大象传媒

The failure of capitalism?

• Robert Peston
• 21 Feb 07, 08:44 AM

Paul Myners 鈥� former chairman of Marks & Spencer, current chairman of Land Securities 鈥� is on the advisory board of a private equity business, Engelfield Capital. So his and on the Today programme is perhaps all the more serious for the private equity industry.

He鈥檚 also about as close as any businessman to the Treasury, the Government department which for years has been cheerleading for private equity and which alone has the power to do it serious harm through making the tax system less benign for it.

The Treasury will dislike Myners鈥檚 intervention, because it remains of the view that private equity brings net benefits to the British economy. But it will find it hard to ignore his criticisms, which are that private equity is too opaque and secretive, and also that employees at businesses bought by private equity are 鈥渢he one party that is not rewarded鈥� and that generally they 鈥渟uffer an erosion of job security and a loss of benefits.鈥�

Myners will hate me saying this, but in a way his attack is predictable. Why? Because he made his fortune creating a conventional City fund management organisation, Gartmore, and he made his name as chairman of M&S fighting off a de facto private-equity takeover attempt from the billionaire Philip Green. So he can be seen as a spokesman and cheerleader for public markets, or businesses quoted on the Stock Exchange.

And the point about private equity is that it represents a serious challenge to public markets and bourses like the Exchange.

Ask almost any manager why private equity has been so successful and what you鈥檒l hear is that 鈥渋t better aligns the interests of owners and managers.鈥� Here鈥檚 Richard Lambert, director general of the CBI 鈥� the private sector lobby group 鈥� talking about it last week:

鈥淏ecause the managers of businesses backed by private equity usually have a significant equity interest in their success, the interests of managers and owners are very closely aligned.鈥�

What does this mean? It means that British managers of public companies increasingly believe that their interests are not 鈥渁ligned鈥� with traditional City investment institutions, that they feel frustrated by what they perceive as the shackles put on them when they run a listed company.

These are not shackles put on them by trade unions 鈥� even though it is trade unions led by the GMB which are to curb the growth of private equity.

The constraints which chafe on executives are those imposed by the owners of public companies, the shareholders. When managers move over to private equity, what they are trying to escape are:

1) negative stock-market reaction to investments and initiatives needed to grow profits in the long term but which may depress profits in the short term;
2) expensive requirements to publish all manner of financial, social and environmental information; and, of course,
3) limits on what they are paid.

They are making a bolt from mainstream corporate governance and from what they perceive as a lack of understanding and support from the conventional investment institutions that own listed companies.

In a way, the rise of private equity can be seen as a rejection of the shareholder-capitalism that has underpinned the US and UK economies for 150 years. And that鈥檚 quite a big deal.

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