How the UK's Boots went rogue

April 14, 2016 6:12 AM

Britain’s biggest pharmacy used to be a family business, dedicated to serving society. Now, many of the company’s own staff believe that its relentless drive for profit is putting the public at risk.
posted by ellieBOA (37 comments total)

That is interesting. Also terrible. I feel like the world has just absolutely gone to shit since about....well, since about the financial crisis.

These bits struck me:

Then come the patient-care services paid for by the taxpayer, and the contracts Boots is now taking over from the NHS – to host GP surgeries in its stores, to run pharmacies in hospitals, to manage hearing test centres and specialist clinics monitoring drugs that prevent blood clots.

and

a billionaire based in a tax haven, Pessina, and a small consortium of wealthy investors and funds, represented by KKR, pick up a 158-year-old company employing around 70,000 Britons. To do so, they borrow billions from a few global banks and dump most of these loans on the balance sheet of Boots in the UK – pushing it deep into debt, even though the debt has nothing to do with the actual business Boots does here. A firm that delivers an essential social service is now private, making it almost impossible for outsiders to see how it is changing. Finally, the profits made by Boots UK are used to repay the lenders faster and ultimately leave more profit for the investors.

That second one really lays it out clearly - the way that what appears to be (and ought to be) a company's primary purpose gets turned into a scrim. Not just ideologically, like "oh, we ought to make money for shareholders, fuck ordinary people" but in a "we now owe all this money, so we have to do these things". It's ideology underneath, yes, but it's not something that can just be changed by changing "values", because of all the debt. A perfectly good company successfully providing a service that makes a profit could go under, for instance.

And this! Oh, this article is well-chosen:

Free for the customer, a way of keeping a patient out of a GP’s waiting room, and for each one the NHS pays the company £28. To prevent the system from being abused, every pharmacy in the country is limited to 400 MURs a year. Except Tony’s managers took that number as a target for his store to hit.

This is what fucking happens when you privatize. Honestly, I almost think the UK is getting worse on this kind of thing than the US - I go to a crummy pharmacy in an inner city Target, and it's usually adequately staffed, and the minute clinic/pharmacist consults angle is pretty underplayed, plus they don't try to upsell you on Target merchandise, as I gather they are expected to at Boots now.

Years and years ago, I happened on a copy of Donald Broome's Wildcat comics about NHS privatization. It was a chilling warning - I still have the book (not like a lot of copies of Wildcat wend their way to Minneapolis, I'm not sure how it got here) and everything in that book has absolutely come to pass.

I think the most difficult thing for me to get, viscerally, is the way all this stuff is always known in advance. I have noticed it in particular with NHS privatization, the Iraq war and NAFTA - the bad consequences were laid out in the media for all to see, with plenty of evidence, and they were never refuted. Everybody knew that we could avoid doing this one thing and then stuff wouldn't turn to shit, but we did it anyway. It's not even like something complex, like global warming, where you have to stop lots of people doing lots of things; it's something easy that requires one decision. I understand that it's about power and corruption and greed, but it's still chilling that we can just look right off the cliff and jump anyway.

"Democracy", ha. If this is democracy, I'd like to switch to guillotining people, thanks. And none of this usual "but the wrong people always die in revolutions" either - as if "the wrong people" weren't dying right now.
posted by Frowner at 6:41 AM on April 14, 2016 [38 favorites]

So that's why all the employees at my local Walgreens started looking like hostages recently . . .
posted by BlueJae at 6:42 AM on April 14, 2016 [1 favorite]

Boots denies this, saying that “offering care for our colleagues, customers and the communities which we serve…is an integral part of our strategy.”

Yeah...see...If you refer to caring for employees and customers as a "strategy", that tends to mean that caring isn't really a part of the makeup or culture of the company. It's merely part of a current business plan that can/will change as soon as the next quarter's numbers are in.
posted by Thorzdad at 6:46 AM on April 14, 2016 [13 favorites]

Those behind leveraged buyouts are like corporate vampires. So many good companies have been skeletonized as a result. And who's gonna stop em? It just keeps happening, making the rich richer, and everyone else less better off.
posted by jabah at 7:06 AM on April 14, 2016 [2 favorites]

Yeah, moving your HQ to switzerland (or wherever) to avoid tax while cutting jobs is pretty much par for the course these days in the UK.

per Private Eye - quite a lot of the top FTSE 100 companies now pay no or very little tax, and in some cases, despite making hundreds of millions in profit, get a tax rebate. Yes, they have found a way to redistribute the poor peoples money to the rich via taxation!

Chancellor George Osbourne's company hasn't paid tax in many years, and has also recieved a rebate.

We are truly fucked. My local authority says it needs to make £26 million in savings next year, yet our council tax just went up again. There is no hope, nothing. Fuck this fucking useless shitty country. Rule Brittania? Fuck off.
posted by marienbad at 7:14 AM on April 14, 2016 [10 favorites]

It's not even like something complex, like global warming

Not to derail, but the basic mechanism of global warming was known (and predicted) in the late 19th century.
posted by CheeseDigestsAll at 7:18 AM on April 14, 2016

Business as usual!
posted by BlueHorse at 7:19 AM on April 14, 2016

Those behind leveraged buyouts are like corporate vampires. So many good companies have been skeletonized as a result.

Can someone explain how it's legal? The idea of essentially making a company pay for its own takeover makes no sense to me.
posted by kersplunk at 7:38 AM on April 14, 2016 [1 favorite]

"The idea of essentially making a company pay for its own takeover makes no sense to me"

Welcome to finance: it may not make sense to you, but it makes money for us
posted by lmfsilva at 7:40 AM on April 14, 2016 [4 favorites]

A perfectly good company successfully providing a service that makes a profit could go under, for instance.

As I understand it, that's pretty much what happened to Woolworths. These Private Equity takeover deals have been happening for a while now.
posted by Just this guy, y'know at 7:42 AM on April 14, 2016

I read this with horror the other day. It's even worse than knowing it's going to happen and letting it happen anyway. It's seeing it happen and not doing anything to stop it. Because at this point it looks like nothing ever stops this stuff.
posted by maggiemaggie at 7:51 AM on April 14, 2016

Those behind leveraged buyouts are like corporate vampires

The Aristocrats!
posted by ennui.bz at 8:00 AM on April 14, 2016 [1 favorite]

I feel like the world has just absolutely gone to shit since about....well, since about the financial crisis.

I'd actually push the beginning of that downward slide to the 1980s.
posted by EmpressCallipygos at 8:09 AM on April 14, 2016 [6 favorites]

This is one big reason media companies are going down, as well. Sure, the disappearance of ad revenue is huge. But most regional papers still and have always turned a profit -- it is just buried under the "debt" that was leveraged during the buyouts of the last 20 years.
posted by Malla at 8:23 AM on April 14, 2016 [2 favorites]

Those behind leveraged buyouts are like corporate vampires. So many good companies have been skeletonized as a result. And who's gonna stop em? It just keeps happening, making the rich richer, and everyone else less better off.

More like parasitic wasps that lay eggs inside a host which then hatch and the larvae eat their way out, ultimately killing the host and creating even more parasites.
posted by srboisvert at 8:26 AM on April 14, 2016 [5 favorites]

In Nottingham, that dismal town

where I went to school and college,

they’ve built a new university

for a new dispensation of knowledge.

Built it most grand and cakeily

out of the noble loot

derived from shrewd cash-chemistry

by good Sir Jesse Boot.

Little I thought, when I was a lad

and turned my modest penny

over on Boot’s Cash Chemist’s counter,

that Jesse, by turning many

millions of similar honest pence

over, would make a pile

that would rise at last and blossom out

in grand and cakey style

into a university

where smart men would dispense

doses of smart cash-chemistry

in language of common-sense!

That future Nottingham lads would be

cash-chemically B.Sc.

that Nottingham lights would rise and say:

-By Boots I am M.A.

From this I learn, though I knew it before

that culture has her roots

in the deep dung of cash, and lore

is a last off-shoot of Boots.
posted by Major Tom at 8:36 AM on April 14, 2016 [7 favorites]

Suggested further reading: Private Equity at Work: When Wall Street Manages Main Street.
posted by praemunire at 8:38 AM on April 14, 2016 [3 favorites]

Can someone explain how it's legal? The idea of essentially making a company pay for its own takeover makes no sense to me.

I am an LBO firm. I find a company willing to sell to me at a price they agree to. This is just like every other asset sale in the world. I now own the company and legally can choose to finance it how ever I wish. I proceed to borrow a bunch of money secured on that companies assets. If I fail to delever the business the banks will end up owning it.

The only thing that's weird about is that I need a bank to float a bridge loan that I use to pay the sellers, and then repay the bridge loan once I can get the permanent financing in place.

What tends to be of questionable ethics is when the LBO buyer uses future cashflows to disproportionately pay themselves rather than delevering the business or re-investing in the operations. In its worst form the PE shop basically generates all their returns from dividends paid through increased borrowing and then views the remaining investment as an option on survivability.

By definition the large private equity funds will need to sell on the business to recognize profits for their investors, who for someone like KKR is overwhelming large institutional pension funds in the US. The State of Oregon's retirement plan was famously KKR's first backer. Maybe Oregon Teacher's ?

The most common and successful LBO model tends to be buying assets there already being mismanaged in some way and fixing them and selling them on to a strategic buyer.
posted by JPD at 8:39 AM on April 14, 2016 [6 favorites]

Can someone explain how it's legal? The idea of essentially making a company pay for its own takeover makes no sense to me.

The financial structure that permitted the takeover described in the original article is a leveraged buyout.

Let me tell you a just-so story. A master blacksmith builds a successful business, eventually taking on an apprentice. When the master gets old and wants to retire, he offers to sell the business to the apprentice. The apprentice, lacking the funds, says to his local banker "Please loan me sufficient funds to buy my master's blacksmith shop." The local banker looks at the shop's assets and receipts and agrees to loan the apprentice the money necessary to purchase the business. The master blacksmith gets to retire with a tidy nest-egg, so he is happy. The apprentice works hard and eventually pays off the loan with interest, making the banker happy. The apprentice is happy because the master's blacksmith shop is now his blacksmith shop. The customers are happy because their local blacksmith shop doesn't close when the master wants to retire. Society looks on, pleased that it was possible to make everyone happy.

Let me tell you another just so-story. The heirs of an old family business are not as interested as the original founder in running the family business. A business tycoon sees a rich, profitable business paying good wages and thinks to himself, "there is a lot of a fat in that business." The tycoon approaches an international investment fund and says "loan my business the money to buy that successful family business." The investment fund looks at the family business's assets and profits and agrees to loan the tycoon's business enough money to purchase the family business. The heirs of the old family business get a big pay day and no longer have to run a business that does not interest them, so they are happy. The tycoon squeezes the fat out of the family business by cutting wages and cutting corners, eventually paying off the loan with interest, making the investment fund happy. The tycoon is happy because he too profits from squeezing the family business.

In many ways the financial structures that make the first story possible, also make the second story possible.
posted by RichardP at 8:42 AM on April 14, 2016 [13 favorites]

A powerful and depressing article, but the claim that Boots 'used to be a family business' needs some qualification. The true history is more complicated and interesting.

Jesse Boot built up the company through price-cutting and low profit margins in order to drive his competitors out of business. This was vigorously resisted by the small chemists, who banded themselves together into an association (the Proprietary Articles Trade Association) and eventually forced Boots to adopt a system of resale price maintenance (which lasted till 2001). In 1920 Boot sold the company to an American pharmaceutical giant (Rexall), and that might have been the end of Boots as a family business, except that Rexalls got into trouble in the Great Depression and sold the company back to Jesse's son, John Boot.

In other words, the Boot family played the capitalist game and played it well. But unlike today, this was classic welfare capitalism, and John Boot was the archetypal paternalist:

Trent inherited something of his parents' benevolent interest in the labour force, and the prosperity of Boots in the 1930s encouraged him to allow a substantial welfare dividend to factory workers. They in turn offered him their personal loyalty, as they had to his father. He toured the factories each Christmas to greet hundreds of staff and provide a direct personal connection. The opening of the first model factory at Beeston, Nottingham, in May 1932 not only introduced more pleasant working conditions for 1140 staff, but also led to an appreciable increase in productivity which allowed the company to reduce the working week from 47.5 to 42.5 hours per week and inaugurate the five-day week in 1934. A second factory was built on the Beeston site in two stages in 1936 and 1938, allowing the transfer of ‘dry goods’ from the jumble of buildings in the city centre. A general pension fund for all male staff over twenty-one and female staff over thirty-five was launched in 1935, and a new building for Boots College, a day continuation college for the youngest employees, was built in 1938. These attractive innovations placed Boots in the forefront of progress in workers' welfare in Britain. Trent was as proud to demonstrate his achievements for his workers as any manorial lord was to show off his model estates. (ODNB, my emphasis)

As with so many things about modern Britain, the problem lies with Thatcherism and the decline of the trade union movement. This meant that when old-fashioned welfare capitalism expired, there was no strong union movement to pick up the slack. Another crucial part of the story which the Guardian article doesn't fully cover is that after the takeover of Boots in 2007, the new owners refused to recognise the independent trade union and tried to deny their staff collective bargaining rights.

And the moral of all this? Boots has always been in the business of making money. We shouldn't kid ourselves that everything was rosy in the days when it used to be a family business, or that everything would somehow be all right if we could only go back to a culture of 'responsible capitalism'. But the best defence against 'rogue capitalism' (aka 'capitalism') is the same as it always has been: a strong trade union movement committed to defending workers' rights. Also: support your local independent pharmacist.
posted by verstegan at 8:43 AM on April 14, 2016 [14 favorites]

I have barely shopped at Boots since the the takeover on moral grounds. It was obvious that the takeover--like that of Cadbury by Kraft--would spell a big change for the worse. They're overpriced as well, for in the market they're in you can't really compete on quality of goods. There are loads of similar shops with literally 90% of the same stock at a lower price.
posted by Emma May Smith at 8:45 AM on April 14, 2016 [1 favorite]

The world is run by gangster oligarchs. The only difference between countries (and corporations) is the benevolence of the mob boss. I mean all that quite literally: there is no democracy, it is all billionaire criminals running the show.

We had a few good years last century, though. For a brief moment we'd loosened their grip on our throats.
posted by five fresh fish at 8:50 AM on April 14, 2016 [11 favorites]

who for someone like KKR is overwhelming large institutional pension funds in the US. The State of Oregon's retirement plan was famously KKR's first backer. Maybe Oregon Teacher's ?

This is the especially depressing part--that you have union or public retirement funds investing to kill unions or pensions at other companies. And usually, in my opinion, getting ripped off themselves by the PE firms, who usually infinitely more sophisticated than their LP investors.
posted by praemunire at 9:06 AM on April 14, 2016 [1 favorite]

So, this is a legal version of what happened to that nightclub in "Goodfellas" ?
posted by King Sky Prawn at 10:09 AM on April 14, 2016 [1 favorite]

We are truly fucked. My local authority says it needs to make £26 million in savings next year, yet our council tax just went up again. There is no hope, nothing. Fuck this fucking useless shitty country. Rule Brittania? Fuck off.

I was just looking at my student loan details today to see when I'll actually pay the thing off (spoiler alert - after I turn 35). I graduated in 2003 - anyone on a course starting after 2011 is paying 5% interest from the moment they take out the loan. So by the time you graduate, not only have you paid thousands in fees (remember - those studying before 1998 in any institution paid no fees at all, and got a student grant to cover living expenses which did not have to be repaid) but you also owe an extra £2700 on the loan you haven't started to pay back yet.

I realise this isn't as scary sounding to those of you in the US who have dealt with huge loans for years, but we're already in a situation where most young people can't afford to buy a home of their own, and, increasingly, they can't afford to rent, not even if they're housesharing well into their 30s. Those whose parents can pay for them to study - like the fellow students I knew whose parents 'invested' their student loan, or who bought their child a house so they could rent it out to their friends to cover costs - might be OK, but this means that many professions that require years of study will become increasingly upper middle class. We're heading for a huge crash in terms of social mobility and general standard of living and the government is doing very little about it. Looking at tax arrangements would go a long way to help young people out, but somehow I doubt that will happen.
posted by mippy at 10:21 AM on April 14, 2016 [5 favorites]

RichardP: In many ways the financial structures that make the first story possible, also make the second story possible.

Well, that sounds to me like a "guns don't kill people" argument in which the bankers and financiers are blameless about what uses their tools are put to.

I mean, you didn't mention the more common scenario in which that "fat" family business is purchased with a loan against that same business, and then every bit of revenue is grabbed to pay down those loans. When the "fat" employees complain, their benefits are cut and/or they're laid off because of the decreased cashflow and all the leverage.

It's like making Jesus carry his own cross and then nailing him right to it. Who knew he'd bleed out through those teensy little nail holes plus also that little spear wound -- besides pretty much everyone involved?
posted by wenestvedt at 11:41 AM on April 14, 2016

Not at all surprised by the part of the story where the pharmacists were given quotas -- and quotas for extracting taxpayer money at that. A family member of mine is currently trying to get away from a similar soul-killing retail management job. It also doesn't surprise me that the Walgreen's name came up -- I've done my best to avoid shopping there since all the employees transformed into hollow-eyed ghosts with pasted-on smiles a few years ago. They're clearly under constant pressure to "get a 90% five-star rating" or face getting written up and eventually dismissed. These kinds of metrics are dreamed up by managers who think the best way to achieve an organizational goal is simply to define it, and leave the method and responsibility for implementation (and failure) on the shoulders of workers who have no authority or agency (save that of "finding another job").

Fuck all this shit forever.
posted by trunk muffins at 11:58 AM on April 14, 2016

every bit of revenue is grabbed to pay down those loans

Not even just to pay down the loans! To pay "dividends" to the investors with whatever cash the creditors don't have coming to them contractually. If that means shutting a few more factories, so be it.
posted by praemunire at 12:00 PM on April 14, 2016 [1 favorite]

wenestvedt, I thought it was clear in the second of my two just-so stories that the employees were going to get screwed by the tycoon who planned on"cutting wages and cutting corners." But yes, my two stories were just examples of two different leveraged buyouts. It was my intention to answer kersplunk's "How" question. In both stories a leveraged buyout is the financial tool by which a change of ownership is facilitated. It's only the motives of the participants that differ (laudable in the first story, not so much in the second story). In both cases the tool is the same.

In the first story the local banker is loaning money to the apprentice because the banker thinks it likely that the former apprentice will be able to operate the shop in such a way that the profits from the shop will be sufficient to replay the loan. A prudent banker would not make this loan to someone who lacked the experience necessary to run a blacksmith shop. Similarly, in the second story the investment fund is loaning money to the tycoon because it too thinks the tycoon will be able to operate the family business in such a way that the profits from the family business will be sufficient to replay the loan. It's just that in the second case, the tycoon is planing on using ruthless strategies that the heirs are incapable (or more likely, unwilling) to adopt. Presumably the fund would not have made the loan to someone insufficiently ruthless for the strategy to work.

The first story was written to show that using a leveraged buyout can be a reasonable (even commonplace) way to sell a company to someone the owner trusts, while the second of my two stories was written to highlight one of the ways the identical tool can be used to the detriment of society as a whole.
posted by RichardP at 3:39 PM on April 14, 2016

I'm astonished how many investors and financiers believe that venture capitalists can (a) find a large business with "fat"; (b) discern which parts of that business can be stripped without compromising its overall integrity; and (c) run the remaining bits of that business more efficiently. It's like visiting a nightclub in the belief that you'll run into a wealthy, considerate, handsome lover who is ready to settle down in a monogamous relationship – not impossible, but deeply improbable.

Almost every time I see a takeover of this sort it turns out that the VCs' strategy is like "Chainsaw" Dunlap's:
1) book as many losses as possible in the first year;
2) prepare the company for sale during the second year;
3) use "channel stuffing" and other tricks to artificially increase sales during the third year;
4) your company now has audited accounts showing a massive turnaround over the first year, and interim results showing that profits have increased even further! You are a market darling!
5) Sell the company and scuttle away chortling.
posted by Joe in Australia at 3:43 PM on April 14, 2016 [5 favorites]

I'm astonished how many investors and financiers believe that venture capitalists can

The smarter investors have at least a tacit understanding that (1)-(5) are going to happen. They just think they can profit from it. Their naivete comes from not realizing that a firm happy to do that to a portfolio company is also happy to do something analogous to them. The financiers don't care either way as long they think they can get repaid from the collateral somehow.
posted by praemunire at 4:25 PM on April 14, 2016 [1 favorite]

I imagine more than a few people reading this thread learned about LBOs the hard way, when a great company they worked and cared for got turned into a smoking shell. I sure did. The only pleasure in the affair was that the company owners who did the original sale thought themselves really sharp financiers, and got totally burned by the real sharks who bought the place - within a short period, they'd sold on again to another one of the original bidders, but for twice the price.

My experience of this and the consequences thereof hardened my heart, especially to our rulers who constantly preach the importance of self-reliance and hard work as alternatives to worker protection and strong regulation.

They are lying. They are lying. They are lying. You can be the perfect worker drone and it is no protection against being arbitrarily chewed up and spat out by robber gangsters, who will be protected in the name of making your life better and more secure.

I say the following in full knowledge and with full intent: fuck them, and fuck that shit.
posted by Devonian at 6:14 PM on April 14, 2016 [11 favorites]

"its relentless drive for profit is putting the public at risk"

wait, what? no way...who would've thought?
posted by nikoniko at 9:21 PM on April 14, 2016

In related NHS privatisation news, here's what happened when "non-essential" ambulance services were assigned to a private contractor in Sussex earlier this month.
posted by Sonny Jim at 2:30 AM on April 15, 2016

In other related news, Edinburgh's had to close seventeen schools built and owned by a private company with public money because they might fall down.

The social contract has been torn up, and we're being told that it's for our own good. And people know it, but go along with it anyway. We're being taught that misery and passivity is the highest goal.

Democracy only works with a motivated electorate: this is a gloom-led coup.
posted by Devonian at 4:28 AM on April 15, 2016

Sadly a lot of people don't know it and think that it is best when private companies benefit from public funding. People go along with it, but in my experience they believe the hype that it is for their own good.
posted by Carillon at 9:53 PM on April 15, 2016

Boots investigation: 'independent' pharmacist's letter edited by head office
posted by Grangousier at 9:24 AM on April 29, 2016