Saturday, April 22, 2017

Troubled Carlyle Group Affiliate to Reform Scottish Social Security

The Carlyle Group purchased PA Consulting in December 2015.  The UK's Parliament released a report on an investigation of PA Consulting.  It found:

PA showed a serious lack of due care for its client in a number of ways: it failed to tell UKTI it was procuring the wrong thing; it failed to provide a full and clear explanation of its costs to UKTI when asked; and it described passing extra back-office costs to UKTI as being in UKTI’s interest. PA has told us it accepts it could have been better at communicating and providing explanations to UKTI. However, its inconsistent and unclear submissions and explanations, to us and the National Audit Office as well as to UKTI, seem to us to be more designed to obfuscate and confuse than to provide clarity

PA’s repeatedly inconsistent explanations are indicative of poor record keeping and a lack of corporate understanding of what happened. It beggars belief that this would have got through proper quality assurance and management review processes. We are also concerned that PA’s bonus scheme for its partners risks incentivising poor behaviour in the absence of proper controls. PA has acknowledged that the team negotiating with UKTI did not have the right skills to undertake a commercial negotiation or to make fair representations to UKTI. It has also acknowledged that the issues with the UKTI contract should have been escalated sooner internally. 
UK officials escalated these concerns such that the contract was cancelled in January 2016.  Interestingly, PA's CEO explained why they sold 51% of the firm to Carlyle:

1)  PA is net-asset valued so acquisition and growth by bolt-ons was not easy
2)  PA has a sizeable pension scheme looking after large numbers of folk expecting considerable creature comforts in their retirement. This reduces its agility. The money brought to the table by Carlyle has enabled Middleton to insist that the substantial number of PA shares still owned by former employees are cashed-in, which helps incentivise existing and future staff. 
3)  It gives PA favoured access to Carlyle’s 200 portfolio companies. A virtuous circle of Carlyle using one portfolio member to nurture others. 
4)  For a small, family-like organisation it was high time for some growth especially in the United States where PA has little traction. 
I'll add a fifth.  PA knew it needed more political gravitas and Carlyle provided.  Proof is PA Consulting has a new gig focused on modernizing Social Security for Scotland.  PA Consulting will "work on the development of a new trial Scottish social security system." 

Carlyle has long wanted a piece of social security and individual retirement accounts.

Five years ago, Carlyle Group's David Rubenstein predicted a future where ordinary savers would be able to invest in private equity, an industry limited to wealthy individuals and institutions.
PA wants growth in the US and President Trump recently floated eliminating the tax that funds Social Security.

In a parallel story consulting giant PwC helped the government of India select 75 cashless townships

To qualify as a less-cash townships, the conditions included the township must have completed deployment of a payment acceptance infrastructure, and all the families residing there would have to covered under training programmes. Also, more than 80 per cent of the total number of transactions must have been done through digital modes of payments during the review period.
Social Security and cash may soon be things of the past.   Governments and consultants will have conspired to make this happen.  Rest assured private equity is driving both and has plans to profit every step of the way.