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.


8 comments:

Anonymous said...

Over the past 5 years, CSC has lost 60.18% of it's value. In the last two years alone, stock price has dropped over 50%.

And guess what? The leadership change has made no impact. CSC is selling stuff they don't have (Cloud) to people who don't want it. There is no innovation, zero investment and the only program they can execute successfully is a redundancy program.

To change the face of a company, you need to change the genetics. Be bold, be brave and be brilliant.

And above all, be big enough to recognize when you've made a mistake...

Anonymous said...

.. and we still haven't caught a glimpse of the new operating model. Perhaps they've gone back to the drawing board? Sigh.

Anonymous said...

New model is a clone of IBM's strategy, even using the same terminology (GDF, Global Delivery Factory).

Check out Robert Cringely's 5-part takedown of IBM at cringely.com to see the CSC future. Hollowing out of the GDFs by rotating offshore people, laying off CSC employees who refuse to relocate at their own expense to remote GDF sites, multiple resource actions, dissatisfied customers.

IBM is trying to become like Oracle to sell products, buffing the services business to dump it at a high price. HP is laying off 27,000 people in its service business. Why is CSC doubling down on a sector everyone else is abandoning?

Anonymous said...

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Anonymous said...

The Indians are making huge gains in services, reporting growth rates of 30% CAGR (higher in some divisions).

This is also not entirely due to being the cheapest because they are much less price competitive than previously.

A lot of it is due to having the trained resource, a light overhead base and being prepared to bid for things that the American outsourcers would No-bid for being too small or with too much sales risk.

When I look at the size of CSC's European HQ and a 100,000 head Indian company I know, the difference is huge. The Indians run their European operations in an office with a car park not much bigger than a couple of tennis courts and they do not far off as much revenue as CSC Europe.

I pity my former colleagues, they really seem not to know what is coming.

Only a really radical solution will have a chance of fixing things and the verticalisation I hear of while welcome is just not going to be enough.

Anonymous said...

CSC shares hit a new 52-week low today.

It looks as if Mike Lawrie's honeymoon period is over as far as Wall St is concerned. It is time for him to show clear direction, innovation and most of all leadership.

Anonymous said...

CSC shares are not just at a 52 week low, they are at a 17 year low. Well done, CSC's Board.

For details see:
http://www.forexpros.com/analysis/the-worst-tech-stock-out-there:-computer-sciences-130681

Anonymous said...

I see they have now failed to hit the payout dates for redundancy