Posted on June 2nd, 2009 by Tim Eavenson | 2 Comments »
Filed under: ., Labor Law | 
In response to the story I posted about the LA Police Protective League asking its private equity fund, Platinum Equity, to oust the editorial staff of the newspaper it acquired, I got the following email from Eric Rose at Englander & Associates, the PR firm working with the LA Police & Fire Union, along with a copy of the original letter sent to Platinum (linked here).
Here is Mr. Rose’s response:
You are right, The Los Angeles Police Protective League raised some eyebrows across the state by calling for replacement of the editorial staff of the San Diego Union -Tribune. Who is a law enforcement labor organization to ask for such an action, and why did they ask for it?
First, like so many police officers, the men and women of the Los Angeles Police and Fire Departments are now part owners of the San Diego Union-Tribune by virtue of the investment of $35 million of their retirement dollars into Platinum Equity, the private equity fund which bought the Union-Tribune. They joined other public employees such as school teachers in Pennsylvania, Louisiana and New Mexico in providing the investment capital for Platinum Equity.
The Union-Tribune Editorial Board is one of the most vociferous anti-public employee pages in the State. A prime example is its near weekly attempt to lay all financial woes in the state at the feet of public employees with little regard for the facts. A case in point is the current issue with respect to pension funding.
Never once does the editorial page mention that a main cause of pension fund shortfalls across the state was the failure by public entities to make annual required contributions to their pension funds. The diverted funds were used for other projects, depriving pension funds of money when the stock market was rising and the money invested with the most impact.
Take the City of San Diego as an example. The Union-Tribune’s own staff reporters (not its opinion writers) found the problems began in 1996, when instead of contributing to the pension fund, money was diverted to pay for the costs of the 1996 Republican National Convention and expanding Qualcomm Stadium. An independent auditor wrote that City officials encouraged reducing the “flow of money to the City’s pension system in order to benefit the City while creating no compensating benefit for the City Pension system.”
Where was the “watchdog” Union-Tribune Editorial Board when these shenanigans were going down? Partying like there was no tomorrow. The Union-Tribune’s $500,000 party on San Diego Bay during the Republican Convention is still remembered as a highlight of the event. Strangely, no editorials were written questioning the wisdom of diverting pension fund money to subsidize the Convention’s cost.
Likewise, nary a word was heard from the Union-Tribune’s Editorial Board when in the late 1990′s the County of San Diego went nearly six years without making a payment, over a full payment to the contribution system. Nor were there concerned editorials when during the same time period the State, as well as numerous cities and counties, went four years without making annual contributions to CALPERS—or when starting in 1990, the State went 18 years without paying any money into the UC pension system.
No, in the eyes of the current Editorial Board, it is only “overpaid” police officers, fire fighters, teachers and other public employees who are responsible. Real solutions will require all of us to work together. America is the greatest nation on earth and has overcome two world wars, financial depressions, and countless other challenges with our greatest assets-our willingness to work together and our ingenuity.
The editorial position of the Union-Tribune fairly represented the views of its owners prior to the purchase by Platinum Equity. It’s repeated bashing of police officers, firefighters, teachers and other public employees doesn’t represent the views of its current owners. And, if you think that editorial pages don’t reflect the views of their owners—-how many editorials have the Times written critical of Sam Zell and the ripple effects from his financial problems after he bought the Times?
Public safety employees will not tolerate the continued attacks of our dutiful law enforcement, firefighters and teachers who have invested their lives and in some cases given their lives in serving our communities. As investors in Platinum Equity, it is our responsibility to uphold the promises we have made to our various members and vigilantly protect them from undue attacks.
It is obvious that their constant criticisms and abhorrence of public employees will continue and, they have no intent to be part of the solution. It is for these reasons that the LAPPL on behalf of the public safety community asked the leaders of Platinum Equity to replace the editorial staff of the Union-Tribune with people who will offer balanced, well reasoned, and solution orientated pieces.
CE obviously doesn’t have a dog in this hunt, but if you want to take sides on any of the myriad issues here (free press, union/equity ownership, etc.), feel free to have it out in the comments.
Posted on May 29th, 2009 by Tim Eavenson | No Comments »
Filed under: ., Employee Benefits, Labor Law |
by allaboutgeorge (flickr)
Last week, I posted a summary of a LERA presentation on the benefits of private equity firms using labor pension funds to invest in struggling businesses.
One of the upshots discussed at the lunch was that the pension funds had greater control over the use of their investments.
Instead of just being a faceless, unimportant investor, the fund’s money would be used to direct an individual business’s trajectory, making it a win-win for the union. The pension money grows, and the investment advances the agenda of the union.
At least one union is stretching the limits of that theory.
Earlier this month, the Beverly-Hills-based private equity group Platinum Equity bought the struggling San Diego Union-Tribune for an undisclosed amount. Usually, what happens after that is that the private firm just reorganizes or breaks up the company, and then sells it for a profit, which satisfies its investors.
In this case, though, the Los Angeles Police and Fire Pension System has upwards of $30 million invested in Platinum, and one of the unions contributing to that pension fund, the Los Angeles Police Protective League, wants a little more for its money than double-digit ROI . From the San Diego News Network:
[T]he union that represents Los Angeles police officers is demanding the ouster of the newspaper’s editorial page staff….
In a letter to Platinum Equity Chief Executive Tom Gores, Los Angeles Police Protective League President Paul M. Weber said the Los Angeles Police and Fire Pension system is now a Union-Tribune part-owner because of its $30 million investment in Platinum.
The union is complaining about editorials in the Union-Tribune that have repeatedly criticized the amount of money going into San Diego’s public employee pension plans. The union says that it’s investment makes it part owner of the paper, and therefore the editorials are out of line, and the staff should be replaced.
How exactly one contributor of one investor of the company that eventually bought the newspaper becomes part owner is sort of lost on me. And, apparently, on Platinum:
In a recent interview with the Union-Tribune, a Platinum executive indicated that the union was wasting its time because Platinum has no editorial agenda.
But the union does make one interesting point. This idea of “control” is a selling point for the private equity funds. The news story has the following quote from the union’s letter to Platinum:
“When you went to pension funds seeking their investment dollars, you promised to invest that money for the benefit of those funds and their members… One way you can fulfil that promise is to dismiss the Editorial Staff of the San Diego Union-Tribune.”
In this case, of course, the argument is meaningless because the union isn’t the investor, the pension fund is. But if a pension fund decided to get militant, who would be the final decisionmaker? The private equity fund, for sure. That’s why we separate funds from their beneficiaries – so fiduciaries can focus on the greater financial good, without getting bogged down in principle and moral directives.
But that makes the private equity funds’ “control” selling point a fallacy from the start, right?
Posted on May 20th, 2009 by Tim Eavenson | No Comments »
Filed under: ., Labor Law |
Cat dog bed by Jon Åslund (Flickr)
Some unions in troubled companies are finding an unlikely source of salvation and partnership: private equity.
Yesterday, the Chicago Chapter of LERA invited Steve Sleigh, a member of the private equity group Yucaipa Companies, to discuss the current state of labor and capital. Sleigh admitted that private equity is most often associated with greedy takeovers, where the investor comes in to sell off profitable pieces of a foundering company, instituting layoffs and forcing concessions from unions. Increasingly, private equity is the third seat at the table of industrial relations, and disliking its interference is sometimes the only thing unions and management can agree on.
But it doesn’t have to be that way, according to Sleigh. Yucaipa occupies a unique position in the private equity arena: their partners come from backgrounds in all three camps – labor, management and finance, and their focus is on companies with unionized workforces and a solid product. The investments come in large part from multi-employer pension funds, which means the private equity group essentially becomes a conduit for unions to reinvest in the labor movement.
Like most private equity investors, Yucaipa buys companies in hopes of retooling them and selling them. But Sleigh thinks that the prevailing model of reducing payroll and benefits in order to accomplish the quick turnaround is short-sighted. Instead, Yucaipa starts its analysis by assuming that the labor costs are fixed, and then asks what else at the company can be adjusted.
In one example, a large, Midwestern cold storage company had each of its locations making individual contracts and operating decisions. Every facility had its own IT contracts, its own practices and guidelines. “They had 120 fiefdoms,” Sleigh said. By consolidating operating decisions, the company was made profitable with no loss of employment or benefits.
The secret, according to Sleigh, is in getting labor and management to focus on the good of the company together. “We often say that we’re mediators with money,” he said. By the time a company is failing, though, the two sides are often either giving up or at each other’s throats. ”My number one question is always: Who cares about the firm?” The number one answer, Sleigh said, is usually the workers – not just because they want to keep their jobs, but because longstanding workforces develop senses of community that will be lost if a company is grossly restructured or closed. By working with the unions – and having partners with history in labor organizations – Yucaipa can get early information on issues like cash flow and productivity that guide its investment decisions.
Sleigh also pointed out one of the key areas where companies get into trouble with their unionized workforces: lack of transparency. Sleigh said that, during a restructuring, they require annual presentations to both management and union representatives on the health of the company. That way, no matter what changes are needed during the turnaround, they’re not a shock to anyone. Putting unions and management on the same informational page also fosters cooperation between the parties, according to Sleigh.
Here, though, Sleigh said unions presented the biggest obstacle. Often, the union doesn’t have anyone to represent them who truly understands the financials. He said unions needed to start thinking of themselves as partners in the process.
It seems there would be some inherent conflicts in using private equity – with union pension fund backing – to restructure unionized workforces. First, what happens when a company won’t survive unless pension benefits are cut, or a defined benefit plan has to be changed to a contribution-based plan like a 401(k)? It seems like robbing Peter to pay Paul. Sleigh said that Yucaipa actively avoids those investments, and that they would ask for concessions where necessary. But drastic measures like replacing plans are much less necessary than people think.
“In 20 years of doing this,” Sleigh said, “I don’t think we’ve ever replaced a DB plan.”
Sleigh was also quick to dispel the notion that his work was less investment and more labor activism. “It’s not our business model to just be nice to unions,” he said. “It’s that being nice to unions is good for our business.”
How good? In the twenty or so years that Yucaipa has been doing this type of private investing, their average annual ROI sits above 40%. In the past few years, when overall investing has seen losses of about 35%, private equity (including Yucaipa) has lost more like 5%. That makes pension plan fiduciaries happy to invest, Sleigh said. The benefit to unionized workforces is a happy side-effect.
So what’s the next step for this blended investment model? Employee ownership. Sleigh said that he’s working on a business model that would use ESOPs as an exit strategy. So, once a company was healthy, instead of putting it up for sale on the open market, an ESOP would be put in place to turn ownership over to the employees without requiring the massive debt that’s made recent ESOP use such a disaster (think: Sam Zell’s Tribune takeover).
