Now that Cerberus Capital has committed itself to improving the fortunes of Chrysler, should we expect Stephen Feinberg to appear in television commercials next to Snoop Doggy Dogg? I'll hazard a guess – no.
We should similarly not expect to see Feinberg lauded on the cover of Time magazine, on the Charlie Rose show, on bumper stickers begging him to run for president, or on a book tour promoting an international bestseller.
This invisibility is exactly as Feinberg would have it, but it's unfortunate for private equity, because what this industry really needs is a Lee Iacocca. The head of Cerberus may ultimately be responsible for bringing the sickly auto maker back to life, but the goodwill that this could create for private equity among the public would evaporate if Feinberg never showed his face.
Beginning in 1978, the charismatic Iacocca made the kind of tough decisions that Cerberus today will no doubt have to make – he fired workers, closed factories and killed car lines. He also made the unusual and unpopular move of having Chrysler take out a loan from the US government. But by the mid-1980s Chrysler was back on track and Iacocca was a national hero. “Iacocca for President” bumper stickers began to appear. His autobiography became a bestseller. Everyday people took an interest in corporate strategy. Years later, having long left the car maker, there was Iacocca in Chrysler ads next to rapper Snoop Dogg, proving his celebrity had appeal to a younger market.
Today Chrysler is again in need of emergency restructuring, and so is private equity's reputation. If he fixes the first problem, Feinberg could do the industry a huge favour by then working on the second one.
What can only be described as a private equity backlash is upon us, and it's likely to get much worse before it gets better. From Capitol Hill to mainstream media outlets, private equity GPs are the subject of withering scrutiny and in a few cases, vitriolic denouncements. To wit – those who defend the tax on carried interest are “unpatriotic” “pigs”, “addled with greed” (see Time magazine). The details of several high-profile deals overshadow the rest of the industry's achievements. Private equity is routinely defined as a financial endeavour that seeks to extract as much cash from a company in as little time as possible, before dumping the corporate corpse on the stock market.
The growth of private equity funds and deals has prompted many questions from the public. Private equity's first response was: leave us alone. The next response, delivered too late, was: you should love us. Congressional aides are still working through the math presented by both opponents and advocates of private equity. They are looking for a good guy in the industry who can explain how buyouts help America.
Private equity desperately needs a story to replace the avaricious plotlines of the dividend recap and the quick flip.
As such, the entire industry should be praying for Feinberg and company to work wonders with Chrysler, and to make it a success in a way that dovetails with the story private equity unceasingly tells about itself – that it adds value, that it transforms, that it creates jobs, that it innovates.
One fears that Cerberus is exactly the wrong firm for the task of promoting its success stories. It enjoys the superb communication services of former US Treasury Secretary John Snow, who is chairman of the firm. But the public won't buy Snow as the hero of Chrysler, and Feinberg doesn't want attention, either bad or good. What's worse, there is apparently no current photo of Feinberg available for use by the media (one recent report was so desperate for a visual that it printed his old school yearbook photo). He does not grant interviews under any circumstances. His name is not mentioned on the Cerberus website, including in two posted speeches by Snow.
Cerberus' recent appointment of former Home Depot head Bob Nardelli as CEO of Chrysler may ultimately prove operationally prescient, but strengthens the sense that Cerberus doesn't care about image. Nardelli, on his way out of the retail industry, became the poster exec for over compensation.
If Cerberus doesn't tell a good Chrysler turnaround story, someone else will, and it may not be very heartwarming. Imagine the headline: “How Cerberus outsourced American jobs, reaped huge profits, and paid less in taxes than the office cleaning ladies.”