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,. 


5 comments:

Anonymous said...

You can add the UK government to the list of those querying CSC'S involvement in flights of rendition. Computer Weekly has articles about it. See this one http://www.computerweekly.com/news/2240160441/NHS-seeks-explanation-over-CSC-role-in-torture-flights

Anonymous said...

Here's something for lovers of coniracybtheories to consider.
1. CSC in the UK is only surviving on the back of large government contracts. RoyalMail, NHS IT and Ministry of Defence.
2. CSC is the only contractor to have expanded its NHS IT portfolio - although the government has shrunken it after a Select Committtee not led by the government raised daming evidenc of incompetence. All other contractors backed away from NHS except that is BT, which is really just a Pensions Fund Black Hole with Telephones who needs the business in order to survive.
3. CSC has not won any significant commercial contracts in the UK in recent years. The most recent win was at the MoD.
4. CSC claims it is losing money in the UK paying little is any corporation tax.
5. CSC is involved in illegal flights of renditon.
Is the lack of government oversight of CSC anything to do with quid pro quo for item 5?

Anonymous said...

Well Australian staff are being replaced.. sorry being made redundant at a high rate, with jobs being restructured to India. Cases of staff who received pay rises for outstanding service previously in the year, being 'pruned' as they were too expensive.. Moral in CSC Australia is shot to pieces, many people are making for the door or waiting for the next swing of Mike "the Scythe" Lawrie, hoping for some payout.. but hey so long as those poor hard done by shareholders are kept placated then CSC is fine...

Anonymous said...

Anonymous said, "Pay rises for outstanding service previously in the year, being 'pruned' as they were too expensive."

Don't believe anything Mike Lawrie tells you. If fact, if his lips are moving, he's lying.

My advice is to be very careful of anything that Mike Lawrie touches. I know because I worked with him in Misys and I know how he operates.

Other than that, I really can't add anything that hasn't already been said about Mike Lawrie.

Anonymous said...

More redundancies announced, 170 in the UK, more in Denmark and Sweden. Office closures in the UK and staff forced, with threats of disciplinary action if they don't, to take vacation ahead of year end to help massage the figures.

Things are clearly not as rosy as the execs portray, especially if turning off the heating in the EMEA HQ to reduce costs is part of the turnaround master plan. What next, power savings at data centres jeopardizing customer facing services?