Hypocrisy and connections help IT outsourcing firms

The not-so-secret history of White House ties to the offshore outsourcing industry

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The liberal group Center for American Progress (CAP) advocates restricting the use of H-1B visas by offshore outsourcing firms. Its recommendations are designed to get offshore outsourcing firms to hire more U.S. workers and curb their ability to move jobs out of the U.S.

That stance didn't stop one of the center's board members, Carol Browner, from being appointed earlier this year as a director at Infosys, the Bangalore, India-based IT services firm that is one of the largest users of the H-1B visa.

Why would Browner, who served as an assistant to President  Obama and director of the White House Office of Energy and Climate Change Policy from 2009 to 2011, take a position as an Infosys director? CAP backs policies that would hurt outsourcing  firms such as Infosys which rely on large numbers of workers on temporary work visas.

Two years ago, CAP released a report with immigration policy recommendations for skilled workers that includes limiting H-1B use to 50% of a company's staff unless it pays employees more than 125% of the prevailing wage. It also wants to bar temporary work visas to foreign nationals whose job it is to "shadow" a U.S. worker in advance of moving a job offshore. Training your visa-holding replacement as a condition of severance is a soul-crushing event for an IT worker.

Browner joined the Infosys board in April at about the same time another director -- Ann Fudge, a former chairwoman and CEO of marketing firm Young & Rubicam Brands -- left. Browner and Fudge share one thing in common: They served in the Obama administration.

Why government connections matter

Infosys and other offshore companies need all the business and political connections they can get. These firms face the ongoing risk that Congress, through visa restrictions, will force them to hire more U.S. workers and raise their costs.

Approximately 90% of Infosys' U.S. employees use an H-1B or L-1 visa, based on an estimate from the company's  U.S. Securities and Exchange Commission (SEC) filings and court records. Infosys isn't the only offshore firm that relies on these visas.

Among the top 20 H-1B-using firms, IT services companies accounted for about half of the 65,000 H-1B visas allowed by federal law. Another 20,000 visas are set aside for graduates of U.S. universities.

Browner's decision to serve on the Infosys board arguably undercuts CAP's credibility on offshoring outsourcing policy issues. The H-1B restrictions, especially the 50% limit on visa use advocated by CAP, are the same ones Infosys and other offshore firms cite as business risks in their SEC filings.

"If any of those provisions are signed into law," notes Infosys in a recent SEC filing, "our cost of doing business in the United States would increase and that may discourage customers from seeking our services."

Efforts to reach Browner through CAP, which also runs the ThinkProgress website, were unsuccessful. CAP, asked about the conflict between its H-1B policy recommendations and Browner's Infosys connection, said Browner's other activities are her own business.

"Our policy outcomes are driven by our research and our commitment to doing what is right, and are not in any way influenced by the connections of any of our board members," a CAP spokesman said in an emailed statement. Browner's bio on CAP lists her membership on the League of Conservation Voters board; the agribusiness firm Bunge Limited; membership on the board of directors for the Global Ocean Commission, an advocacy group; and on utility software vendor Opower's advisory board. Her role at Infosys is not listed.

Browner's annual compensation as a director of Infosys has not been made public, but Fudge's compensation at Infosys for the fiscal year that ended in March was $165,000.

India fights U.S. visa moves

The Indian government labels efforts by the U.S. to restrict H-1B and L-1 visas as protectionism. When Infosys was being investigated in 2011 for visa fraud, there was concern in India that the Infosys investigation could trigger limits on visas.

These concerns were raised in a question to Robert Blake, an assistant secretary at the U.S. State Department, at a press conference on trade in June 2011 in Kolkata, India. Blake was asked about the potential impact of the Infosys investigation on U.S. and India trade relations.

"That will be, I think, a sort of momentary blip," said Blake, according to a U.S. transcript. "Infosys itself is obviously a very well-known company and will continue to be a very important partner for a wide range of American companies."

In the same month that Black spoke about Infosys to the Indian news media, Infosys announced that Fudge would become a director of Infosys. Six months later, in December 2011, Fudge was appointed to a two-year term on the State Department's Foreign Affairs Policy Board. The newly created 25-member group was formed "to discuss issues of high priority" and provide "insights, perspective, and ideas," to the department and then-Secretary of State Hillary Clinton. Fudge's connection to Infosys was noted in the department's official bio for her.

In 2013, Infosys agreed to pay the U.S. $34 million in a civil settlement "based on allegations of systemic visa fraud and abuse of immigration processes," the U.S. said in announcing the settlement. The case concerned the use of B-1 business visitor visas for work that typically requires an H-1B visa.

That settlement was the largest in a case of this type, but just a bump in the road for Infosys, which has more than 160,000 employees and annual revenue of $8.53 billion.

Fudge was appointed by Obama in 2010 to the bipartisan National Commission on Fiscal Responsibility and Reform, also known as the Simpson-Bowles Commission. (The commission was co-chaired by former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles, White House chief of staff for President Bill Clinton). The group, formed to develop a budget compromise, completed its work the same year it was formed. A request to interview Fudge received no response.

When Infosys was asked about the contradictions in CAP's policy views and Browner's membership on its board, the company, in an emailed statement, said that it wants members with "diverse experiences and dynamic leadership," and said Browner "brings a wealth of global experience and insight that enriches the quality of our board meetings and informs our strategic vision."

The connections that may matter the most to Infosys are through the ties the offshore industry has developed nationwide. Offshore firms have workers widely embedded at U.S. firms and government agencies.

How political influence arises

Ron Hira, a public policy professor at Howard University who has testified on H-1B use in Congress, believes the offshore industry's political influence comes from three sources: End user customers of offshore services, such as the financial services industry; large IT services firms such as IBM, Hewlett-Packard and Ireland-based Accenture, which have all adopted offshoring business models; and pure-play offshore companies, which include Infosys, Tata Consultancy Services and Cognizant.

Microsoft is one of the leading advocates in Washington for increasing the H-1B cap, and has a long-time business relationship with Infosys. In September, Infosys announced an expansion of that relationship, including a center for excellence for Microsoft Azure Machine Learning, with plans to train more than 1,000 engineers in 2015. Azure ML is a predictive analytics platform.

For offshore firms generally, the more work they can do outside the U.S., the better the profit. PayScale, a salary information website, for instance, reports that the salary for a mid-career software engineer India ranges from about $6,000 to nearly $20,000, with a median at $10,500. (In the U.S., the salary for a mid-career software engineer ranges from $58,500 to $119,000, with a median of $80,000, according to PayScale.)

From time to time, offshore firms will announce plans to hire more U.S. workers. This month, Infosys said it plans to hire 1,500 professionals for consulting, sales and delivery during this fiscal year. It also said it will hire 600 bachelor's and advanced degree graduates from U.S. universities. Infosys may have about 17,000 workers in the U.S. today.

It's difficult to know how significant these hiring announcements are without understanding how they might change a firm's ratio of U.S. workers to visa holders. Infosys has repeatedly declined to provide this data.

Grassley's role

The offshore industry's main nemesis in Congress is U.S. Sen. Chuck Grassley (R-Iowa), a proponent of the 50/50 ratio restriction on offshore providers -- the same restriction CAP wants. As the ranking member of the Senate Judiciary Committee, and presumably its new chairman when Republicans take over the Senate next year, he's in a position to include visa restrictions in legislation.

If Congress were to adopt those restrictions, the change would have consequences for offshore firms.

Peter Bendor-Samuel, CEO of Everest Group, an outsourcing research group and consultancy, said the impact of a 50/50 ratio restriction "would be significant" and would raise the cost of the employees by 10% to 15%.

New visa restrictions "would cause a spike in competition for U.S. resident IT talent and a rise in cost," he said, noting that it might push offshore outsourcing firms to buy companies with U.S. workforces.

For now, outsourcing firms appear to avoid hiring U.S. workers. For instance, in 2013, the District of Columbia awarded Infosys a $49.5 million contract to build a healthcare exchange in response to the Affordable Care Act. A later discrimination lawsuit filed by an IT professional claims that of the approximately 100 Infosys employees working on this healthcare project, only three were American.

The lawsuit doesn't have data on how many of those employees were on temporary work visas, but the IT worker who is part of this lawsuit said she was excluded from work conversations by supervisors who spoke Hindi. If Infosys is relying heavily on visa workers for this government contract, it's hard to explain why; the Washington, D.C. area has one of the highest concentrations of IT professionals in the nation.

What would visa restrictions do?

David Rutchik, a partner at Pace Harmon, an outsourcing consulting and advisory firm, agrees a visa restriction bill would raise costs, and prompt some firms to try to move even more work offshore.

Speaking generally and not about any specific offshore firm, Rutchik said he believes the employees that offshore providers bring to the U.S. -- particularly those on L-1 visas -- are not paid as well as U.S. workers. Although he cautions that he hasn't seen the pay stubs, "our experience is that they are, in fact, paid as offshore resources, not competitive with onshore permanent resources," he said.

If offshore IT services firms decide to hire more U.S. workers, Rutchik believes the firms, their customers, and the overall U.S. workforce, would accrue benefits.

With more U.S. workers on their payrolls, offshore firms could become more competitive with IT services firms, such as IBM and Accenture, by having a large pool of onshore resources. That's important to customers that want or need a greater onshore presence. They will also be less subject to the vagaries of the visa situation, able to get resources to a customer site more quickly, and gain access to government work that might otherwise be restricted to them. By using U.S. workers, offshore firms will improve their ability to work on strategic and "high-touch," areas, he said.

"In the long term, we think that it would be positive if [offshore outsourcing firms] invested and built out more U.S capability," Rutchik said.

Mari Keefe, editorial project manager at Computerworld, contributed research for this story.

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