Two senior City figures have predicted that private equity will soon embrace CSR.
Stephen Haddrill and Alain Grisay told delegates at Business in the
Community’s annual conference in London last month that proponents of
socially responsible business need to have confidence in the power of
their message, and that there is no reason why companies controlled by
private equity firms should behave less responsibly than publicly
listed ones.
Haddrill, director of the Association of British Insurers, said he
expected private equity-owned companies to adopt social and
environmental policies. ‘Sustainable business is as relevant to private
equity as to public companies, and I’m optimistic they will see that,’
he said. ‘Let’s not jump too quickly to the conclusion that private
equity is beyond public scrutiny. Half of their UK funds come from
pension funds or insurance companies, who are themselves under pressure
on social and environmental issues, and will demand more
accountability. Responsible business is not the preserve of public
companies. Let’s have confidence in the power of our message, and that
it will leap the ownership boundary.’
Grisay, chief executive of F&C, one of the leading European SRI
fund managers, said that private equity firms have ‘historically tended
to overlook sustainability issues, sometimes to their detriment’. He
predicted that ‘eventually we will see a convergence between private
equity and public companies on sustainable business practices’.
Grisay added that there were ‘some serious misconceptions about private
equity’, not the least of which was that all such companies slashed
jobs. He quoted a recent Financial Times survey showing that the 30 largest private equity deals between 2003 and 2004 created 36,000 new jobs in the UK.
He said private equity owners are ‘extremely demanding of their
management’, and that there is no reason to believe they will not be as
vigilant as public companies on the social and environmental issues
affecting a business’s value.
Haddrill argued that because large companies taken over by private
equity often go public again sooner rather than later, ‘there is little
to be gained from destroying years of hard work’ on sustainability,
‘only to start again on the return to the market’.
Last month one of Britain’s largest trade unions, the GMB, called for
private equity firms to be regulated by a government-backed watchdog
that would monitor their social and economic impacts. The union made
the call in a submission to the Treasury select committee, which
intends to investigate the impact of private equity activity.
Simon Zadek, chief executive of the AccountAbility think-tank, told EP:
‘Private equity might well be persuaded to take social and
environmental issues more seriously, particularly under pressure from
their sources of debt financing. But their real contribution will lie
in their will and ability to invest in new business models for the long
term, not just in being compliant to avoid trouble as they seek to
return stripped down companies to publicly traded equity markets. They
have to prove themselves as real investors, rather than taking profit
by intermediating between different financial markets.’
Mark Goyder, founder director of the Tomorrow’s Company think-tank, said private equity ‘has the potential to be a good vehicle for longer term ownership’, but the industry needed to come out and explain itself and its impacts.
He added: ‘The companies owned by private equity are covered by the new business review. Two things are needed. First, let these private equity-owned companies do a proper operating and financial review on their purpose, values and key relationships. Second, let the private equity firms themselves be open about how their deals are structured and who stands to gain what time horizon.’
