The Iron Triangle: Inside the Secret World of the Carlyle Group , by Dan Briody. John Wiley & Sons, 210 pages, $24.95.
After graduating from law school, I went to work for Stuart Eizenstat, President Carter’s former domestic-policy adviser. Stuart had started a small Washington office of his former Atlanta-based law firm with other Carter-administration refugees in 1981. The idea was to establish the highest-end legislative advocacy practice imaginable, focusing on causes and clients we believed in. We rarely attended fund-raisers. We turned down requests for representation from tobacco companies. We represented public hospitals, worked to reform anti-trust laws so U.S. high-tech companies weren’t at a competitive disadvantage to their foreign-based counterparts, tried to devise reasonable legislative solutions to endless mass tort litigation, and did pro bono work for the National Women’s Law Center.
After a decade building this successful practice, it was clear that Stuart didn’t have his heart in it. You could call it “high-end legislative advocacy,” but at the end of the day we were lobbyists. And there was something a little demeaning about a brilliant, idealistic public-policy analyst like Stuart being someone’s hired gun, regardless of who was doing the hiring or how worthy the cause.
At the time, it struck me how few options there were for someone like Stuart Eizenstat. He could molder in an office at the Brookings Institution or write a book, but to feed his family and stay in the game, it was pretty much lobbying or nothing. In early 1991, none of us thought there was much chance of a Democrat winning in 1992. Stuart was actually writing a book about the Carter years; it was to be called The Last Democratic President. We would be lobbyists forever.
But just a few floors below us at our 1001 Pennsylvania Avenue offices, one of Stuart’s former deputies from the Carter years had started the first Washington-based boutique merchant bank four years earlier. His notion was simple: leverage the group’s knowledge and expertise in heavily regulated industries to make smart investments. The Carlyle Group, as the organization is known, seemed to me a socially responsible way to make use of government expertise without having to be someone else’s flunky.
But if Dan Briody, author of the breathless exposé The Iron Triangle: Inside the Secret World of the Carlyle Group, is right, the nation would be better off if former government officials stuck to lobbying. In the prologue, we learn that Carlyle represents a “world that few of us can even imagine, full of clandestine meetings, quid pro quo deals, bitter ironies and petty jealousies.” I’m a big fan of bitter ironies and petty jealousies, but I like my exposés to uncover actual wrongdoing. That’s not the kind of illicit muck Mr. Briody plans to rake. As he explains, “the scandal here is not what is illegal, but what’s legal.” The book jacket credits Mr. Briody, a business journalist, with “breaking the story on the Carlyle Group.” I’ve now read his book and I still have no idea what “story” he broke.
Mr. Briody seems incapable of distinguishing among the strange, the suspicious, the serendipitous and the truly scandalous. In the absence of anything genuine in the latter category, he makes ominous assertions-most of which are undermined by his own material elsewhere. For instance, we’re told: “It was clear from the outset that what the Carlyle Group had to offer that was different from its more incumbent [private equity] competitors was its access.” At this point in the story, Carlyle’s four founding partners are described as a former mid-level White House staffer, a couple of ex-Marriott executives and the ex-C.F.O. of MCI. Access to what? Room upgrades? Discount phone cards? Mr. Briody backs up his innuendo by pointing to Carlyle’s small, unsuccessful early investment in a TV-miniseries production company partly owned by former Carter advisor Gerry Rafshoon. Is anyone safe? What kind of diabolical miniseries might this company come up with?
Part of the problem is that Mr. Briody doesn’t seem to understand what private equity firms do. They raise pools of money from pension funds and individuals to make leveraged investments with an equity return target of between 25 percent and 35 percent (in the current environment, some seem satisfied with 20 percent or less). If you were trying to take over the world-which is what Mr. Briody believes Carlyle is up to-this would be a strange line of work to go into. Private equity firms aren’t out to control industries; they buy and sell within three to seven years in order to achieve their required returns and continue to attract capital for new funds. It’s about profit, not hegemony.
The transaction that Mr. Briody spends most of his time describing-Carlyle’s acquisition and subsequent sale of BDM, a defense-consulting business-reads like a textbook case of how private equity firms should operate. A nonstrategic, poorly run subsidiary is purchased, new management is brought in to turn it around, and the company is sold to a strategic buyer to the benefit of all involved. When it was bought for $130 million from Loral in 1990, BDM was an underperforming subsidiary of Ford Aerospace. The relationship of former Defense Secretary Frank Carlucci (who joined Carlyle in 1989) with the subsidiary’s chief executive gave Carlyle the inside track. A transaction was negotiated quickly, without disruption to Loral, which was focused on integrating the Ford Aerospace acquisition. When the BDM chief executive retired a couple of years later, Mr. Carlucci placed Phil Odeen in the top job; Mr. Odeen then successfully transformed BDM from “a business heavily reliant on defense contracting to a more diversified services company.” BDM was later sold to TRW for $975 million, and Mr. Odeen became TRW’s chairman.
Great! Not as far as Mr. Briody is concerned: “Carlyle was agreeing to do business in the shadowy world of defense contracting; a murky business …. The decision to go down this road would eventually make Carlyle … the controversial behemoth it is today.”
Mr. Briody finds support for his dark ruminations when Carlyle makes money on its investments (“a steal”) and when it loses money (“ill-advised” deals relying on “a bunch of swell friends”); when the government takes an action favorable to Carlyle or unfavorable to Carlyle; when emphasizing the closeness of Carlyle’s relationships to those in power or Carlyle’s inability to leverage those relationships. Here’s one of those “bitter ironies”: Mr. Briody argues that when he was deputy defense secretary, Mr. Carlucci “developed a Pentagon policy of procurement that called for higher profits for the defense industry.” But wait-when he became Defense Secretary, we learn, he “fought hard to decrease spending and eliminate unnecessary weapons programs, angering military contractors.”
I hate to admit it, but about halfway through the book, I started to hear the words being read to me in the voice of that old Joe Flaherty character on SCTV, Count Floyd, the hapless host of Monster Chiller Horror Theatre. The Count was forever trying to convince his audience that laughable B movies were in fact really “spooky.” In The Iron Triangle, the adjectives of choice are “murky” and “shadowy.” Mr. Briody likes to remind us that Mr. Carlucci’s nickname in some quarters was-you guessed it-“Spooky Carlucci.”
All this could be ignored if either the new “facts” uncovered by the book were worthy of note or the narrative stitched together from published sources somehow shed new light. That’s not the case. One of Carlyle’s founders, who was unceremoniously fired almost a decade ago, is good for a couple of bitchy quotes, but he says nothing to support the book’s core thesis. Most of the rest of the book’s insight is drawn from a review of previously published articles. Even here, the story is hard to follow and frequently contradicts itself. Elsewhere, and often, Mr. Briody is just plain sloppy. Former F.C.C. chairman William Kennard is ominously described as “working alongside” a former telecom banker at Carlyle when, in fact, the banker had left the firm well over a year before Mr. Kennard joined it. A 7 percent ownership stake in a company is said to make Carlyle its “majority shareholder.” And Joe Conason of this paper is misidentified as “Joe Concson.” The nerve!
The last 18 pages of Mr. Briody’s book aim to demonstrate that certain of Carlyle’s portfolio companies benefited from 9/11 and the subsequent anthrax attack. The author pushes the point even when the companies he identifies go bankrupt, or when Donald Rumsfeld (a supposed Iron Triangle member) unapologetically cuts and then kills the Crusader program critical to one of them. The implicit argument is that the “real” government let national tragedies occur to help the “shadow” government at Carlyle.
As disappointing as what’s included in The Iron Triangle is what’s missing. Though we’re repeatedly told that Carlyle makes “gobs” of money, we never actually learn whether the funds underperform or outperform their peers. According to Mr. Briody, Carlyle Partners II makes better than a 30 percent return-but what about the other 20 funds, and compared to what benchmark? It’s sad but true: Even former investment bankers rarely make good investors. If Carlyle has found a formula for turning ex–policy wonks into good investors, that would be important news. Mr. Briody focuses almost exclusively on nine defense-related investments. What about Carlyle’s investments in “hundreds” of other companies? The firm’s largest recent investment is the $7.05 billion purchase of Qwest’s yellow pages. Should we worry that “Spooky” Carlucci will give preferred ad placement to take-out pizza establishments that share the family name?
Who knows? There may indeed be something creepy going on at the Carlyle Group-but you wouldn’t bet on it from this book. Just in the last weeks, The Washington Post and The Wall Street Journal reported that the Carlyle Group has launched a Web site loaded with information only guessed at in The Iron Triangle. A Carlyle spokesperson chalked up the abandoned policy of secrecy to “shyness” and hoped that a new openness would help debunk the conspiracy theories. The spokesman clearly misunderstands the nature of paranoia. To the conspiracy junkie, the Web site is merely further proof that “Creepy Carlyle” really has something much more sinister to hide. Spooky.
Jonathan A. Knee, a senior managing director at Evercore Partners, is an adjunct professor of finance and economics at the Columbia Business School.