New York State Comptroller Thomas DiNapoli pressed Blackstone Inc. for answers on how it plans to address what he called “abhorrent” child labor violations at a cleaning contractor owned by the private equity firm.
(Bloomberg) — New York State Comptroller Thomas DiNapoli pressed Blackstone Inc. for answers on how it plans to address what he called “abhorrent” child labor violations at a cleaning contractor owned by the private equity firm.
DiNapoli, sole trustee of the $240 billion New York State Common Retirement Fund, expressed concern in a March letter to top Blackstone executives that fallout from a government investigation of Packers Sanitation Services could hurt investors. PSSI paid $1.5 million in fines in February after the US Department of Labor said the company illegally employed at least 102 children between the ages of 13 and 17.
“The alleged practices are abhorrent and could imperil the reputation and financial success of PSSI,” DiNapoli said in a letter reviewed by Bloomberg.
The comptroller’s office has engaged with Blackstone “on how PSSI plans to eliminate illegal child labor practices, as well as its plan to implement strict measures to prevent any occurrence in the future,” DiNapoli said in an emailed statement.
Blackstone Chief Executive Officer Steve Schwarzman has said the firm takes the matter seriously. PSSI didn’t immediately respond to requests for comment.
The minors worked in meat-packing plants, sometimes on overnight shifts, cleaning saws and head splitters and using hazardous chemicals, according to the DOL’s investigation. Kieler, Wisconsin-based PSSI is one of the country’s largest food-sanitation companies, supplying cleaning and other safety services to food plants nationwide.
“Blackstone and PSSI have been crystal clear from the start,” Schwarzman said in a written response to DiNapoli. “PSSI has a strong corporate commitment to its zero-tolerance policy against employing anyone under the age of 18, and we all fully share the DOL’s objective of ensuring full compliance at all locations. As parents and citizens, we don’t want a single person under 18 working for PSSI, period.”
Marked Down
The exchange between DiNapoli and Schwarzman offers a rare glimpse into how investors and their trustees are asking the world’s largest alternative-asset manager to account for how the firm wields its influence across the scores of companies it backs. New York State’s pension has pledged billions of dollars to Blackstone, including $300 million for the fund that holds PSSI.
Blackstone, meanwhile, is seeking to raise a $25 billion buyout fund at a time when pensions and endowments are already concerned about the strength of the financial system and the threat of a recession.
The firm bought PSSI in 2018 in a deal valued at more than $1 billion, according to a person familiar with the matter. At the end of the third quarter, PSSI had a valuation that was roughly double what Blackstone paid for it, but the position has been marked down meaningfully since then, people said.
The risk is that potential buyers or banks will become less willing to touch the company, threatening its access to capital and investor returns. Blackstone has mobilized executives to handle the problem.
Schwarzman told DiNapoli that PSSI has stepped up audits and training of its workforce, retained a law firm and hired consultants to bolster its compliance department, among other measures. The company agreed to adhere to child labor laws to resolve the matter with the Labor Department.
The Blackstone CEO said that the DOL allegations cover “0.15% of the nearly 70,000 individuals PSSI hired across more than 400 plants.”
Before Blackstone bought the company, PSSI had other private equity owners, including Harvest Partners and Leonard Green & Partners.
–With assistance from Erin Fuchs.
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