Monday, 17 December 2012

CSC - 2012 The Year In Review



As this year draws to a close we are looking back over events involving CSC to see if there is any pattern emerging which might give a clue as to how the future will look for CSC’s investors, customers, and employees.

So, what has happened these last twelve months?

Obviously the biggest event has been the long-overdue departure of failed CEO Mike Laphen and the appointment of Mike Lawrie to turn the company around. This is no easy task and whatever he does it will draw criticism from various parties. However, as far as we can tell he has begun the clear out of the management deadwood who ruined CSC. In our view some of the changes are late. But nevertheless they are being done. He is also moving more vigorously to offshoring labour - at a cost to those employees in the USA, Europe and Australia who thought that their hard work would be rewarded with a degree of job security if not increased remuneration. He is also getting out of bad contracts, and is selling part of the non-core business. We refer here to sale of Credit Services for $1bln plus two other recent sales. This will add to short term profit but will reduce cash flow and long term profits, that is unless the sale proceeds are used wisely. Only time will tell if this is the case. 

Mike Lawrie joined CSC from Misys, a software company specializing in the insurance market, having previously been with IBM. He joined Misys at a time when it was in crisis due to a policy of rapid acquisitions, most of which were ill-considered. These acquisitions had masked, at least for a while,  the impact of aggressive revenue recognition practices and project implementation issues. It is widely viewed that Lawrie made significant progress in turning Misys around, though his detractors say he figuratively left dead bodies lying everywhere amongst the employee base and that the improvements he made to the company were more cosmetic than substantive and were geared towards a rapid increase in share price to sell Misys before the cracks became apparent. 

Other events In CSC during the year include severe criticism of quality of services from various governments and politicians,  and criminal charges and a class action suit against former senior executives. 
Governments and politicians who have criticised CSC include; 
the UK, where the Prime Minister David Cameron Prime Minister stated in The Houses of Parliament that CSC would be doing no more business while he was in charge.
Also in the UK and in Cornwall where the entire council executive offered to resign rather  than sign a contract with CSC.
Italy, where an Italian MP called for CSC to repay subsidies following the sale of CSC Italy; and an Italian government official complaining about CSC’s offensive behavior; 
In Scandinavia various politicians and public bodies have questioned CSC’s ethics following its involvements in ‘flights of rendition’; 
The USA, where Senators criticised CSC’s inability to deliver on a billion dollar defence procurement contract which rather like the UK’s NHS IT program was late, over budget, and not working.  
Then there is class action law suit filed by numerous parties against former CEO Mike Laphen and other CSC executives that accuses them of deliberately misleading investors. This case still runs with no conclusion yet reached. Less well known is that one ex-President and a current Country Chief have been found guilty of criminal charges of deception and fraud while employed by or running other companies. They are Asger Jensby former President of CSC Scandinavia/Nordics, and Gerhard Fercho  the current Leader of CSC Germany. See details in the comments section here.

CSC is also among the notorious list of US based corporations i.e. Google, Amazon, Starbucks, Microsoft, that have paid little if any corporation tax in the UK, and probably other countries too. This is now the subject of intense public and political debate as it is felt to be unfair that such companies are using their financial muscle and global scale to shift profits around the world. For one company, Starbucks, it has led to consumers boycotting their coffee shops resulting in a massive slump in sales. Considering that CSC has collected billions of pounds sterling in fees for contracts like NHS IT, and Royal Mail from the UK tax payer it beggars belief that CSC claims losses on the contracts. No wonder that political opinion is against them. 

In view of these declared “losses” on large contracts, one wonders how CSC calculates bonuses for its senior executives, who seem to be the only people collecting bonuses these days. For example, Guy Hains, lead senior executive on the loss-making Royal Mail and the failed NHS projects,  has collected £millions in bonuses plus incentives and stock options over the past few years, Why? 

How can CSC ethically reconcile that with the fact that successful and hard-working , and now self trained, employees have had their bonuses cancelled while senior executives, starting with Mike Laphen and including people like Guy Hains, have been very generously rewarded for non-performance? See details here

Another pattern emerging during the year and from comments by employees is that the reduction (in some locations banning) of training has led to the employees to being deskilled resulting in obvious performance problems on complex systems. Hence Royal, Mail, UK NHS IT, USA Defence and others.

So taking the above into account, why do investors continue supporting CSC? 

Our opinion is that they are banking on Mike Lawrie being able to smarten up CSC’s financial performance fast enough to sell the company in the next year or two at a huge premium over the $25 share price of his early days at CSC. If this is achieved the shareholders will be happy, irrespective of how many employees lose their jobs, how many clients are unhappy, how many projects fail, and how many senior executives pick up huge bonuses. 

The alternative view is that Mike Lawrie is working to build a strong foundation to re-create a successful, vibrant and independent CSC. 

Which view do you think is more likely? We know what we think,. 


Thursday, 6 December 2012

CSC - good numbers but bad business?


CSC’s share price is riding high and the Wall St analysts are almost wetting themselves as they pore over their spreadsheets and issue positive opinions and upgradesfor the company. Readers of this blog may recall that inMay and August 2009 in the “CSC results” postings we suggested the Analysts who were increasingly positive about CSC look at the business fundamentals rather than just its numbers.
It looks like history is repeating itself. While the analysts are writing about numbers, U.S. Defense Secretary Leon Panetta has been asked to explain why the Air Force scrapped a software system to manage its supply chain after spending more than $1 billion on it. And guess who had the contract which has been cancelled? Yes, it was CSC.
The project was described by Senator John McCain as “one of the most egregious examples of mismanagement in recent memory,”
Further details can be found on:
http://www.bloomberg.com/news/2012-12-06/senators-question-air-force-s-1-billion-failed-software.html?cmpid=yhoo
It looks like a replay of the NHS fiasco.  So what’s happening at CSC?  Clients are unhappy, employees are talking about internal chaos and confusion. Meantime analysts are looking at spreadsheets and issuing glowing reports. Maybe they should get out of their offices and talk to CSC clients and employees to find out what is really happening.



Wednesday, 28 November 2012

CSC Breaking News

News has reached us that Guy Hains, President International, previously head of CSC Europe and before that head of CSC UK, has joined the Disappearings. Was he pushed? Did he jump? Has it got anything to do with the fact that his flag ship ten year outsourcing deal with UK's Royal Mail has never made a profit? See this news link here at Computer Weekly.
Or is it anything to do with the major problems at CSC due to another Hains led flagship contract, this time at NHS.
Or even is it because the  County leadership of Cornwall in the UK has refused to approve an outsourcing contract with CSC? See link here:
Other 'Disappearings' at CSC now include Gawie Nienaber ex-Legal lead for Europe. Where has he gone and why?
What is going on?
CSC CEO Lawrie does have to crack a few eggs at CSC in order to turn it around but it seems the restructuring is being managed in a crude uncaring manner, with news of major benefit cuts and lay offs being handed out. But with senior execs, like Laphen picking up tens of million as he exited, getting massive rewards and payoffs, while junior workers are dumped on.
Final point the speculation o n CSC's involvement in 'Renderings' flights just will not go away. See this link as an example:  Human rights charity Reprieve has gathered documents that it says demonstrate CSC had been contracted to this and other illegal CIA renditions
Is CSC too toxic to touch?

Sunday, 18 November 2012

CSC joins Starbucks, Google and Amazon in paying minimal UK tax on its profits



CSC Computer Sciences Corporation has paid just half a percent in tax on £1.5bn income it earned from the 10-year outsource deal it did with Royal Mail in 2003, Computer Weekly has revealed. 

The full article can be found on 

We note without any surprise that CSC was once more unavailable for comment on Computer Weekly’s article.  

CSC does not appear to care too much about its public image these days.  Before this story, its reputation had already been tarnished by its handling of the NHS IT project, its ambiguity in handling the allegations of involvement in torture, its attitude towards the Italian government and its treatment of employees it wants to unload. 

In the long run a company cannot succeed if it has lost the respect of governments, customers and employees. By why should CSC management care, as long as they have hit their bonuses, made a big profit on their stock options, sold the company and collected their money?


Monday, 12 November 2012

CSC Results - Is it the beginning of a real turn-round or window dressing for a sale?


CSC shares jump 17% after its Q2 FY2013 earnings release, analysts upgrade their outlook . Is it the beginning of a real turnround or just window-dressing for an early sale?


CSC shares jumped 17% and several analysts upgraded their outlook on CSC amid positive comments on its Q2 FY13 earnings release and analyst conference call.


The Q2FY2013 financial performance exceeded analyst expectations, confirming the Q1 halt in the continuous deterioration CSC has treated us to in the past. The company also increased its FY2013 EPS earnings guidance for the second consecutive quarter.

CEO Mike Lawrie and CFO Paul Saleh gave a good showing at the Analyst conference call, fielding the questions with confidence and giving answers that made sense. Such a contrast from CSC analyst conference calls of the past!

Here are some highlights of the results:
* Revenue at US$3.85bn was down 2.8% (0.5%in constant currency) from Q2 FY2012.
* Earnings per Share (EPS) were US$ 0.83c, compared with analyst expectations of US$0.47c.
* Free cash flow was US$237million positive, compared with over US$250million negative in Q2 FY2012.
* New business won in the quarter was US$4.2bn.
* The company’s EPS guidance for FY2013 was increased by US$0.20 to a range of US$2.30 to US$2.50.

It all looks pretty good at first sight. And it is a change from the shocks and constant deterioration of the past.

Mike Lawrie attributed the improvement to the measures and plans he put in place a few months ago. These include the cost take-out program, the drastic pruning of the management layers, the application of project management disciplines, the focus on problem contracts, a new operating model and fresh management talent which has been brought into CSC.
But before we join in the general enthusiasm, we need sustained performance improvement. The news coming out of CSC is not all good and we could be seeing short-term financial improvement to entice bidders for an early sale .

Here is a different interpretation of the results:
* CSC revenue continues to stagnate and contract while competitors grow.
* The US$0.20 increase in the FY2013 EPS guidance means simply that not all of the Q2 over-performance will flow through to the full year. It does not mean Q3 and Q4 profit will increase by a single cent. In fact, Mike Lawrie has implicitly dropped Q3 and Q4 EPS guidance by $0.16.
* The profit increase comes from reduced costs, which could simply be a direct consequence of the large restructuring charge in Q4 FY2012.
* A significant contributor to the improved cashflow is the low level of investment. CSC has invested less than US$200million in outsourcing contracts, property and equipment, acquisitions and software development in each of the last 2 quarters. It makes cash flow look better, causes short-sighted analysts to applaud, but can compromise the future, as long-term CSC shareholders know only too well.

There are troubling stories about CSC’s style in dealing with employees, not to mention governments, as disclosed in our 9 November blog entry re the sale of CSC Italy. Time will tell how much substance there may be behind the stories and, if true, what long-term damage they may cause.

We hear of some employees chosen for termination based simply on their salary level, irrespective of excellent performance records; of inappropriate and in some instances cowardly behaviour (in that they leave it junior HR staff to deal with long serving or senior staff) by senior managers towards employees who are being terminated; of high levels of employee absence among parts of the workforce and of organizational paralysis due to fear and confusion. We hear of the forced postponement of a planned round of redundancies because CSC had once again overlooked European legal requirements surrounding involuntary termination; was this due to lack of knowledge, management incompetence or was it an unsuccessful attempt to simply ignore unwelcome constraints in laying off unwanted employees? 

Is CSC creating the right organization and workforce for its future, or is it just getting rid of “expensive” employees to improve short-term profit?

Where is reality situated, between the improved results and impressive words on the one hand and the abrasive management style on the other hand? Will we see a sustained move back to CSC’s former position as one of the global leaders in IT services? Or are we just seeing cynical short-term improvement measures to attract a buyer , and allow Mike Lawrie and his management team to earn a lot of money, before CSC collapses again.

Friday, 9 November 2012

Italian Government criticises CSC's 'offensive behaviour'


CSC has completed the sale of much of its Italian business to Dedagroup, but has done it in a manner which has angered the Italian Government to the point that they have strongly criticized CSC’s lack of respect and consideration for Italy in a letter to CSC CEO Mike Lawrie and the CSC President for South and West Europe Claude Czechowski. 

According to the Italian business newspaper Key4Biz, CSC had agreed to meet with representatives of the Government and employee unions to discuss the consequences of the sale of its Italian business, especially in view of the possibility of the sale causing 500 job losses, before taking any final decisions.

However, despite this agreement, CSC proceeded with the sale without taking account the need to formally declare “a state of business emergency” and without recourse to mediation with the Government and the unions.

"In a letter of 3 July we asked for your willingness to discuss with us the consequences of your decision to sell the Italian branch of CSC - reads the letter to CSC signed by Giampietro Casano of the Department of Enterprise and internationalization. “After a meeting with your legal team we were informed CSC had not taken any decision regarding a potential buyer. Further we planned a meeting at our ministry with CSC and trade unions. On this occasion your legal team asked us to postpone the date of the meeting to ensure your participation”.
CSC did not turn up for the planned meeting. Instead on the same day they announced the sale of their Italian business to Dedagroup.

"Your behavior - concludes the letter by Giampietro Castano - is considered offensive and not in line with the behavior expected from a multinational company like CSC."

The Key4Biz article can be found at;

This episode does not show CSC in a good light; Once more CSC is giving the impression of arrogance towards the representatives of public interests.  But does any President in CSC from Lawrie downwards care what any government in Europe thinks of the company’s behaviour?

Tuesday, 28 August 2012

CSC continues its senior management clean-out


CSC continued its senior management clean-out by removing Donald DeBuck from his position as Vice President & Controller.

 
He will be replaced by Thomas Colan who is joining CSC from Discovery Communications where he served as Controller, having earlier been Controller of AOL/Time Warner.  Colan will report to CSC Chief Financial Officer Paul Saleh.


Further details, including Colan’s  remuneration package, are shown in CSC’s SEC filing on


 
DeBuck will apparently stay with the company with the role of  “supporting the CFO’s systems enhancement activities”.  We do not know whether this is a real position or just a nice title and a way of allowing DeBuck to quietly leave the company with dignity in a few months.


DeBuck has served as Corporate Controller for about a decade, during which time CSC has suffered major accounting irregularities principally in Europe. He is a named defendant in Class Action lawsuits brought against CSC and some of its officers.   His departure is no real surprise. Many people in CSC wonder how the Chief Accounting Officer survived so long after the disclosure of these irregularities. 

 
Maybe former CFO Mike Mancuso wielded the real authority inherent in the position of Controller and Chief Accounting Officer.  If this was the case, it is hard to see how CSC could have terminated DeBuck for failing to prevent the accounting irregularities without first firing Mancuso. That DeBuck is apparently staying with CSC suggests that CEO Mike Lawrie believes there are some mitigating circumstances in his favor.


Another recent senior executive departure is that of VP Investor Relations Bryan Brady. We understand that, unlike DeBuck, Brady was given no option to remain with the company. 

Mr. Brady had been the Head of Investor Relations for 3 years, having earlier served as VP Finance for Europe from 2002 to 2009, during which time many Country Finance Heads left the company.  Apparently not many tears have been shed in CSC over his departure. We are told that he was viewed by many of his colleagues as being difficult to work with.  His term as Head of Investor Relations had been defined by CSC’s investor communications around its profit warnings, NHS fiasco and share price collapse,  which we have described in earlier blog  postings as a mixture of confusing waffle and unjustified optimism.  CSC’s mishandling of the Investor communications of these problems harmed the company’s image on Wall Street and destroyed whatever credibility Brady had with the analyst community and within CSC.   

We do not know how many more senior CSC managers CEO Mike Lawrie intends to remove.  But all the highly paid CSC executives who just kept quiet as Mike Laphen mismanaged the company  close to ruin  deserve whatever Lawrie hands out to them.

Thursday, 16 August 2012

CSC plans to exit Italy? Questions in the Italian Parliament.


 
CSC is planning to sell its Italian business and exit the country, according to sources in Italy.

CSC entered Italy via a series of acquisitions in the mid and late 1990’s but has struggled to establish itself there, suffering significant losses and constantly downsizing over the past years.

CSC’s plans to exit the country have raised questions and concerns in the Italian Parliament.
MP Pier Paolo Baretta has asked the Minister of Economic Development what steps the Ministryintends to take to protect the 1,080 employees of CSC Italy.

Mr. Baretta questioned CSC's decision to sell its Italian business, expressing concerns that "CSC has benefited from years of tax breaks that only last year led to the company obtaining benefits of more than $100 million".
Selling the Italian business may not be easy for CSC even at a low price. The country’s economic outlook is troubled and CSC’s business there is not profitable.   In addition to any price to be paid to CSC, buyers will probably need to fund further reductions of the workforce and strengthen sales skills. Additionally CSC will need to guarantee its contractual commitments to service Italian operations of its key multi-national clients. CSC will also seek to avoid or at least minimizeongoing financial commitment or contingencies towards the buyer.

Is Italy the only European country CSC plans to exit? We doubt it. One must wonder about CSC’s intentions in Sweden, Norway, Austria, Portugal and Spain among others, and how
it intends to support global customers operating in these countries. 

Monday, 13 August 2012

Questions about Mike Lawrie as CSC gives 50% increases in retainers for its failed Board of Directors




CSC has further increased the generous remuneration of its non-executive directors, an SEC filing of August 10 has disclosed.


They will each receive an annual cash retainer of US$90,000, (up from US$60,000) plus an annual grant of shares worth US$135,000 (up from US$125,000); there are additional retainers ranging from US$10,000 to US$25,000 for serving on the various committees of the Board, plus provisions for attendance fees.


This is quite amazing, coming just days after CSC’s CFO told the Wall St analysts about the positive impact on cash flow of the decision not to pay certain FY2012 employee bonuses.


The non-executive directors are the group which appointed Mike Laphen as CEO in 2007 despite the evidence that he did not have the appropriate skills. They aggravated that error by investing all executive power in Laphen, naming him Chairman, CEO and President.   They then brought in the retired Mike Mancuso as CFO, with the consequences we know.


They watched but took no action as Laphen’s mismanagement started destroying CSC, leading to a drop of over 50% in CSC’s share price and to thousands of employees losing their jobs. They watched the financial meltdown, the accounting irregularities, the SEC investigation, the Class Action lawsuits, the reputational damage of the NHS fiasco and the torture/rendition allegations and did nothing. They watched competitors grow as CSC moved backwards with no revenue growth and no vision of the future. They watched as their chosen CEO micro-managed expense detail while CSC headed for disaster.  They watched while CSC alledgedly supported anti-humanitarian rendition flights. They only acted to remove Laphen when it was clear his position was untenable. He had lost credibility with the customers, the employees, the IT industry and with Wall Street.


The Board of Directors should have recognized their responsibility for CSC’s situation and offered their resignations. Instead they stood for re-election and have now voted themselves a massive 50% increase in their base retainer compensation.


We have mentioned in earlier blog entries our hopes that recently-appointed CEO Mike Lawrie would turn CSC around and deliver on his plans to create a new set of values and behaviors.  


We are hugely disappointed that he has allowed these increases in non-executive director compensation to happen.   Massive rewards for failure at the top of CSC while screwing down employee compensation was part of the Laphen culture. We hoped Lawrie would represent the wind of change. Maybe our hopes are naïve. Maybe Lawrie is just a Laphen clone but with a bit of charisma.   These increases when employees are being laid off shows a total lack of sensitivity.


Full details of the SEC filing  in question can be found on:

Sunday, 12 August 2012

CSC shares 16% higher after its Q1 FY2013 earnings release

CSC shares jumped almost 20% immediately after its Q1 FY2013 earnings release and analyst conference, eventually closing the day up 16%.


The Q1FY2013 performance was not stellar, but was better (or less bad) than analyst expectations and marked a halt in the continuous deterioration CSC has treated us to in the past few quarters. Here are some highlights:

·         Revenue at $3.96bn was essentially flat with Q1 FY2012.

·         Earnings per Share (EPS) were US$ 0.26c, compared with analyst expectations of US$0.21c. This after 3 consecutive quarters of losses.

·         Gross margin was up 1.2% after 2 consecutive quarters of shrinkage.

·         Free cash flow was negative US$25million, compared with over US$400million negative in Q1 FY2012.

·         New business won in the quarter was US$4bn up 70% on Q1FY2012.

·         Unlike previous quarters, there were no surprises, exceptional items or tax adjustments to confuse everybody about the real state of the business.

·         The company’s EPS guidance for FY2013 was increased to a range of US$2.10 to US$2.30.

·         New senior executives have been named.
But more than the numbers themselves, the big positive was the attitude of the CSC management, Mike Lawrie and Paul Saleh, to the conference itself and especially to the questions. They gave the impression of honesty and transparency, which was so different from the confusing non-answers of the previous management era.

Comments on points that Mike Lawrie made in the question and answer session:
·         A major cause of CSC’s “problem projects and contracts” was not that the lack of proper processes, but that the company had simply stopped using them. Input we have received suggests that a big problem was that CSC’s top management simply rejected any truths or facts that did not fit with what they wanted to hear, and they kept asking different people to re-do the work until somebody gave them the answers they wanted. This is also one reason CSC lost so many of its best project managers over the past few years.
·          The inappropriate “regionalization” of global business processes created further problems. The Cassandra team will address this issue in a separate blog posting in the coming days. 
·         Mike Lawrie felt that CSC’s current problems did not arise overnight, but had been building up over the past 5 or 6 years.  We agree, and ask once more why CSC’s highly-paid non-executive directors could not see what was clear to many CSC followers and employees, namely that Mike Laphen’s mismanagement was destroying CSC.
·         Mike Lawrie was also complimentary about the quality and dedication of CSC’s employees. We hope this statement was sincere; it is a big change from his predecessor who gave the impression that he viewed the employees as a major part of the problem;
This financial report is all positive, but let’s not gets too enthusiastic yet.  CSC has hit bottom (perhaps) with one quarter without surprises or disasters; the newly-appointed CEO and CFO seem to understand what needs to be done to bring CSC back to health, and have developed plans to achieve that. They are more articulate and convincing than their predecessors.  But that is all that has happened so far. They need to be clearer about individual business unit results, and the quality of new business contracts. For instance we are aware of only one significant new deal this quarter, Alsthom. What are the others that make up the $4bln?
Another issue that CSC has to deal with is a reputational one in that it stands accused of supporting rendition flights for suspected terrorists. The news media have not forgotten and indeed The Guardian newspaper in the UK referred to it just this week: Last year iSoft was taken over by Computer Sciences Corporation, a US company accused of helping to organise covert US government flights of terror suspects to Guantánamo Bay and other clandestine "black sites" around the world.
Nevertheless these results are so much better than has been seen from CSC over the past 5 years. Let’s hope that Lawrie and Saleh’s achievements will match their good words and intentions. Time will tell.  
Details of CSC’s Q1 FY2012 financial statements, accompanying slides and webcast of the Analyst call can be found on CSC’s website here.

CSC 'New' Organisation Model

In July 2012 Mike Lawrie the new CEO of CSC announced a new 
operating model for the company. This model is a global
matrix of business, country and functional teams supporting one another across the globe on behalf its customers. This is obviously an exciting development as it is the first step in Mr Lawrie’s plans to turn around CSC. This plan does indeed upon first reading look ambitious. It talks about work teams, new values and more. But for anyone steeped in global business in large corporations or with experience of CSC either as an employee or customer,  this new model can be seen as nothing of the sort. It is very similar to the model espoused by previous CSC leaders in the previous century. All that has really changed is some terminology. Thus Mr Lawrie has to ask himself what ishe doing so that is so different this time and will succeed where others have failed.

Here is an outline description of the model:
Lawrie’s overall theme in his “new” operating model is global standardization. CSC will have 5 global verticals responsible for the Global 1,000 clients and representing CSC across its client base. These verticals will be responsible for delivering all CSC’s capabilities to that client base. The geographies or countries will have the same role as the verticals, but will focus on regional and local accounts.
Both the geographies and verticals will interact with an Offerings organization which includes application services business, software products (eg FSG, iSoft), BPO and IT consulting.  They will also interact with Infrastructure Services, which is made up of end user services, connectivity services, unified communications services, data center services, storage and compute offering, as well as global enterprise management services.
These Operating units are supported by Global Sales and Marketing operations, and our other staff functions including HR, Finance, Legal.

Earlier attempts to introduce a global operating model in CSC over 10 years ago failed for a number of reasons.
Firstly the definition of the model was never taken down to the ground level. It remained a “30,000 feet” headquarters view of the world and avoided addressing awkward or contentious specifics.
Secondly there was no implementation plan.  Amazingly, CSC’s leaders thought that the fact they had announced the model meant it was in place and working. They continued with this pretence for many years, keeping well away from internal conflicts caused by the model. This led to the complexity and confusion Lawrie complains about today.
Thirdly, the model immediately ran into fierce opposition from certain powerful Country barons in CSC Europe who threatened resignation if they lost their omnipotence in their territories. Mike Laphen, who was Head of Europe at that time, responded by fudging the issue and telling these barons they were still responsible for everything in their countries. This obvioulsy brought them into conflict with global businesses and lines of services. However. as long as they made their budgets, the barons were allowed to continue ignore the new model with total impunity. Indeed their incentives and bonus criteria were never changed to bring them in line with the principles of the “new” global operating model. Over the years, CSC lost many good employees who tried to live by the spirit of a global operating model and in doing so fell foul of the country barons.
In previous posts we have given Mr Lawrie the benefit of the doubt about his intentions to make real and lasting change to CSC. But to successfully implement this new operating model, he must make full implementation non-negotiable throughout CSC; he must have a real implementation plan and executive it; he must bring incentives and reward schemes into line with the model, and with the management behaviors he wants in the future. Lastly, he must change out the bullying management that created the mess in the first place (yes many of them are still in place),  this management which deliberately blocked team working, resource sharing, goals sharing, and appropriate incentive schemes and ensured the failure of the earlier attempts to turn CSC from a Collection of Small Companies into one global organization.

Monday, 25 June 2012

CSC’s FY2012 proxy statement – a break with the past or just more Corporate waffle?

CSC has issued its Proxy Statement for the year to March 2012. The full document, about 100 pages, can be found on CSC’s website.

Some observations on the contents:

·         The Directors state that the current Board Leadership structure “provides effective oversight of management”.  The structure may be satisfactory, but there can only be effective oversight of management if the non-Executive directors have the courage to act on behalf of the shareholders they are supposed to represent.  Despite all the warning signs over the years, CSC’s Board of Directors allowed Michael W Laphen to come close to destroying the company before they finally acted to replace him. What is their excuse for not having acted earlier?   Did they lack a “Board Leadership structure” because they had foolishly invested all power in Laphen whom they had named to the posts of  President, CEO and Chairman?  Was it fear that they might be removed from the Board? Was it simply so they could continue to enjoy the quiet life, going along with all the wishes and excuses of a non-performing CEO while collect their US$ 250,000 annual fees for a few meetings?  Or was it a lack of courage in face of a CEO who did not tolerate any disagreement or questioning?

·         The Board says it oversees and maintains the Company’s governance and compliance processes and procedures to promote “the highest standards of responsibility, ethics and integrity”.   Why then does CSC refuse to pledge zero tolerance for torture, as requested by Reprieve as described in our blog entry of 19 June 2012?  How do they reconcile involvement in flights of rendition and ultimately in some cases torture, with “the highest standards of ethics”?

·         The Directors say they have satisfied themselves that the executive compensation structure , being the mix of base salaries, variable pay elements,  incentives, bonuses, stock options etc “does not encourage or create unnecessary risk taking”.  So if the “intentional errors” recently disclosed in the NHS project were not driven by the compensation structure, what exactly did drive the employees to make these “intentional errors”?  What exactly made employees deliberately create accounting irregularities in Nordic and elsewhere?  If it was not the compensation structure, then what was it?   Could it have been top management behavior and pressure or their bullying the staff? Could it have been an inappropriate “tone” at the top of CSC?

·         Improvements are promised to the compensation structure, including changes to the composition of the AMIP cash bonuses. No longer will executives be able to pocket large sums of money while missing revenue targets by 20% and putting the company into a loss.   But the changes do not go far enough.  The lowest paid of the FY2012 Named Executives Officers, (Messrs Laphen, Mancuso, Cook, Schaeffer, Hains and Owen), collected  almost US$2million each while Laphen collected almost US$21million. This is too much.  A cap of US$1,000,000 on the total remuneration of each Named Executive would have been appropriate in view of the executive team’s collective failure FY2012.  But it is naïve to expect any such behavior from CSC executives.

·         There will be new blood amongst the non-executive Directors after the retirements of Messrs McFarlan and Patrick.  The Board is proposing that 69 year-old Laurence Zimmerman join them.  It would be interesting to know what criteria were used to select Mr Zimmerman for what will be a rubber-stamp approval process. He has a CFO background, which may be useful given the deterioration of CSC’s finance function over the past years and given the many intentional accounting irregularities it failed to prevent.  Time will tell if Mr Zimmerman is a good choice. CSC seems to follow the practice of many US corporations regarding non-executive director nominations.  A suggested name just appears from nowhere and we wonder whether it is because the person will add value, or because he or she can be relied upon not to create any waves in the Board nor to seriously question or challenge the CEO’s running of the company. .

In its presentation and content, the Proxy Statement tries to give an impression of a new approach, of much-needed major change at the top of CSC.  We shall see if changes happen, or whether the Proxy Statement is another exercise in CSC Corporate waffle.


Sunday, 24 June 2012

CSC’s discloses Laphen and Hains’ pay for non-performance in FY2012

CSC has issued its proxy statement outlining the compensation of its top executives for the year to March 2012.   The past twelve months have seen CSC reach new lows of financial performance. 

There has also been the embarrassment of the NHS project failure, the ongoing SEC investigations into accounting irregularities, the “intentional errors” in NHS profit recognition, the shareholder lawsuits and the allegations of CSC’s involvement in torture and flights of rendition. One would hope that these failures would be reflected in the compensation of the CSC senior executives responsible under the company’s “pay for performance” philosophy. 

The total FY2012 compensation of Guy Hains, Europe President, who had direct accountability for NHS, was a modest US$ 2,195,687 (approx £1,375,000). 

Former CEO Michael W Laphen, who was retired in March 2012 after 5 years of almost uninterrupted failure, had to make do with just US$ 20,859,000 for his final year of destruction of employees’ jobs and of shareholder investments. 

The hardworking CSC employees who are losing their jobs due to the failure of their management will be comforted to see that Messrs Laphen and Hains are sharing in the hardship they are suffering.