Private equity unveiled

If there’s one thing that his friends and foes could readily agree on, it’s that Stephen Lerner doesn’t lack chutzpah.

The fast-talking labor leader says he’s had “a lot of fun” orchestrating a series of bold and sometimes comic attacks on the private equity industry in recent months. He warns that they will continue unless the industry changes its ways.  

“Where they are, increasingly you’ll find us — physically,” says Lerner, the head of the “private equity campaign” at the Services Employees International Union (SEIU).

{mosads}In October, SEIU members shuttled wheelbarrows of fake cash “straight from the IRS” to the Carlyle Group, the Washington-based private equity giant. They deposited the cash at the foot of a “Carlyle fat cat” in an attempt to highlight the industry’s favorable tax treatment.

Last summer, seersucker-clad actors posing as wealthy bluebloods picketed the summer home of Henry Kravis, an industry icon and one of the founders of Kohlberg Kravis Roberts. They waved placards in mock defense of the tax treatment.  

When Carlyle Managing Director David Rubenstein bought the Magna Carta for $21 million in December, the union quickly fired off the “top 10 reasons” for the purchase. No. 5 on the list:  Rubenstein would use the 13th-century document as a “prop to hold up at the next congressional hearing on tax breaks for buyout billionaires.”

Lerner credits such “creative actions” for “pulling back the veil” on an industry he asserts is gaming the tax system even as it accounts for five of the top 10 employers in America through firms’ ownership of underlying companies.

Lerner says the union is only demanding that private equity firms provide good wages and benefits to the employees of these portfolio companies and allow them to unionize.

However, the industry thinks otherwise, arguing that the SEIU is waging its attacks in order to attract media attention and to boost its ranks.

“It is unfortunate that the SEIU has decided to demonize private equity as a way to grow union membership. In truth, many private equity firms have strong and positive relationships with unions,” said Douglas Lowenstein, the president of the Private Equity Council, the industry’s fledgling trade group.{mospagebreak}

He added that the union has been making “increasingly extreme and unsupported characterizations” of private equity.
Lerner is unlikely to be deterred, however. He argues the campaign is working, claiming that the public is starting to see the private equity industry as a money pot to pay for sweeping changes in social policy.

“Now people are saying, ‘These guys are making so much money that there’s a way to fix some of the problems,’ ” he says.

{mosads}A veteran of the labor movement, Lerner cut his teeth as a Manhattan teenager helping with the nationwide grape and lettuce boycotts of the 1970s. Skipping college, he went straight to work for the United Farm Workers. Later, he moved to North Carolina, where he organized garment workers.

After joining the SEIU in the 1980s, he rose to prominence as one of architects of the union’s highly successful effort to organize janitors across the country.

Lerner has a habit of sketching diagrams on napkins and has won the esteem of his colleagues for his ability to dissect the power structure of a given industry.

Janice Fine, a professor of labor relations at Rutgers University, said he was “one of the most brilliant thinkers” in the labor movement.

Lerner says he is applying one of the core tactics of the janitors’ campaign — bringing media and community pressure to bear on those at the top of the income ladder — to his assault on the private equity industry.

The strategy, as Lerner puts it, is, “let’s go to the top of the money tree, let’s go to where power is and engage those people directly.”

So far, the union hasn’t wangled any concessions from private equity firms. But it has proven itself to be a real thorn in the side of the industry.

In recent months, SEIU has attacked Carlyle over its purchase of nursing home company Manor Care, arguing that the deal would hurt workers and patients.

By protesting the deal in several states, the union forced Carlyle to run around the country to assure regulators of its intentions.

It pressured regulators in West Virginia to hold a hearing in which a union official cross-examined one nursing home executive.

This month, SEIU members heckled Rubenstein off the stage at a private equity conference in Philadelphia.

Carlyle spokesman Chris Ullman said that the firm has had “productive relations with unions” for 20 years, including at “several highly unionized companies” it owns.

Ullman argues that the SEIU is trying to bully Carlyle into helping it unionize a company that it has failed to organize over 15 years.

Meanwhile, the union has also stirred publicity about Carlyle’s sale of a 7.5 percent stake in the firm to an arm of Abu Dhabi’s government, saying the transaction raises national security concerns because of the firm’s government contracts.

Lerner says that SEIU will beat the drum even more about sovereign wealth funds this year, particularly those investing in the private equity industry.

“When you marry private equity and sovereign wealth you have two super-secret organizations,” he asserts.

By using such aggressive and unconventional tactics, the SEIU may be driven by its desire to survive. It is a “very, very innovative union” that is trying to reinvent itself, argues Charles Craver, a professor of labor relations at George Washington University.

 Only 7.4 percent of private-sector workers are unionized, down from a high of 35 percent in the late 1950s, points out Craver: “If union membership falls to below 5 or 4 percent, they will become almost irrelevant to the private sector.”