For the Service Employees International Union (SEIU), one of the country's largest and fastest-growing unions, the deal is an entry point into a larger conversation about private equity -- a way to raise critical questions about its role in the nursing-home industry, workers' lives, and the future of the American economy.
The Carlyle buyout comes in the wake of a September New York Times piece chronicling the gross neglect at homes where cost-cutting measures on the part of private equity firms have jeopardized the quality of care. In one Florida nursing home the Times investigated, the number of registered nurses was cut in half in the year after the buyout, and overall, staffing at homes owned by private equity firms was 35 percent below the national average. The investors made millions off the deal, but staffing levels and patient care took a severe hit.
In the past few years, private equity firms have made deals to purchase six of the 10 largest nursing-home chains in the country. More than 200,000 nursing-facility beds in the United States are now under the control of private equity firms. Now, with Carlyle's purchase of Manor Care, 37,000 more beds will be owned by a private equity firm, one whose properties include everything from Dunkin' Donuts to the Hertz rental car corporation. In many ways, Carlyle's purchase of Manor Care gives SEIU the perfect platform to strike up a conversation about the impact of these big buyouts.
Private equity is an investment model that, though it has existed in one form or another for 25 years, is beginning to play a major role in the U.S. economy. In 2006, private equity firms accounted for roughly a third of all mergers and acquisitions in the United States, and they are on track to shatter that record this year. The firms operate by leveraging debt to buy large, public companies and take them private, where their profits can be classified as capital gains and taxed at a rate of 15 percent rather than the 35 percent rate on corporate income. Under a typical buyout, the private firm will take on a portfolio company, spend three to five years working to cut costs and make the company more profitable, and then resell.
For the most part, these deals have gone down with little public scrutiny; as private companies, the firms are excused from filing with the Securities and Exchange Commission and are subject to a lesser level of examination from both the federal government and shareholders. Private equity fund investors and partners, as well as the executives of the companies they buy up, turn high profits on the deals, while the firms pay significantly lower taxes and often make their money at the expense of workers and the quality of service they provide. Firms have spent millions on lobbyists to protect their tax loopholes, with Carlyle and its portfolio companies alone dropping $23 million in the past five years, according to SEIU figures.
In several high-profile cases, the owners of private equity firms have denied knowledge or responsibility when their portfolio companies are criticized for neglecting worker rights or declining service standards. As these firms have started to enter into the nursing industry, where cost and staff cuts are a very immediate concern, questions about the efficacy of that model have started to come from citizens and lawmakers alike. On the heels of these questions, SEIU seeks to turn the private equity model into something that actually benefits workers, citizens, and the economy.
The Carlyle Manor Care buyout is a perfect example of why SEIU has deployed a very public campaign to raise concern about private equity. Along with the 552 Manor Care facilities in 30 states, Carlyle is also taking on $5.5 billion in debt, which creates plenty of anxiety about how the new owners might attempt to cut costs and turn a profit. At the same time, Manor Care executives stand to make up to $254 million on the deal, including as much as $186 million for Manor Care CEO Paul Ormond alone (after he cashes in his company stock). As SEIU is eager to point out, those big profits for executives and the new owners are dollars that aren't being spent on measures to improve patient care, give health care to the company's 60,000 employees, or even guarantee that all those jobs will still exist. Since the buyout was first announced in July there have been few indications that Carlyle intends to work with employees to address their uneasiness.
In October, the company issued a "patients first" pledge in response to the pressure from SEIU, a rare step for a firm that usually remains aloof in light of criticism. But both SEIU and some health-care experts have dismissed the pledge as nothing more than a public relations move designed to expedite the Manor Care deal. And in early November, Manor Care announced that they would be restructuring after the Carlyle takeover, which SEIU is concerned will create more layers to the company and make operations even less transparent.
SEIU's concerns about the Carlyle deal mirror those about the larger industry, says Stephen Lerner, assistant to SEIU President Andy Stern and the man behind their private equity organizing. While executives make major profits on buyout deals, workers aren't given any guarantees that they'll even have a job the next day. SEIU wants to leverage the workers' power to hold these firms more accountable in the wake of a buyout.
With only about 1,000 SEIU members among the Manor Care staff, the effort can't just be about traditional union tactics like collective bargaining, said Lerner, whose work on the Justice for Janitors campaign in the 1980s and 1990s made it one of the most successful examples of modern organizing. The campaign can't just focus on helping current SEIU members; it must also raise the big questions about what this new economic model means for all workers. It's about tapping into the growing discomfort about wealth disparity and pointing to private equity as one example of why that's happening, Lerner said.
"There are these incredible changes in the world and the economy, and if we're going to help make things better for our members and for people who aren't in the union in this country, we can't just engage in the narrowest way of our collective bargaining," said Lerner.
"People are not opposed to somebody getting rich. That's a great American tradition. But people are increasingly angry about people who get rich at others' expense, and they really draw a line there," he continued. "There's not a shortage of money. There's not a shortage of jobs. There's a shortage of good-paying jobs, and there's a shortage of money being in the right places. We're talking about how we build a movement in this country that talks about [this] distribution problem."
SEIU organizers see four major avenues for engaging with private equity firms about their concerns: through traditional union tactics like organizing; through citizens, seniors' groups, and workers raising concerns about buyouts in their communities; through discussions with the pension funds that are helping fund the buyouts; and through convincing political leaders to take legislative action to eliminate tax loopholes and improve regulation of these deals.
Their campaign to date has included public demonstrations, and this fall 200 Manor Care workers from Ohio, Pennsylvania, and Michigan clad in purple and yellow and stormed into Carlyle's Washington, D.C., headquarters. It's also included street theater in front of Carlyle's building, with members dressed as "fat cat" CEOs rolling in bags of fake money and in candy bar costumes bearing names like "King Size Paycheck" and "Loophole Savers," handing out information about private equity. In October, SEIU members converged on the shareholders' meeting at Manor Care headquarters in Toledo, Ohio, to protest their decision to approve the takeover without a commitment from Carlyle that the buyout wouldn't lead to staffing cuts or decreased quality of care.
The public events are coupled with private meetings between Stern and executives from Manor Care and Carlyle, as well as paid media spots and conversations with individual investors. It also involves meeting with regulatory groups in cities where facilities will be transferred to Carlyle, and asking them to require commitments about staffing, quality of care, and workers' rights before approving transfers and licenses.
Another major portion of the campaign includes meetings with federal legislators to push for legal changes to the system that currently gives private equity a privileged status. SEIU's campaign has already gained the attention of several congressional committees. The House Ways and Means Health Subcommittee and the Senate Special Committee on Aging have scheduled hearings on the effects of nursing-home ownership on the quality of care in light of the Carlyle buyout. In October, Reps. John Dingell, a Michigan Democrat and chair of the House Energy and Commerce Committee, and Barney Frank, a Massachusetts Democrat and chair of Financial Services Committee, held a press conference with SEIU announcing that each of their committees would be holding hearings on the subject. Sens. Chuck Grassley, an Iowa Republican, and Hillary Clinton have also requested investigations by the Government Accountability Office.
By pressuring private equity firms on multiple fronts, SEIU hopes to push them to start working with employees and communities to ensure that their buyout deals don't come at others' expense.
"Our goal would be that private equity companies, instead of being able to do whatever they wanted, would agree to some kind of social compact, some kind of responsible investment where they would take responsibility for the behavior of the companies they own, and that those companies would not resist unionization of workers and would get the same kind of tax treatment as other people," Lerner said.
This broader approach to organizing isn't all that new, Lerner said. In many ways, it's similar to the organizing behind Justice for Janitors; the power to make decisions affecting janitors lies with business agents and pension funds, and the cleaning contractors that employ the janitors aren't always the entities that workers need to organize against. With private equity, the power is similarly removed, meaning the union is forced to put the pressure on at a higher level.
"What we learned in Justice for Janitors is that the person with the power is responsible for the negative consequence of the action," Lerner said. "They need to be held accountable, whether that's in the court of public opinion, or in the court system, or whether it's in how they're impacted financially."
This is similar to the kind of union organizing that took place 80 years ago, when unions campaigned on broader issues of how to make society better for the working class while at the same time taking action on the grassroots level to make specific bargains with employers, Lerner said. It also dovetails with SEIU's work on larger issues of concern to the American working class, like immigration reform and universal health care.
But representatives from some other unions have questioned the efficacy of a campaign that focuses on creating energy at the top rather than in strengthening the union's power through more traditional methods.
"I think a lot of it is about holding press conferences and issuing press releases and Web sites, and it's not about the grunt work of creating organizations and building power, which is long, slow, painful work," said a senior official at another large union who has had experience with private equity firms. "I think it's about publicity-seeking."
But others have praised SEIU for jumping into the debate and pushing some ambitious expectations on private equity firms.
"They're not going to get everything they want, but over time, I think it's going to be successful, and that these firms are going to [realize] that they have the capacity to make plenty of money running union operations just like can make plenty of money running non-union operations," said Richard Clayton, research director at the CtW Investment Group, which is affiliated with the Change to Win Federation. (Neither CtW Investment Group nor the Change to Win Federation is affiliated with the SEIU campaign, however.) "I think they'll ultimately decide that that's a much better place to be than one where they're in a permanent fight with one of the biggest unions in the country, which has a lot of political influence."
With union membership in steep decline, this kind of expanded vision of what unions can do for the country is necessary for survival, Lerner said. If they can earn some influence with large private equity firms and convince them to recognize worker's right, unions will be able to impact the lives of more workers than they can though traditional organizing tactics. Like everything else, unions have had to adapt to the changing economy.
"It's a false dichotomy to say you're either collective bargaining or you're organizing around broader social issues. You need to do both," said Lerner. "These companies would love if we just fought nursing home by nursing home, or just building by building, or hospital by hospital. We're saying they have figured all sorts of ways to make money, and we need to figure out all sorts of ways to impact them and change their behavior."
