you research the story one interesting aspect appears to be that the good ‘ol US of A is home to a very entrepreneurial company, iGate that specializes in dismantling labour structures in markets outside of the US and factoring them to foreign countries with lower labour costs. Curious to see that they have their operations in California when the US will fight tooth and nail to keep jobs in America and will tax almost anything that crosses their border to maintain an advantage in their domestic marketplace.

 

This is by no means a new phenomenon, it has been going on for a long time as the worlds larger corporations look for ways to trim costs.

 

The fact that the Royal Bank had a need to trim costs was interesting. In a very quick Google search it turns out that the Royal Bank has very little need to trim costs since it returns an approximate $2 Billion profit each quarter! 

 

If one analyzes the numbers involved here, we are talking about 45 IT staff, who perhaps earn $80,000 each and we might assume that replacement staff in India may perhaps charge half that amount for the equivalent work. The total savings if the above assumption are true would be $1,800,000. That would equate to $450,000 per quarter or a resulting increase in profit of 0.22%. Obviously somebody did not spend a lot of time looking at this before they embarked on one of the largest PR disasters we have seen since the BC Government attempted to introduce the HST.

 

Interestingly, iGate is referenced in some articles as making a substantial part of its income from contracts with RBC, so somebody believes that outsourcing is the key to satisfying a desire to increase already outlandish profits driven by customer service charges from large banks that provide little, if no customer service!

 

It led me to think about why we are not outsourcing CEOs to India or some other very well educated population.

 

For starters, Gord Nixon, the much respected (until this week) CEO of RBC is reported to take home a cash equivalent salary of $12,000,000. So he doesn’t even need to lose his job to make a significant difference, he could just volunteer a 15% pay cut and while he may struggle to live on only $10,200,000 a year I am sure his family would learn to adjust and he would still have 45 happy people in his labour pool.

 

If he didn’t volunteer to do that, the Board could outsource his job. I know it sounds crazy but there are some marvelous entrepreneurs in India that I could only imagine would jump at the opportunity to take over his responsibilities for $6MM a year. Now we are talking about big savings.

 

“It wouldn’t work,” I hear you saying.. but why not? Mr Tata, a very well respected businessman in India is one of the world's wealthiest people and his stated credo is to go to bed at night knowing that he has not run afoul of anyone he has interacted with each day. He wants to end each day knowing people think highly of him. Now I don’t know him personally, but that sounds like a pretty good start to running an ethical corporation.

 

Think about it, if all the five major banks in Canada did the same they could all make the same profits and save us $30 million in bank charges... I am in for that.

 

Then again I could just simply start using a credit union for my banking!