US union sets sights on private equity

The US’ largest labour union has issued a scathing report on buyouts, and challenged the private equity industry to reduce income inequality and ‘restore promise in the American Dream’ – prompting a response from the Private Equity Council.

Union disapproval of the private equity industry is gathering steam in America, with the Service Employees International Union’s issuance of a report on buyouts and simultaneous launch of a private equity-dedicated website, (The union’s “blackstonerevealed” blog launched last month).

These are just the first in a series of initiatives that the American union – which has more than 1.8 million members – hopes will “broaden the conversation about buyouts and their impacts”, said Stephen Lerner, assistant to the president of the SEIU.

“We need to take the conversation about private equity out of the financial pages and boardrooms and into the living rooms of Americans whose lives are affected by this industry,” he said.

Speaking at a teleconference Tuesday, Lerner said “private equity is selling larger and larger parts of the economy every day”.

A “new economy” in which private equity plays an increasing role, he said, “is leaving millions of Americans who work hard and play by the rules squeezed out of the middle class [and] shut out of the American dream”.

Lerner – and the union’s report – outlined private equity deals the union feels have had negative outcomes for its employees, including the buyouts of KB Toys, Hertz, Intelsat, and Warner Music.

“In all of these deals the workers had almost no voice,” Lerner said. In addition to having a voice, Lerner said workers ought to receive some sort of compensation for the value they add to a company.

“So instead of being a line item on a balance sheet,” he said, “workers should share in the economic opportunities being created by buyouts.” That could vary from deal to deal, he said.

In response to the SEIU’s report, Douglas Lowenstein, president of the Private Equity Council, said in a statement: “While we welcome an informed debate about the role of private equity in the global economy, we don’t think that isolating five transactions out of the more than 3,000 PE acquisitions between 2004 and 2006 accurately reflects the private equity market.

“In fact, research shows that private equity investment often results in long-term employment growth and enhances the economic viability of a business to the benefit of all stakeholders,” he said. Lowenstein cited studies done this year by AT Kearney and The Financial Times.

Lerner called the union’s latest actions the start of a broad national campaign to challenge private equity to “create new opportunities in the new economy and restore the promise in the American Dream”.

The union is also calling for private equity to be more open in its dealings and disclosures in terms of finances and business plans for portfolio companies.

In response to a reporter’s question, John Adler, director of SEIU’s private equity capital stewardship programme, said the SEIU doesn’t directly invest in private equity funds, “but pension funds that are union sponsors, and other pension funds that our members participate in, are limited partners in lots of private equity firms”.

Lowenstein noted the contradiction: “Curiously, in discussing private equity’s impact on the country, SEIU ignored the salient fact that the largest investors in private equity are public employee pension funds, foundations, and universities who have flocked to the sector because top PE firms have generated returns more than triple the S&P 500. Thus, the benefits of PE activity flow through to tens of millions of firemen, police officers, and other public servants via more secure retirements, and also help fund college scholarships and educational opportunities, and disease research.”

He added that the Private Equity Council welcomes “a constructive, open and fair-minded dialogue with the union and all other stakeholders”.

Similar debates have been taking place across Europe. UK trade union The GMB has been a vocal critic of the private equity industry, arguing that workers lose jobs as a result of companies being taken private. It recently called on the government to halt the Kohlberg Kravis Roberts-led buyout of Alliance Boots.