When Steve Yates was hired as CIO of USAA in mid-1999, the financial services company’s IT expenses were rising twice as fast as its revenue. In less than five years, Yates transformed USAA’s IT department into ITCO, a subsidiary with its own profit and loss lines. Over the past three years, USAA’s IT expenses dropped dramatically. Revenue skyrocketed.

That’s why CIO prominently featured Yates and his USAA team in its May 1 special issue on "How to Run I.T. Like a Business" (see www.cio.com/printlinks).

Yet, less than two weeks later, Yates was gone from USAA. It was not immediately clear whether Yates was fired or had left on his own. After his departure on May 10, USAA would confirm only that Yates no longer works at the company. Greg Schwartz, senior vice president of enterprise solutions under Yates, will head up IT at USAA, according to spokeswoman Katie Spring. Attempts to reach Yates were unsuccessful. A former aide at USAA says he was going to spend time with his family.

The circumstances surrounding Yates’ unexpected exit raise questions about whether Yates was caught in a controversy in his company’s hometown about USAA’s use of offshore IT contractors.

The local media in San Antonio, Texas, has started to draw attention to the IT work that USAA sends offshore, such as some of its application development. USAA is the city’s largest employer and a community pillar?a local expressway is even named after the former CEO, Robert F. McDermott. Whatever happens at USAA is news in San Antonio, says Ramiro Cavazos, the city’s director of economic development.

In 2001, USAA laid off 1,400 employees, including an unspecified number of IT workers. Around this time, USAA started outsourcing some of its IT work to India. In September 2003, The San Antonio Express-News reported that about 20 percent of Yates’ ITCO employees?close to 500 workers?were from Tata Consultancy Services, the giant Indian outsourcing vendor. In February, San Antonio TV station WOAI ran a news report featuring former USAA employees who said they were replaced by workers from India. The broadcast included a video of USAA CEO Bob Davis citing the superiority of offshore IT talent. "We do [outsourcing] because it helps us get our projects done, and because the level of expertise of this technology, these technology companies and individuals is incredible," Davis says on the tape. "I mean, if we could get this same thing in the United States, we’d do it. It’s not available. It’s not here. It just doesn’t exist."

In the same broadcast report, Yates responded on camera to former workers’ complaints that USAA had replaced Americans with foreigners by saying, "I can see where you could draw that conclusion. That wasn’t the intent. If we’ve gotten there, we kind of backed into it."

The story, picked up by the local newspaper, caused a stir in San Antonio. On April 26, USAA filed suit in Bexar County District Court against the TV reporter who aired the story, Tanji Patton, and WOAI owner Clear Channel Communications. The lawsuit claims that the video and other USAA documents used in the report are trade secrets, and that Patton obtained them from unnamed sources without the company’s consent. Yates is not named in any of the court documents filed as of May 13. Officials for both WOAI and Clear Channel declined to comment on the case.

Yates’ departure from USAA is surprising, says Phil Schneidermeyer, a CIO recruiter for Highland Partners, because he excelled at a rare kind of job?an IT executive who leads an entire business organization. "I would have assumed [Yates] would be at USAA forever. At least until he resigned," Schneidermeyer says.

While it is not clear if the media reports caused Yates to leave USAA, Schneidermeyer says it can be "a very risky thing" for executives to talk publicly about controversial issues. "It doesn’t get any riskier at this moment in time than talking about offshore outsourcing," he adds. (For insights into government rules on offshore outsourcing, see "Offshore Regulations: What to Worry About," Page 64.)

Whether or not Yates left voluntarily, his prospects for another IT leadership position are quite good. "More companies are running their IT organizations like a business. And those CIOs that have taken it to the next level, wherein it is actually a P&L, have been and continue to be in demand," says Schneidermeyer, who previously placed Yates as Rockwell Automation’s CIO. "[Yates] had quite a run at USAA and Rockwell. He is one of the few who really do run IT like a business."