The outbreak of a bidding war between two groups of private equity investors for control of Alliance Boots, the chemists and drugs group, will reignite the debate over whether this type of ownership is good or bad for companies, their workers and the country in general.
On the same day that the Boots’ board backed a £10.6bn takeover bid from Kohlberg Kravis Roberts (KKR) and Boots' executive deputy chairman Stefano Pessina, a rival appeared on the scene. A group that includes private equity firm Terra Firma, medical charity The Wellcome Trust, and banking group HBOS outlined a conditional bid worth 2.3 per cent more.
Whoever wins, it will mark the first time that a FTSE 100 company has been taken out of public ownership by a private equity consortium. If KKR wins it could turn out to be as symbolic as the group’s $31bn takeover of RJR Nabisco in the 1980s that was portrayed in the bestselling book Barbarians at the Gate.
The issue has fallen out of the news in the wake of the collapse of the private equity bid for J Sainsbury, the supermarket company, which was seen as a sign that shareholders and directors were prepared to resist such approaches. This means that the debate over the merits of private equity, which hit the headlines when trade unions mounted protests at job losses at the AA vehicle recovery group following its takeover, will be back in the media spotlight.
This seems a good moment to draw attention to a report that Clarity Economics carried out for the Work Foundation.
It found that private equity firms that took over companies and bring in new management teams were likely to cut jobs and depress employees’ wages.
Analysis of independently gathered data, which tracks companies as they enter and exit from ownership by private equity funds, found that MBOs (which account for the majority of private equity deals) cut jobs in the first year, but expand them thereafter - by an average of 36 per cent over six years. Yet workers are £83.70 a year worse off than other private sector workers because wages grow more slowly.
Where an outside management team is introduced to an organisation in a management buy-in, employment falls on average by just under a fifth (18.25 per cent) over a six-year period. And workers are on average £231 a year worse off than other private sector workers
Private equity firms tend to introduce strict new performance management systems such as performance and merit pay, regular performance appraisal, and new human resource management systems. Some 40 per cent of managers in PE firms say they are hostile to trade unions. Just one in 10 said they were positive about the role of unions.
Read the full report here: http://www.theworkfoundation.com/Assets/PDFs/private_equity.pdf
April 20, 2007
April 16, 2007
Why Wolfowitz should quit the World Bank
It’s only when times get tough that you find out who your real enemies are, as Paul Wolfowitz found out at the April meetings of the World Bank of which he is president.
Mr Wolfowitz found himself unusually on the defensive after allegations were published that he helped negotiate a large pay rise for a Bank employee with whom he was romantically linked. After he was given the top job at the poor countries’ banker by US President W Bush who by convention has that job in his gift, he was presented with a problem. His girlfriend, Shaha Riza, a Tunisian-born British citizen, could no longer work at the Bank because of tight rules aimed at enforcing good governance within the institution.
The extra twist was the claim that he had personally got involved in negotiating a deal that saw her move to the US State Department on a salary higher than that of the Secretary of State, Condoleeza Rice. Mr Wolfowitz issued a public apology and said the matter had been handed over to the executive board of the Bank, which published the full 207 pages of background material to the case.
The board said it would decide on the issue “expeditiously” which was taken as meaning that the 25 development ministers who make up its board would make a decision, one way or the other, by the end of the meetings. This in turn fuelled speculation that he would not be able to hold onto his job.
The case for the prosecution was clear. He had come from the Bush administration with a mission to tackle corruption and poor governance at borrower countries. Within 18 months however it had turned out that he was at the centre of a storm of allegations over bad governance. However it swiftly emerged that the former deputy defense secretary had amassed some enemies along the way.
His role in the Iraq war, whose long-term fallout appears worse by the day, had angered many European countries. He had angered the Bank’s 10,000 staff by bringing in advisors from his Pentagon days and the staff association came out publicly calling for the publication of documents.
Then at the last meetings in September 2006 Hilary Benn, the UK Development Secretary, went public with a threat to withhold £50m from the Bank unless it followed through on a pledge fully to abandon its practice of attaching economic policy and other conditions to its loans and grants.
The Europeans looked keen to use this affair as a way to remove Wolfowitz from office and the White House, which should have been his most vocal supporter, seemed to be caught out by the issue. This left the African, Asian and Latin American country bloc, which include the Bank’s clients. It appears that Mr Wolfowitz used the three days between his apology and the meeting of the board to garner support.
Some African countries such as Liberia and Mauritius came out in favour and found their statements put up on the Bank’s website. Others such as South Africa and Zambia voiced concerns about a “kanagroo court”. In the end Mr Wolfowitz was able to front out his closing press conference, blocking all questions about his future with the same stock answer.
The only conclusion must be that the Europeans were too soft and the African and other blocs too divided to actually carry out the coup de grace.
This leaves a mess for the Bank. Its development committee of representatives of its 185 members said the issue was of “great concern” and said it expected the Bank to adhere to a high standard of internal governance. Yet he is still in his job and no one knows when the board will come to a decision
It is for that reason – not the Iraq War, nor his antagonism of his staff – that he should have resigned. The Bank is involved in a massive anti-corruption drive and has been accused of making lending decisions based on the recipient’s allegiance to the US (a claim Mr Wolfowitz denies).
For the same reason that Conservative ministers had to resign in the 1990s after it emerged they were not exactly following John Major’s back-to-basic family agenda, so the bank’s president should have quit after it became clear that he could not apply to himself the standards he wanted to impose on others.
Mr Wolfowitz found himself unusually on the defensive after allegations were published that he helped negotiate a large pay rise for a Bank employee with whom he was romantically linked. After he was given the top job at the poor countries’ banker by US President W Bush who by convention has that job in his gift, he was presented with a problem. His girlfriend, Shaha Riza, a Tunisian-born British citizen, could no longer work at the Bank because of tight rules aimed at enforcing good governance within the institution.
The extra twist was the claim that he had personally got involved in negotiating a deal that saw her move to the US State Department on a salary higher than that of the Secretary of State, Condoleeza Rice. Mr Wolfowitz issued a public apology and said the matter had been handed over to the executive board of the Bank, which published the full 207 pages of background material to the case.
The board said it would decide on the issue “expeditiously” which was taken as meaning that the 25 development ministers who make up its board would make a decision, one way or the other, by the end of the meetings. This in turn fuelled speculation that he would not be able to hold onto his job.
The case for the prosecution was clear. He had come from the Bush administration with a mission to tackle corruption and poor governance at borrower countries. Within 18 months however it had turned out that he was at the centre of a storm of allegations over bad governance. However it swiftly emerged that the former deputy defense secretary had amassed some enemies along the way.
His role in the Iraq war, whose long-term fallout appears worse by the day, had angered many European countries. He had angered the Bank’s 10,000 staff by bringing in advisors from his Pentagon days and the staff association came out publicly calling for the publication of documents.
Then at the last meetings in September 2006 Hilary Benn, the UK Development Secretary, went public with a threat to withhold £50m from the Bank unless it followed through on a pledge fully to abandon its practice of attaching economic policy and other conditions to its loans and grants.
The Europeans looked keen to use this affair as a way to remove Wolfowitz from office and the White House, which should have been his most vocal supporter, seemed to be caught out by the issue. This left the African, Asian and Latin American country bloc, which include the Bank’s clients. It appears that Mr Wolfowitz used the three days between his apology and the meeting of the board to garner support.
Some African countries such as Liberia and Mauritius came out in favour and found their statements put up on the Bank’s website. Others such as South Africa and Zambia voiced concerns about a “kanagroo court”. In the end Mr Wolfowitz was able to front out his closing press conference, blocking all questions about his future with the same stock answer.
The only conclusion must be that the Europeans were too soft and the African and other blocs too divided to actually carry out the coup de grace.
This leaves a mess for the Bank. Its development committee of representatives of its 185 members said the issue was of “great concern” and said it expected the Bank to adhere to a high standard of internal governance. Yet he is still in his job and no one knows when the board will come to a decision
It is for that reason – not the Iraq War, nor his antagonism of his staff – that he should have resigned. The Bank is involved in a massive anti-corruption drive and has been accused of making lending decisions based on the recipient’s allegiance to the US (a claim Mr Wolfowitz denies).
For the same reason that Conservative ministers had to resign in the 1990s after it emerged they were not exactly following John Major’s back-to-basic family agenda, so the bank’s president should have quit after it became clear that he could not apply to himself the standards he wanted to impose on others.
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