Ambushing Private Equity As SEIU Harries New Absentee Owners, Buyout Firms Dispute the Union's Agenda
By Thomas Heath Washington Post Staff Writer Friday, April 18, 2008; D01
Forget the marches and strikes that once defined the union movement. Big labor is relying more on guile and theatrics than blunt force to attack the ascendancy of a new form of corporate ownership: private equity.
And tactics often get personal. Union allies staged a satire outside buyout king Henry Kravis's lavish Long Island home, asking passersby to sign a petition giving him a break on his property taxes. Weeks later, protesters in business suits sneaked into a private-equity conference at the Waldorf-Astoria hotel in New York, where Carlyle Group co-founder David M. Rubenstein was giving a speech. They sought to shame him with a banner that read: "Why does he pay taxes at a lower rate than the hotel's doorman?"
Then on Halloween, union members wearing Rubenstein masks paraded in front of Carlyle's offices, handing out Sugar Daddy suckers.
The unorthodox protests are part of a campaign by the Service Employees International Union and its allies to position themselves as a check on what they regard as a new economic order, one dominated by the big private buyout firms.
Those firms have swept up hundreds of companies in recent years. As the economy softens, union leaders say they increasingly worry that private-equity firms will try to salvage their investments by pressuring management to cut jobs or benefits. And those dealmakers are in New York or Washington, away from where most of the employees actually work.
"We are up against the Masters of the Universe here, so we've got to be smart about what we do," said Dan Cantor, executive director of a public interest group called the Working Families Party.
Executives at the private-equity firms say that they have been responsible stewards of the companies in their portfolios and note that the unions themselves have invested in private-equity funds.
One of the SEIU's chief targets has been Carlyle. On a February morning, the SEIU's private-equity team plotted a new attack from the union's headquarters on Massachusetts Avenue in Northwest Washington.
Five union activists led by Stephen Lerner, the campaign's field general, ringed the conference table in the glass-walled room. The plan: Tie America's biggest buyout firms to Middle Eastern investment funds. The goal: Scare Americans into thinking their security is threatened by Middle Eastern investments in firms such as the District-based Carlyle Group, which often invest in companies that do important business for the U.S. government.
"We have put our hand into a beehive," Lerner said to his staff. "Carlyle has proven us right. Carlyle is an influence peddler."
The SEIU, which represents 1.9 million janitors, security guards, health care workers and others, has marshaled a big chunk of its membership and resources (it won't say how much it is spending). On this day, it planned demonstrations around congressional hearings looking into links between private equity and Middle East oil money, also known as sovereign wealth funds.
The union identified friendly politicians in Washington and in state capitals to contact. Like-minded public interest groups such as ACORN, the Working Families Party and United Students Against Sweatshops were enlisted as allies. Advertising campaigns were brainstormed. Talking points were formulated.
Lerner proposed a "late-night CNN commercial" labeling the Abu Dhabi government's $1.35 billion ownership of a stake in Carlyle as a potential risk to U.S. security.
"We should make some hay of it," said one of the team members. "Maybe do some public demonstrations around it."
The stakes are high, union officials said.
"Our country and the rest of the world is living through the most profound, significant and transformative revolution in the history of the world," said SEIU President Andy Stern, whose union will spend $100 million trying to get candidates elected over the next two years. "What we are seeing is the growth of a new form of capitalism."
In the United States alone, there were 881 buyouts worth a total of $390 billion in 2006 and 752 deals totaling $397 billion in 2007, according to Dealogic, a data-research firm. Those included Carlyle's $22 billion purchase of energy infrastructure company Kinder Morgan, Blackstone Group's $39 billion acquisition of commercial real estate giant Equity Office Properties, Kohlberg Kravis Roberts's $33 billion purchase of for-profit hospital chain HCA and TPG's (formerly Texas Pacific Group) $45 billion purchase of utility TXU.
Since the SEIU's assault began, there have been private-equity hearings on Capitol Hill and federal legislation introduced on nursing-home care. Legislation was introduced in California to stop private-equity firms from accepting new investments from countries with poor human rights records. The bill has been withdrawn. The Carlyle Group issued a bill of rights for patient care last year following criticism from the union.
Lerner and Stern began meeting with the heads of the big private-equity firms about a year ago, asking them to be more generous with health care, salaries and other employee benefits.
"Our tone was, 'You are now employers and you have a responsibility to make life better for employees,' " Lerner said.
When the union didn't get the response it wanted, it turned up the heat. It picked Carlyle and its co-founder Rubenstein as foils because Rubenstein often speaks publicly on private-equity issues. They set up a Web site called "Behind the Buyouts" and issued a 42-page pamphlet criticizing the big profits at buyout firms.
Carlyle and its allies said the SEIU's goal was less about global economics and more about recruiting new union members and enhancing its ability to organize workers. They said the SEIU was conducting several similar campaigns designed to embarrass companies such as Wackenhut and HCA. Wal-Mart is going through a similar hazing from the United Food and Commercial Workers union.
"These campaigns are three-dimensional negative political campaigns waged against the reputation of the target," said Steven Law, general counsel for the U.S. Chamber of Commerce. The SEIU's "true goal is to inflict as much pain as possible so that the employer gives the union what they want."
What the union really wants, say private-equity executives, is to force employers to waive their rights to insist on a secret ballot on union representation. Unions want to be able to organize a workplace by gaining the signatures of a majority of employees; executives say signatures could be coerced.
Carlyle spokesman Chris Ullman said the firm has had "productive relations with unions for 20 years." He attributed the SEIU's recent attention to its desire to organize 60,000 workers at Manor Care, an Ohio-based nursing-home company that Carlyle only recently acquired.
"The SEIU is frustrated over its inability to organize Manor Care in the past 12 years before we acquired the company three months ago," Ullman said.
The buyout firms note that even as the SEIU blasts them, it benefits from private equity. The union's New York affiliate, 1199, has given Carlyle $15 million to manage its pension fund. The SEIU said the money has been tied up in a Carlyle buyout fund since 2005, before the private-equity campaign.
Whatever the motives, the SEIU has found novel ways to attract attention.
A few days after the Waldorf gig, for instance, the SEIU bused dozens of members to Carlyle's Pennsylvania Avenue headquarters, where they stood outside chanting, "Better staffing, better care, no more money for billionaires."
In January, activists showed up at a Rubenstein speech at the University of Pennsylvania and shouted at him with bullhorns, bringing about a testy exchange between Rubenstein and one activist. When Rubenstein last December bought a $21 million copy of the Magna Carta that he gave to the National Archives, the SEIU instantly prepared a "Top Ten" list of why Rubenstein donated the Magna Carta, including labeling him "a medieval baron."
"There's always been a history of us doing really creative things to shed light on issues, which includes humor and absurdity," Lerner said.
Not everything works.
The SEIU endured a setback last week when California lawmakers withdrew legislation to stop California's giant public pension funds from investing new money with private-equity firms that are partly owned by countries with alleged poor records on human rights. Gov. Arnold Schwarzenegger (R) said the bill "would cause a deep wound to our retirement funds and government programs when we can least afford it."