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 na├»ve 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.                            

Tuesday, 19 June 2012

CSC waffles again, this time to regarding its role in torture and rendition.

Some weeks ago, see posting of 22nd May,  we reported the allegations made by Reprieve, a UK-based anti-torture charity, about CSC’s role in rendition flights to Guantanamo Bay.
Reprieve asked CSC to pledge zero tolerance for torture but CSC declined to make such a pledge. Instead they replied that “their corporate responsibility program fosters CSC's growth by promoting and increasing the value of the company to its shareholders”. It says nothing about torture and kidnap.

How CSC's reply answers Reprieve’s request escapes me.  It seems to have escaped Reprieve too. It sounds like Corporate waffle, something CSC is good at. 

It must put CSC employees in a potentially embarrassing position if asked by customers what the reply means.

You can get full details of Reprieve’s requests and CSC’s response on
http://www.reprieve.org.uk/articles/csc/

Thursday, 7 June 2012

CSC admits to “intentional errors” in NHS project

Yet more embarrassment for CSC! 

It has admitted that “intentional errors” were made by
finance staff in UK to overstate the profit on the NHS project by US$24million. That translates into a significant percentage of UK profits, which means it must have been easily noticed by anyone who had oversight.

Further details are on the “Public Service Co” website: http://www.publicservice.co.uk/news_story.asp?id=19921


CSC is apparently taking measures against the finance
staff involved, but what about the operating management?  Finance staff do not go into the office thinking that “today might be a good day to do a bit of creative accounting to
inflate the profits”.    They tend to be told, or asked, or threatened or enticed to overstate profits by an operating
manager. So which operating managers are involved and what actions is CSC taking against them?


As we have said in previous blog entries, how many
more NHS issues have to come to light before Guy Hains, the CSC President directly responsible for the project, is held to account?  Either he knew about the errors and should
accept responsibility for them. Or he did not know about them, which begs the question of his management oversight and how he could not notice such a large error in the profit number.  

CEO Mike Lawrie has promised top management  accountability in CSC. Maybe this would be a good place to start its implementation.


It is a concern, as it sounds similar to the deliberate errors to overstate CSC Denmark’s profit in 2010, which is still under investigation by the SEC.    How many more instances of creative accounting might still be lurking in CSC’s
books? Will the current and previous leaders of the Finance function held to account?