SEIU Steps Up Campaign against Private Equity Funds

The Service Employees International Union is a leader when it comes to wielding a now-common weapon in American unionism’s strategic arsenal:  the corporate campaign. As Wackenhut has learned for the last couple years, the SEIU knows how to conduct a multi-pronged attack against an employer’s reputation. Whether through demonstrations, media campaigns or boycotts (among other tactics), the purpose is always the same:  to induce surrender by the targeted corporation on key issues, often beginning with recognition of the union as the sole collective bargaining agent. The Service Employees, which represents about 1.9 million security guards, janitors, health care workers and other primarily unskilled employees, for a little over a year has broadened its target range to include private-equity funds. These institutional investors, though usually not publicly-traded, are best-known for engineering buyouts of public companies. And as they bring major corporations under their wing (e.g., last year’s purchase of Chrysler by Cerberus Capital Management), anti-corporate activism by necessity to a great extent now also means anti-equity fund activism.


SEIU President Andrew Stern believes his union in particular faces a steep downside in the wake of buyouts, especially when those transactions are leveraged with other people’s money. Given the increased pressure to be profitable, he fears the new management will downsize work forces, cut wages and eliminate benefits. To combat this ominous possibility, the union has set up a website, But evidence suggests that the Service Employees’ primary, if unstated goal is to bypass the standard secret-ballot process to win union representation at companies partly or fully owned by equity firms. Whether or not this guerrilla campaign proves successful, it’s been entertaining – at least for the union and its supporters. “There’s always been a history of us doing really creative things to shed light on issues, which includes humor and absurdity,” remarked SEIU campaign coordinator Stephen Lerner. But the creativity isn’t much fun for companies. “These campaigns are three-dimensional negative political campaigns waged against the reputation of the target,” says Steven Law, general counsel for the U.S. Chamber of Commerce. The true goal, he said, is “to inflict as much pain as possible so that the employer gives the union what they want.” The union thus far has focused its campaign on two funds: The Carlyle Group and Kohlberg Kravis Roberts & Co.


Founded in 1987, The Carlyle Group has become a major player in global finance. Managed by some 575 investment professionals in more than 20 countries, the Washington, D.C.-based equity fund currently has more than $80 billion in its asset portfolio, a sum representing dozens of accounts across four investment categories: leveraged buyouts; venture and growth capital; real estate; and leveraged finance. The Service Employees sees any number of companies under its control as guilty, or potentially guilty, of gross injustices. Street theater is a way to bring down Goliath. In one case, union protestors wearing business suits made their way into a conference at Manhattan’s Waldorf-Astoria Hotel, where Carlyle Group co-founder David Rubenstein was giving a speech. During the presentation, they held up a banner that read: “Why does he pay taxes at a lower rate than the hotel’s doorman?” A few days later, the SEIU bused dozens of its members to Carlyle’s Pennsylvania Avenue headquarters. Demonstrators stood outside chanting, “Better staffing, better care, no more money for billionaires,” a reference to the fund’s heavy investment in the nursing home industry. Rubenstein, it seems, can’t buy a break. Last Halloween, union members wearing masks in his likeness paraded in front of Carlyle offices handing out Sugar Daddy candy bars.


Carlyle doesn’t see such animus as necessary because it has had “productive relations with unions for 20 years,” said spokesman Chris Ullman. This might be official spin, but it’s worth noting that Carlyle last December completed a $4.9 billion deal ($6.3 billion, including assumed debt) to buy out the Toledo, Ohio-based nursing home chain, HCR Manor Care. With around 60,000 nonunion workers, the company understandably remains a union target. “The SEIU is frustrated over its inability to organize Manor Care in the past 12 years before we acquired the company,” said Ullman.


Kohlberg Kravis Roberts & Co. (KKR) is the other main SEIU target. It’s no mystery either. For one thing, like The Carlyle Group, KKR has more than $80 billion in assets under management. The New York-based company has been a high-profile player ever since its takeover of RJR Nabisco in 1989 for $31.3 billion, a deal, more than any other, that heralded the arrival of the private equity fund as a major force. Second, the firm’s holdings are tied to SEIU organizing drives. More than 200,000 workers in fund-owned firms, directly or through subcontractors, are employed in SEIU core industries. Kohlberg Kravis Roberts’ current holdings include the nation’s largest for-profit hospital chain, HCA Inc., a past target of the SEIU (particularly of Chicago’s Local 73), and several other health care firms. And the union thinks there are plenty of possibilities remaining. Recently, it issued a report, “Winners and Losers: Fallout from KKR’s Race for Profit,” alleging various workplace safety, civil rights, consumer and environmental problems at KKR-owned companies. The union has leverage because at least 11 pension funds managed by its public services affiliates have a combined $5 billion or more invested with KKR.   


Thus far, neither equity firm has yielded much ground. That’s why the SEIU has been calling on government lately to do its heavy lifting, most of all in California. The state is home to two enormous public-employee benefit funds that invest heavily with Carlyle and KKR: California Public Employees Retirement System (CalPERS) and California State Teachers Retirement System (CalSTRS), managers, respectively, of $240 billion and $167 billion in assets. The union, as Union Corruption Update has documented, has been aggressive in the last couple years in organizing hospital and nursing home workers in that state. To its way of thinking, keeping employee retirement funds out of private equity funds can get health care providers to the bargaining table. In February, California State Assembly Majority Leader Alberto Torrico, acting at the behest of the SEIU, put forth a bill (AB 1967) to bar CalPERS and CalSTRS from investing assets in equity funds whose holdings include sovereign-wealth funds based in countries with poor human-rights records. The union regularly cites Abu Dhabi and Singapore as prime violators, though downplaying China. That might be because China’s sovereign wealth fund has substantial investments in another equity fund giant, The Blackstone Group, which went public in 2007 and now has more than $100 billion in assets. The Service Employees has negotiated janitorial workers’ agreements with Blackstone-owned real estate companies.


The bill died, for now, in April.  Republican Gov. Arnold Schwarzenegger opposed it from the start, arguing it “would cause a deep wound to our retirement funds and government programs when we can least afford it.” Yet retirement fund managers weren’t too keen on the measure either. CalPERS alone recently committed about $40 billion to private equity firms. Analysts for CalPERS and CalSTRS estimated that their funds would lose a combined $7.5 billion in the first five years after enactment of the bill, formally known as the Responsible Private Equity Investment Act of 2008. “If you’re denied access, by law, to the best-performing investment players, by definition you’re going to start putting your money in mediocre investments,” said CalSTRS CEO Jack Ehnes. CalPERS, for its part, issued its own analysis, concluding that the bill would “severely restrict CalPERS’ ability to invest in top-quartile private equity funds.”

The latest SEIU campaign has to be put in the context of the union’s relentless drive to expand its ranks, a drive more pronounced since 2005, when the union and half a dozen others broke away from the AFL-CIO to form their own federation, Change to Win. But the union has yet to see that bonanza of new members, a possible explanation why certain SEIU rank and file lately have gotten physical. Alameda County (Oakland, Calif.) Superior Court in April issued a restraining order against Stern and the SEIU shortly after several of its members reportedly shoved members of a rival union, the California Nurses Association, at a Dearborn, Mich. labor conference, a charge confirmed by various eyewitnesses. The Service Employees lately have had escalating civil strife over the past year, and it may come to a head at the union’s ongoing quadrennial convention in Puerto Rico. (Washington Post, 2/15/08, 4/18/08; Wall Street Journal, 4/21/08; Dow Jones Newswires, 2/26/08; other sources).