Wednesday, 24 July 2013

Has Mike Lawrie miscalculated?

CSC will announce its Q1 FY14 earnings in a couple of weeks. Wall St analysts may once more focus on earnings per share, cash flow, gross margin, and achievements in cost reduction.  That is to say the usual spread-sheet-able window-dressing that makes life easy for pundits. We at Cassandra will not follow that approach. We will be looking at the business fundamentals of revenue and the New Business bookings to see the real story. Meanwhile..........

In spite of our highest hopes, like many observers we now reluctantly believe that Mike Lawrie is not aiming to rebuild a strong independent CSC. Rather, we believe he is trying to make CSC as attractive as possible to potential acquirers at the highest sale price to sell as soon as possible.  We said in our 6 February 2013 blog entry that we thought he would be seeking to peak CSC’s financial performance within 12 months and maintain it at that level for a further 6 months to get a sale completed.

 Thus his approach has been concentrated on “quick wins”, short-term profit improvement by slashing obvious costs and fixing the obvious big problems he inherited such as bad projects and incompetent senior management.

But while that has been going on, it looks like other problems have been allowed to build up unnoticed or ignored by CSC top management.

Our readers’ comments paint a consistent picture of the problems CSC has allowed to arise. These include a lack of direction and strategy, increasing confusion, organizational chaos, all resulting in employee anger and frustration. The much-publicized reorganization and operating model design launched over a year ago seems to have just come to a halt in mid-air – see multiple comments from employees about this.  Add to this the reputational damage CSC has suffered (the “rotten company” episode in the UK Parliament) and one has the impression the company is heading for another crisis.  

We wonder how much business is CSC winning.  The CSC website suggests the answer is that CSC is winning almost nothing. There was a time when the website’s “Newsroom” and “Press Releases” were full of announcements of major business wins. Today they contain a series of internal organizational announcements, with just two wins reported for the entire globe in the last 5 months. Here is one of those two:

The New Zealand Ministry of Health has awarded CSC a five-year, $17 million contract for the provision of its in-hospital prescribing and administration solution, MedChart, to all 20 District Health Boards (DHBs) across the country.

It adds just $3.4million in revenue each year. We find it incredible that such a small deal has been given such prominence. Just to rub salt in the wound of say-nothing press releases, CSC announces that the company doctor is elected to a health board in the USA. Does the rest of the world care? Do USA customers and employees care?

CSC management seems to be in a desperate race to improve profit by making people redundant to eliminate their cost faster than the company’s revenue is declining. Actually that is the same problem that the governments of Greece, Spain, Italy, Portugal and Ireland are faced with, namely “Macho Austerity” imposed by an over-bearing executive and to hell with the individual consequences. In the case of these countries it is the EU Executive doing the damage.

We wonder if Mike Lawrie has ‘peaked’ CSC’s performance too quickly and that his failure to address revenue generation is going to create another crash for CSC as he races too hard to play catch up with falling revenue by taking out yet more cost. But it will be harder or maybe impossible to rebuild CSC a second time, because so many of its most talented people will have left the company. 

This is why we are anxious to see what the upcoming earnings release tells us.

But irrespective of whatever happens to the company, we have no concerns for the personal financial well-being of Mike Lawrie. The company’s FY2013 Proxy Statement, now available on its website, confirms what one of our readers commented; namely that he earned US $ 21.3million in FY13. This in his first full year in the job, thus making him one of the top six highest paid executives in Washington area.

Further, the Proxy Statement discloses that in case of change of control, meaning CSC being acquired, Mr Lawrie would be entitled to an additional payoff of almost US$15million.  And if CSC’s Board of Directors decided to terminate Mr Lawrie’s employment, (except for “cause”, which is highly unlikely) he could collect a termination payoff of almost US $17million.  These look like Golden Parachute, and Supersize Yacht Lifeboat all in one.

Just as they did with Mike Laphen, CSC’s non-executive directors have given Mike Lawrie a pay package which has massively rewarded a short-term increase in CSC stock price; he will be further massively rewarded if he manages to sell CSC and will get even more if he fails and is terminated by the company.  Maybe Mike Lawrie has miscalculated the optimal ramp up of company profits in view of a sale of CSC, but he has certainly not miscalculated in the negotiation of his personal compensation package.

Let’s see what the earnings call tells us.


Anonymous said...
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Anonymous said...

> restructuring nearly complete

barely begun from where I'm sitting

Anonymous said...

>>We should all lighten up at CSC... share price doing good, restructuring nearly >>complete. Company on the up...

With a comment like that, you must be sitting in Falls Church or some other ivory tower cut off from the rest of CSC

Anonymous said...
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Anonymous said...

You brits need to cut these comments out...

Anonymous said...

Restructuring will resume soon after holiday period

Anonymous said...

Wake up and smell the coffee. CSC in Europe has been slashed & burned so hard it is barely functional. Morale is ridiculously low, good people have been laid-off, and their colleagues are sitting in abject fear that they will be next.

I've been through re-structures & re-organisations before, and this one is probably the absolute worst I've ever witnessed.

If you're in the US and for some reason are thinking CSC is turning around, WAKE UP AND SMELL THE COFFEE. You've been sold a lie.

The only strategy visibly at work in CSC is cut costs & sell. For pity's sake, even Lawrie's remuneration package has a sell bonus - what do YOU think he is motivated to do? Common sense says he's rewarded to SELL or FAIL. No bonus for turning the company around strategically.


Anonymous said...

He's perfect no matter how. 21.5 millions in his pocket in a year, and if he fails he gets some more millions. On the other hand we've managers that think that mobbin' is the best way to cut costs so that underpaid professionals resign. The company is rotten on the basis: VALUES

Anonymous said...

'You brits should cut this out'

What, do you mean stop telling the truth?

One visit to a British CSC office will tell you all you need to know.

Anonymous said...

CSC is a good place if you're young, straight out of college, or inexperienced. If you are an accomplished, ambitious IT professional, you will probably want to look elsewhere.

Anonymous said...

Article is bang on. Mike's brought in his own team and they are bringing in their own - which is fine except that most are bloody non-performers who are getting promoted to other key positions when they are unable to perform in what they had in the first place. Merit is out the door - nepotism is in - and no one can see that from the outside! All the partnerships (SAP, AT&T, HCL) haven't helped sell a freaking dime worth new business - only boosting stock prices in the short term - a sale in mind sounds like the only goal - lets see who gets unlucky buying what they've made of what was once a great place to work.