Thursday, 31 October 2013

CSC class action lawsuit settlement. Was justice done?

The US courts have approved CSC paying just over US$ 97 million to settle the Class Action lawsuit brought by the Ontario Teachers’ Pension Fund and others. The lawsuit alleged that CSC and its CEO of that time, Michael W Laphenwillfully and fraudulently misled shareholders about the real state of the failed NHS project in the UK. The judge agreed with this.

The UK daily “The Guardian” recently reported on the background to the case and the settlement, per the below link:

Let’s look at how the various key figures and groups involved in this episode have fared:

The class action plaintiffs agreed to the settlement, so presumably must feel they got reasonable compensation for the prejudice they suffered.  

Former CEO Michael W Laphen has since left the company, helped along by a payoff in excess of US$ 20 million. Additionally CSC is paying him a monthly pension of US$ 81,000 for life.  (That makes his pension each year worth $972,000 or $29,160,000 if he takes it for 30 years) Thus Laphen will have collected from CSC $50million dollars after the leaving the company. We are not aware of Laphen having to make any contribution towards the settlement amount.  He can stay out on the golf course for the rest of his life and not have to worry about calls from his bank manager.

Guy Hains, the then President CSC Europe, was the senior executive with personal accountability for the NHS project. He left CSC almost 12 months ago.  We do not have all the details of his severance package. CSC disclosed that his remuneration for FY2012 was in excess of US$ 2 million. Add to that his remuneration during his tenure as President Europeand we doubt that he is suffering any kind of financial hardship.

The CSC non-executive directors were supposed to look after the interests of the shareholders, specifically by providing adequate oversight over the senior executives.  We look at the amount ofsettlement of the Class Action lawsuit and ask ourselves how the non-executives could have allowed this mess to occur if they were exercising adequate oversight. This seems particularly pertinent in the light of reports alleging difficulties appearing in reputable media sources as far back as 2006.  

Two or three of these non-executive directors have since reached mandatory retirement age and have stepped down.  The others have been rewarded with a 50% increase in their retainer remuneration. We are not sure what they have done to deserve this.

So the key players in CSC who played a role in the events leading up the lawsuit do not seem to have suffered too much financial damage from the NHS fiasco and lawsuit, while employees who did their bidding are losing out.

So who has suffered?

Firstly, the UK taxpayers have seen literally billions of dollars (or more accurately, pounds sterling) of their money wasted.

We suppose that many of the CSC employees who worked on the NHS project from 2003 onwards (many of whom worked 60 and 70 hour weeks without overtime payments to make this mess work) have now lost their jobs as the company has re-structured and downsized.  We wonder how many of these people were amongst the employees who unsuccessfully tried and tried to get CSC senior management to listen to their concerns about the real state of the project.

CSC employees who had never been involved with NHS in any way have also become victims of its failure, being made redundant  as a result of the massive financial damage the NHS project did to the company.

And finally, there are the normal CSC shareholders. They saw the value of their investments crash as the company’s NHS propaganda unraveled and CSC’s financial condition with it.

It seems that the CSC top management responsible for the NHS fiasco, and the non-executive directors who were supposed to provide oversight to prevent such disasters, have not sufferedmuch financial damage at allThe losses are borne by the employees and “shareholders on the street” who naively entrusted their investments and careers to the CSC senior executives and Board of Directors.

That’s justice isn’t it?

Tuesday, 22 October 2013

Is CSC's past catching up with it? or Where is CSC's growth?

In a week or two CSC will be announcing its Q2 results. This will be an important report for Mr Lawrie and his management team as not only have they via previous quarterly reports set high expectations in the market they have given a very strong message about CSC's future growth. We expect the upcoming report to be professional with many positive statements about the reported quarter but judging from employee posts in various blogs and from reports in the media we think there is an underlying and as yet undiscussed decline occurring in CSC's performance. 
Why do we say this? Here's why:
The UK Government has closed down CSC's cash cow, the NHS National Program for IT. The reasons for this are thoroughly documented in the media, on the internet, in various UK government committee meetings, and in this blog.
There are few if any sizeable new contracts announced. In fact Allianz Insurance, a company with which CSC has a long standing relationship, has recently signed a multi-million dollar long term outsourcing agreement with IBM even though it was in close discussions with Mike Lawrie and his Executive Team at CSC. 
A former CSC employee now with a large IT user witnessed CSC bidding on a major contract has posted a comment; I am ex CSC and the company I moved to (massive UK company) was considering CSC as part of a large outsourcing deal. The issue was that the CSC sales team came in and delivered by far the best pitch, everyone was very impressed. We then went to see the operation in the flesh and it didn't add up. All that was promised was not visible on the ground and we walked out of the session and left. This is due to the issue that I saw every day within CSC; a chronic lack of investment in the operational ability of the company.’
Employees report confusion about structural changes, the people who actually deliver services are being decimated in what are obviously badly managed staff reductions, thus reducing service quality. They also report that the senior technicians who fixed technical failures before they became customer problems are being made to leave before suitable replacements are found. 
As a result of all the above morale is reported to be at an all time low which again must impact service along with the manner in which employees engage with customers. This may be one reason why Allianz walked away from negotiations. Or maybe it was because Allianz was not comfortable with CSC's recent track record of laying off staff who had cut over to them as part of an outsourcing contract.
We would comment that there seems to be a vicious spiral of decline occurring at CSC. Cost cutting is needed as is new investment and renewed skills and leadership, all of which creates a tricky balancing act for management. CSC's seems to be dropping a lot of plates.
Thus, although the financial spinmeisters in CSC may be able to conjure up a positive Q2 financial report for the market analysts, it still needs to show there is new revenue and growth from innovative services (not the much hyped and under invested in cloud computing), while ensuring that contributions to the bottom line are not just the results of the CSC trademark slash and burn cost cutting, tax management, and rescheduling of revenues.
The call on 30th October should be fascinating.

Sunday, 13 October 2013

The UK Government abandons NHS IT system

CSC's cash cow now dry? ref: previous post.

So the UK government has finally bitten the bullet and given the decision to close the disgracefully late and failed system it bought from CSC. 
The big questions now are:
What will be the impact on CSC earnings?
What will be the impact on employees?
What will CSC tell analysts on its next earnings call?
Will they fess up to the true state of monetary write-offs needed to clear this from the books?
What will CSC tell clients as this obvious failure damages the company's reputation.

Read more here

And here

And here