If you are proving that you are losing. There are few better examples of the truth of this old political adage than when the human resources department of a financial company starts churning out charts to show that employee attrition is not materially different from normal levels. This apparently is what it happened to the Carlyle Group A few months ago, and in retrospect, this should have been seen as a real red flag for CEO Kewsong Lee, who resigned this week.
The official statement suggested that his departure was simply a matter of not being able to agree numbers in a new contract(apparently the board didn’t even want to talk about an application 300 million dollars for five years), but “people with knowledge of the matter” seem to have started talking fairly quickly about serious underlying tensions with senior employees and founding shareholders. And that’s what anyone could train quickly if they knew about wear charts.
Charts and numbers, when it comes to employee turnover, are often accurate, but always irrelevant. When people worry about attrition, it’s never a case of “how many” and always a case of “who.” Almost no stakeholder outside the C-suite is in a position to give an estimate of turnover percentage, and most of them don’t even know what a normal level would be.
When they start talking about attrition, it’s because people are leaving that you wouldn’t normally expect to leave. Big revenue producers, key doctors on strategically important teams, lifelong company loyalists and culture bearers. If a few characters like this start heading for the door, it’s no use pointing out that they don’t make much difference to the numbers and proportions of the overall picture; people will say that there is a growing problem and that senior management is losing the trust of senior staff.
Which seems to have been the case with Kewsong Lee, who seems to have had the classic politician’s problem: knowing exactly what to do but not how to get re-elected once he had done it. He was brought into a tight-knit, “gentle” corporate culture at Carlisle to be an outside voice making tough decisions, with his former co-CEO Glenn Youngkin tasked with smoothing things over and maintaining good relations. When Youngkin left to enter public service, there seems to have been no softening and only the outside voice.
And in a people business, that matters a lot. Lee apparently had a habit of saying things like “Who’s the youngest person in the room? What could we have missed?” on Zoom calls. Depending on your tone and non-verbal cues, this can be as sharp and inclusive, or as disrespectful to experienced bankers.
Likewise, if you get advice from the billionaire founders who hired you and still own 25% of the company, you need to either take that advice or have the tact not to. In the end, it seems Kewsong Lee was unable to thread all the needles, and thus has become another data point in the story of how difficult it is to organize succession planning in the private equity industry.
Elsewhere, M&A bankers looking for glimmers of hope might have found something worth clinging to this week. In the so-called “Fusion Monday”, $12 billion of deals were announced.
Most interestingly, only one of those deals, albeit the largest, Vista Equity’s $8.4 billion takeover of Alvalara Inc, was a financial backer deal. All the rest were companies buying their competitors for cash, which is usually considered a good sign for the market’s outlook.
Combined with the knowledge that the private equity portfolio still exists and has yet to run, this can make banks reluctant to downsize. After all, some offers can be canceled, but some can only be postponed. If the second-tier deals that didn’t happen in the second quarter return to the market later in the year, you don’t want to be short without the ability to execute the rush.
All of this suggests that the fallout from this year’s revenue shortfall is more likely to be in bonuses than layoffs. It also suggests that fixed income sales and trading bonus groups may find themselves called upon to “maintain the franchise” for capital markets and advisory.
In the meantime:
Where real estate leads, contracting follows. This is good news for private equity bankers in London who could fit into Thoma Bravo’s industry specialist franchise. The software-focused shopping house has announced its ambitions by taking two floors of space in a Mayfair building. (Financial news)
“There are no more permanent friends or permanent enemies.” Instead, the largest private equity firms exist in a state of permanent adversary with their competitors, cooperating on some deals while competing for others. Good background for understanding why personal relationships matter so much in this industry. (FT)
It is currently possible to be an influencer on LinkedIn; the job is no different than that of a normal influencer type, but instead of swimsuits and glittery cocktails, you have to post a constant stream of thoughts about artificial intelligence (Bloomberg)
Alternatively, real TikTok and Instagram influencers are being used as lobbyists on political issues, including financial regulation, so there’s sure to be a crossover someday soon (WIRING)
Former UK chancellor Philip Hammond has joined a new front trying to raise £1bn to invest in fintechs (Financial news)
As a new generation of former college students begins to get phone calls from their colleges, a new book lays bare the facts about how prestigious schools’ endowments are really so large as to turn the entire institution into a hedge fund with an interesting background. hobby (LA Review of Books)
Ken Griffin apparently tried to make a joint deal with the crypto organization that tendered him a copy of the US Constitution, including a proposal to issue an NFT commemorating the fact that they lost. (WSJ)
Photo of Annie Spratt activated unsplash
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