Thursday, April 16, 2015

Ex-Walmart CEO Goes PEU with Carlyle Group

WSJ reported:

Carlyle Group LP has enlisted former Wal-Mart Stores Inc. Chief Executive Mike Duke to join the stable of executives the private-equity firm taps to help it find and vet deals and steer the companies it owns.

Mr. Duke, 65 years old, retired from Wal-Mart in early 2014 after five years in the top job at the world’s largest retailer. At Carlyle, he will work with a group of deal-makers at the Washington, D.C., firm that buys and invests in consumer product and retail companies
Note Duke's parallels with private equity underwriters:

1) A five year hold is relatively common for Carlyle Group investments that can't be flipped in the first year or two for monstrous profits.  Duke was with Wal-Mart for five years.   A major business reporter wrote four years ago:

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.

The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.
I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!

2) Wal-Mart provides low wages and less benefits, like many Carlyle Group affiliates.  One Dunkin' Donuts employee supplemented her low pay with a special menu.  Wal-Mart's current CEO did a mea culpa on the company's treatment of employees, which likely started under Duke.

I’ve seen us change a lot over the years. We’re always trying to do the right thing and build a stronger business. We frequently get it right but sometimes we don’t. When we don’t, we adjust.  In recent years we’ve had tough economic environments, a rapidly growing company, and fundamental shifts in how customers are shopping.  We also made a few changes aimed at productivity and efficiency that undermined the feeling of ownership some of you have for your business.  When we take a step back, it’s clear to me that one of our highest priorities must be to invest more in our people this year.

3)  Wal-Mart loves China like Carlyle co-founder David Rubenstein.  Carlyle sent many auto parts manufacturing jobs to China under its ownership of United Components.  I wrote in 2011:

When Carlyle purchased UCI it had no Chinese subsidiaries.  By 2010 UCI had thirteen subsidiaries in China or Hong Kong.  The number of employees fell from 6,900 to 4,350.  Carlyle pulled $35.3 million from UCI via a special dividend in 2007.   Add their $2 million annual management fee and the total rises to $47.3 million. 

4)  Both subjected consumer goods customers to dangerous Chinese products.  Carlyle's Oriental Trading sold cadmium tainted jewelry for school kids, while Wal-Mart sold toxic dog treats laced with melamine. 

Mr. Duke said his relationship with Carlyle co-founder and co-CEO David Rubenstein, whom he has served with on the advisory board of the Tsinghua University School of Economics and Management in Beijing, led to his joining the firm.
Ah, Chinese management practices which include two sets of books on quality measures, one for Western buyers, which often times is pure fiction.  Both Carlyle and many Chinese leaders have a history of bribing.

Duke and The Carlyle Group is a match made in heaven for someone, but it's not employees.