Last week, PEO published a commentary on the first installment of “The War on Greed”, a series of short films on the private equity industry by Robert Greenwald, the political activist and filmmaker behind recent Brave New Films documentaries including “Outfoxed: Rupert Murdoch's War on Journalism”, “Iraq For Sale: The War Profiteers” and “Wal-Mart: the High Cost of Low Price”.
This week, the filmmaker responded to our commentary and explained how and why Brave New Films decided to target private equity. The following are excerpts from our conversation.
A recent commentary on our site argued that Greenwald's film was out of focus and lacked a developed ending, because rather than attacking the tax code on carried interest and providing viewers specific solutions to effect change, the film makes broad generalisations about private equity business practices, juxtaposing middle-class Americans against Henry Kravis, his homes and statistics on his income and tax rates.
Greenwald: My response is it's actually not out of focus, it's something called rack focus. You shift focus – you've seen it in movies where the camera will be on one person and then slowly it'll move focus and it'll take you to another person who will come in focus and then another person. So that's what we're planning to do with this campaign: move from the first effort, which is on the homes and economics, and then we'll be moving towards workers, we'll be moving towards legislation, we'll be moving towards the investment in the various states, so it is part of a longer campaign. So to go along with your analogies, rather than undeveloped endings, like all good miniseries, stay tuned and you will see us move forward with the story line.
Why did you become interested in making films about private equity?
I knew nothing about the subject and then when I saw the numbers – half a trillion dollars or something in private equity – I was flabbergasted. But what got my attention was, I think like many people, when the issue hit the papers big time that there were these people who were making hundreds of millions of dollars a year and their profit or carried interest was not being taxed at the same rate as others. I'm not an economist and I don't pretend to be one, but I am a citizen and it got me very angry … and some people like [investor Warren] Buffett said 'Yeah it's not fair that I'm paying a lower tax rate than any of my employees', versus Henry Kravis and others who raced to Washington [and] spent millions of dollars hiring all kinds of lobbyists.
The way I tend to choose a lot of the subjects I work on is I start with my emotion, my gut and something that gets me aroused, often on the level of something that is seemingly not just. And then I do research and sometimes my gut is wrong. And in this case, the more I researched it, I felt not only that my gut was correct, I wanted to try to do what we do with the films and the short pieces, which is put a light on something with a point of view and see if others feel the same way. And the response to this complicated, in-the-shadows thing of private equity has been extraordinary. When we did the video I would have predicted 10,000 to 15,000 views; we're at over 200,000 in, like, a week.
I thought it was a hot subject maybe in your world, you know a limited world. I didn't think it'd touch a nerve with [the general public]. If you went on YouTube there were like 1,200 or 1,300 comments from people arguing with each other about it, and we had about 800 on our blog.
Aside from reading articles and books, how do you conduct your research? Are you interviewing people in the industry? Critics of the industry?
Yes, both. We didn't go to legislators on this one although we will as the campaign evolves. We try as hard as we can. This [issue is] complicated and therefore I wanted to go extra lengths to make sure we were understanding it as fully as [possible] … because it's one thing to talk about private equity, it's another to say I'm going to make a piece to try to get popular attention on the subject, which is how I saw the first piece. The subsequent pieces will go more into the meat of it.
How do you explain tax code complexities to a popular audience in a short film?
Well, you don't in the first film. What we tried to do in this one, I have an expression here, which is “setting the table”. So we're setting the table for an issue, and that's why we didn't go into tax code although I agree with you, that's where I think a big part of the problem is. I believe these [private equity] guys, because they're spending their hundreds of millions to keep [the tax code] the way it is, you have to go after them because they're the source, but part of the solution is in tax code.
What we try to do is go in steps on a complicated issue like this. As I said, we set the table. [We are saying] 'Here's a problem did you know about it?'
Is carried interest taxation your primary problem with private equity?
Well, in my research there's been a couple of issues. Certainly the fact that they are not paying what I would argue is a fair share of taxes on the bulk of their income is, I think, unfair. But you know, as I got into it and read up on the history of it, [I also had problems with] the fact that historically [GPs] used to use their own money, now they don't, or they use very little of their own money. And then what may be one of the most egregious things, which very little has been written or talked about… is the transaction fee, which is millions and millions of dollars, for, as one of my colleagues in a meeting said, moving papers around. To me, it's almost indefensible because you cannot argue that they are restructuring or rationalizing the company for doing the deal; they are taking millions and millions out and where do the millions come from? You've got to cut something so you cut jobs or you cut assets to pay for the privilege of having done that deal with money that has been borrowed for the most part.
What is your ultimate goal?
My goal with any of the films that I do, whether they be the full-length ones or the short campaign pieces … is truly to put a light on the subject. I'm really a huge believer in this whole democracy thing, and the notion, that great line that democracy is not a spectator sport. I'm not an expert and I'm not a policy maker, I'm a person who can tell stories and I believe in telling narratives and getting people's attention. With “Wal-Mart” or “Outfoxed” or “Iraq for Sale” … in none of those films do we say 'here is the solution'. I would hope we can create real awareness about private equity and the inequities in private equity and from that will come, I believe, legislative solutions.
How many more shorts will you make on this subject?
You can certainly expect one around Dr. [Martin Luther] King's birthday. We found workers in different parts of the country who we will be highlighting and then I would hope another couple after that. We'll see how we do and how much each one costs. As opposed to the gentlemen in private equity, for us it's always a resources issue. We have to go out and try to find $10,000 here and there.
How do you respond to research that shows private equity firms do increase employment or have other positive effects that contradict the information in your first film? Are you comparing research studies to one another to come up with conclusions?
Oh, absolutely. In fact, I didn't go onto the job issue until we got real data … we are very careful to do the research and make sure that we're not factually wrong. People can have different opinions but I don't want to be wrong on the facts.
What about if you're looking at a company that without private equity would have gone bankrupt? Statistics can look a lot different in a case like that.
There are absolutely good private equity companies and there are good private equity deals, but our research, and again people will disagree, but our research is that that is in the minority going forward, that most of the KKR and Carlyle and Bain deals are in fact hurting jobs and hurting the overall economy by the way money is used.
You're very focused on the major firms and megadeals. Will you examine other segments of the market?
Not really, because I don't know that we have a role to play there. Again, I try to be as careful as I can when I talk publicly about the fact that there are good private equity deals and there are some good private equity companies but the ones we're focusing on are not.
There are a lot of private equity firms now involved in film financing.
Yes, I know. Somehow they haven't approached us about backing this campaign. Isn't that shocking? I keep waiting for the phone to ring.