Unable to assign group permissions with ICACLS on Windows Server 2012

Use double quotes instead of single quotes:

C:\>mkdir foo

C:\>icacls 'C:/foo' /grant:r 'Users':f
'Users': No mapping between account names and security IDs was done.
Successfully processed 0 files; Failed processing 1 files

C:\>icacls "C:/foo" /grant:r "Users":f
processed file: C:/foo
Successfully processed 1 files; Failed processing 0 files

I missed that you were using Powershell, not cmd. Powershell has some high weirdness when mixing external commands and quoting. Here's a couple examples using Powershell.

PS v2: To pass the quotes onto icacls you must escape them with a caret. Note parenthesis around the "F" need escaped as well.

PS C:\>icacls `"C:/foo`" /grant:r `"Users`":`(F`)

PS v3: Version 3 offers a new escape sequence --% (dash, dash, percent) which escapes the remainder of the line. This makes even complex external parameters simple.

PS C:\>icacls --% "C:/foo" /grant:r "Users":F