From open season to open sesame: private equity firms have realised that self-imposed glasnost today could prevent further censure and tighter regulation tomorrow. Danielle Cohen analyses an industry with a big public relations job on its hands.
| Author | Cohen, Danielle |
| Position | Ethics |
If the term "business ethics" is, as some people believe, an oxymoron, then ethics and private equity are perhaps even less likely bedfellows. Certainly, recent reports in the national media would have us believe so, citing the buy-out houses' fondness for cutting jobs and exploiting tax loopholes as evidence of their lack of integrity. With the cornerstone of ethics--accountability--also considered to be conspicuously absent from the industry's dealings, does the private equity boom herald a return to corporate opacity?
No one seems quite sure what to expect from the big-name companies that have been acquired by private equity and whose operations have consequently become veiled from scrutiny through a reduction in public reporting. For example, soon after being bought by a private equity consortium at the end of 2005, UK supermarket chain Somerfield pulled out of the Ethical Trading Initiative, an alliance of businesses, nongovernmental organisations and trade associations co-operating to improve working conditions in the supply chain. This led to fears that other large retailers might follow its lead and renege on their social responsibility pledges. So far, these concerns have yet to be realised. But, considering private equity's reputation, fairly earned or not, for making cutbacks to increase short-term profitability, there are real concerns that further private equity takeovers could undermine the ethical improvements of recent years.
And what of the impact of the private equity phenomenon on global markets? Some commentators believe that the high levels of debt incurred by the buy-out houses have led to excessive volatility. If the bubble bursts, they fear that the impact could be massive.
There is undeniably less transparency in the private equity industry than there is among plcs and, arguably, less public empowerment given the lack of shareholder voting rights. But private equity firms do understand that their acquisitions' brand values must be enhanced or at least maintained for them to return decent profits. And the risk...
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