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Morgan Stanley E-Mails Reveal Outsourcing's Dirty Little Secret

If you're an outsourcing vendor looking to crack the financial services market, it might help if you're about to go public or need an ADR listing in the U.S. According to E-mails disclosed this week in a lawsuit against Morgan Stanley, vendor selection is at times based on more than just domain expertise, CMM Level 5 capability, full ITIL compliance, or any of the other bullet points that service providers like to highlight in their marketing literature. It's based on how much money the vendor can spend in return. Here's why that just isn't right.

Indian outsourcer Wipro selected Morgan Stanley as the lead underwriter in its ADR listing on the New York Stock Exchange. Later, Morgan Stanley tapped Wipro for some IT work. The two deals weren't unrelated. In an E-mail written on January 11, 2002, Crawford Jamieson, Morgan Stanley's senior banker for the technology sector in Asia, complains that the company's IT department isn't moving fast enough to give Wipro an outsourcing contract:

"In November 2000, when the the Wipro ADR was about to begin trading on the floor of the NYSE, John Mack promised Azim Premji, the Chairman and founder of Wipro, that MS would commit to providing some outsourcing work ... We need someone senior in the IT organization to cut through the red tape and get Wipro some kind of business," writes Jamieson. As Hannibal Lector said, "Quid Pro Quo, Clarice."

This kind of arrangement isn't unique to Morgan Stanley. It's pervasive throughout the outsourcing/financial services industries.

So what's wrong with this? Shouldn't companies be allowed to conduct business as they see fit and deal with whomever they want for whatever reasons they choose? Actually, no. This has nothing to do with free enterprise and everything to do with the responsibilities of management at publicly traded companies like Wipro and Morgan Stanley.

If I'm a Morgan Stanley shareholder, I want to know that the company is spending money I've invested on capital equipment and services that are the best available at the best price. I don't want these decisions influenced by the fact that some banker stands to make a few mill on a bonus for getting the underwriting business.

Sure, winning new business helps the firm's top line, but that doesn't do shareholders any good if the bottom line is sacrificed on unnecessary IT equipment and services in order to get that business. Then there's the larger effect on competition. It would be tough for new, innovative products to come to market in the financial services sector if the price of entry is always the expensive banking services and financial instruments that your potential client is trying to sell. Taken to an extreme, this sort of behavior raises anti-trust issues. At lesser levels, it's just bad business.

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