While the US government was flirting dangerously with fiscal meltdown in October, some columnists argued loudly that private equity’s leading lights should be playing a more prominent role in the debate – that the likes of Kravis, Rubenstein, Schwarzman, Bonderman et al should be lending their weight to efforts to resolve the political stalemate.
One columnist, for example, put in calls to all these senior figures asking for their views on the situation – and when they neglected to call him back by tea time, he angrily denounced the industry’s refusal to engage with the political process.
The argument for the prosecution goes something like this. These are powerful, influential people, whose public statements are widely reported and scrutinised. So at a time when politicians seemed incapable of showing leadership and resolving their differences, they should have been using that influence for the benefit of their country. What’s more, these men control companies that account for a large swathe of the US economy – so they benefit hugely (commercially and financially) from a stable and well-functioning political and economic system. In other words, whether it boils down to civic duty or even just naked self-interest, they have an obligation to get involved in such situations.
It’s also undeniably true that public respect for politicians in the US was at a pretty low ebb during that period (and continues to be so, to a large extent). So – some argued – what better time for private equity leaders to engender some public sympathy for their cause by speaking out on behalf of the populace against the squabbling politicians? Arguments like these might sound plausible, on the face of it. But they’re misguided.
This column is predicated on the notion that private equity isn’t private any more, and shouldn’t try to act like it (however much of a cultural change that might represent). So we tend to the view that greater transparency is almost always in the industry’s best long-term interests – as is better engagement with politicians and the political process.
But this isn’t about transparency, or engagement; it’s about politics. And that’s a very important distinction. It’s right and proper that the industry should be ready, willing and available to talk to elected politicians about what it does, how it does it, and what the benefits are. But volunteering opinions about an entrenched and extremely partisan political row is a very different kettle of fish.
The first question to ask is: ‘Why should they?’ Private equity firms shouldn’t necessarily expect a right to privacy in their commercial dealings, since (particularly for the bigger firms) the deals they do often have an impact on a broad group of stakeholders. But this was fundamentally a political issue, not a commercial one; and unlike politicians, senior business people are not appointed and rewarded for opining on political matters. Besides, their view on politics is arguably no more valid or better-informed than a politician’s view on deal financing structures.
But even if you don’t buy any of this, there’s still a strong practical argument against getting involved. For a start, it’s a risky PR move. However unpopular Congress may be at the moment, any strategy that could be interpreted as ‘self-interested unelected plutocrats tell elected representatives of the people how to run the country’ is bold, to say the least.
Equally, taking sides against the people responsible for making the laws is also a dangerous business. Why come out and publicly criticise the people who next year might get to choose what your industry’s tax treatment is going to be? If anything, it might undo some of the political goodwill that the industry associations have been trying so hard to build up on the Hill in recent years.
In the end, a couple of senior industry figures did come out and comment publicly on the situation at the time: notably Blackstone’s Tony James, who accused the politicians of “playing Russian roulette with a loaded gun”.
But perhaps the best-judged contribution came from the Carlyle Group. No, not its founder David Rubenstein’ssuggestion that he’d been ‘saddened’ and ‘embarrassed’ by the shutdown; but the firm’s decision at the height ofthe crisis to release its own estimate of US third quarter GDP (and various other economic indicators) based on data gleaned from its portfolio of 200-plus companies. “Several of our monthly data series are highly correlated with, and therefore may serve as reliable proxies for, US official data that are not currently reported due to the government shutdown,” Carlyle’s chief economist Jason Thomas said in a press release.
The key point here was that there was no obvious commercial upside for Carlyle; if anything it was going out on a limb unnecessarily (after all, its GDP estimate of 1.7 percent turned out to be well below the 2.1 percent official figure the government finally realised in early November). But it took advantage of an opportunity to tout its credentials as a serious economic commentator – the sort of proactive PR move that remains all too uncommon in the industry.
In short: engaging with the political and legislative process is good. Contributing to public debate about your areas of expertise is good. But chiming into an argument that you’re never going to win, and which potentially has serious downside risks? Sometimes discretion is the better part of valour.