Competing World's Most Valued Startup from India - OLA

Ola, the taxi-cab aggregator company is investigating allegations that one of its senior executives has been involved in corrupt practices. According to a report by FactorDaily, it has ordered an investigation into the alleged fraudulent practices, which is estimated to be running into millions of dollars. The executive involved is being investigated for favouring vendors and in return allegedly receiving kickbacks.

Human Resources and recruiting in particular is a critical part of all companies, especially high growth ones. There are several large public and private companies (Workday, Success Factors, Monster, Jobvite and Trinet) who are dedicated to helping companies with HR, some of them just concentrating solely on recruiting. In fact, recruiting is so important that companies employ paid recruiters and compensate them up to 20% of the yearly compensation for recruiting a single employee. It adds up. A company with one thousand employees growing employees 10% a year with an industry average attrition of 15% - 20% needs to hire 250 - 300 employees a year.



For a technology company, where the average fully loaded yearly salary for a good engineer is $150K in Silicon Valley, CA and Rs20 lakh in Bangalore, recruiting expenses can end up being substantial. In this case, just for outsourced recruiters for the Indian company, the costs will be just under Rs8 crore, assuming 50% of the recruiting is handled by an outside recruiting firm. That is not a small sum. For a large company like Ola, with somewhere between 5,000 and 10,000 employees, just the attrition will require 1,000 to 2,000 hires a year. At an average of Rs5 lakh salary, that is between Rs6 crore and Rs12 crore being spent on recruiting. Just recruiting.



Because this is such a large business, and there are low startup costs - anyone with a rolodex and has the ability to source resumes can become a recruiter - the number of recruiters vying for the paid recruiting business from Ola or any other large name is enormous. The HR departments of high profile companies who place adverts in newspapers or online on their website or through social networking channels will receive resumes from dozens if not hundreds of recruiters. This has to be pared to a reasonable number in order to handle the load. What we did at our company was ignore all recruiters, unless and until we found a compelling reason proving that they actually helped recruit candidates that fit our filters rather than forward blind resumes and expect payment. As an example, this could be a reference from someone who is known, or an especially good resume. Finding a good recruiter is not easy, and once a company finds one, it's like many other things, they stick with them and often-times show a little partiality to them, all other things equal.



The amount of money involved, and the difficulty to become a preferred recruiter - or staying a preferred recruiter makes this business ripe for irregular activity of many kinds, including preferential treatment in the form of kickbacks. It is not at all surprising that the head of HR at a high growth, highly visible unicorn had the opportunity to engage in some illegal activity. We will have to wait for the investigation to conclude to see if he actually did.

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