Saturday, May 11, 2013

Shameless Carlyle Takes Third Run at Japan

The Carlyle Group will launch a $2 billion fund targeting Japanese acquisitions.  It will be interesting to see how Carlyle's offers are received.  Japanese managers traditionally felt great responsibility for their workers and the quality of their products.  When a company bore public shame due to poor products/services or harm to employees, Japanese managers were known to commit hari Kari, ritual suicide.

Ritual suicide eased during the last two decades as Japanese management imitated its shameless American counterparts.  On both sides of the Pacific, men in their 50's who'd lost their job and faced financial ruin commited hari cari in Japan or suicide in the United States.  This is the ugly, unspoken side of job loss.

Famed quality guru Dr. W. Edwards Deming spoke in 1984 about the U.S. and Japan:

Acquisition, creative accounting... There's a better way, a better way to protect investment.  That is with plans that keep the company in business and which will provide jobs, more jobs.  Unemployment is not inevitable.  Unemployment is a sign of bad management.  Lost America.

Japanese management has not the Deadly Diseases.  They have not the annual rating.  They have not mobility of management or mobility of anything else.  They do have constancy of purpose.  They intend to stay in business.  They do a pretty good job of it too, you have to admit.  There is not takeover.  There is not leveraged buyout   Management and everybody in the company have one aim.  Quality.

Leveraged buyout is the precursor to private equity.  Private equity exploded after 2000, so much so world governments were encouraged to cater to private equity firms. 

Dr. Deming referred to America's "storehouse of unemployed:"

When you think of all the under use, abuse and misuse of people of this country  this may be the world's most underdeveloped nation. Number One.  We did it again.  We're #1....for underdevelopment.  Our people not used.  Mismanagement.  Misused, abused and underused by management that worships sacred cows, a style of management that was never right.

Private equity underwriters (PEU's), like The Carlyle Group, implemented a new set of sacred cows, leverage, liquidity recapitalization, and preferred carried interest taxation.  Carlyle co-founder David Rubenstein sells his value to society via "patriotic philanthropy." Yet, the storehouse of unemployed remains with many college graduates unable to find jobs..

Dr. Deming once taught Japanese managers his theory and methods.   His teachings improved lives for millions of people.  The Japanese named their Quality Prize for Dr. Deming.  In Dr. Deming's final years he called for Transformation of Management. In his vision leaders would understand Systems, Knowledge, Variation and Psychology and their interactions.  Leaders would work toward win/win and providing jobs. 

Carlyle's Japan Partners III faces Japanese conglomerates, historically reluctant to sell non-core businesses, and owners wary of loading companies with too much debt.  PEU's have work to twist Japan into their image. 

Can private equity firms put more nails in the coffin of Dr. Deming's teachings?  How long before Japan starts a Rubenstein Prize for greatest exit?  For a balancing measure to ever ascending PEU wealth, watch the suicide rate for men in their 50's who work for private equity affiliates.

Update 11-23-14:  The Carlyle Group's David Rubenstein said Japan is now ready for private equity and its financial machinations which cause distortions.  “I think we are going to find more opportunities in Japan than before,” said Mr. Rubenstein, who is raising a new fund to invest in the country. “I do think that Japan will see a bit of a mini boom in private equity investing as the government encourages more and more private-equity deals.”