Private equity voluntary code is toothless, says GMB

Written By: Tribune web editor
Published: October 5, 2007 Last modified: October 5, 2007

by René Lavanchy

PROPOSALS for a voluntary code of practice for the private equity industry are attacked in a report by the GMB union this week, which says it has no teeth and does not guarantee employees’ rights.

Their comments come as the industry braces itself for the anticipated closure of tax loopholes to be announced in the Pre-Budget Report, expected next month.

The Walker review into private equity, chaired by former investment bank chairman Sir David Walker, was launched this year amid negative media coverage and Parliamentary scrutiny of private equity bosses.

But Maria Ludkin, the GMB’s legal and political officer, told Tribune the union would resist any Government attempt to implement it. “It’s a very disappointing series
of recommendations”, she said.

Private equity firms such as Saga, which acquired the AA this year, have come under criticism for the effects of “leveraged buyouts”, where companies are bought with mostly borrowed money. Trade unions and the TUC have complained that this – coupled with minimal guarantees to employees – is an invitation to downsizing and redundancies. A consultation paper published by the Walker group earlier this year (Tribune July 20) says: “The industry has come to be seen as needlessly secretive, feeding suspicion and, in some quarters, close to hostility. Much of the concern is exaggerated and risks obscuring the significantly positive economic contribution made by private equity.”

To address this, and bring private equity firms closer to the reporting standards of public companies, the Walker group so far advises a voluntary code, whereby firms will publish annual report-style “generic communications”, outlining their general approach, the scale of debt they expect to incur and their approach to corporate social responsibility.
Firms who do not comply will be expected to say why.

The paper says the industry will also be regulated by “the added discipline, especially in the present environment, of external scrutiny by unions, politicians and the media, all of which can be confidently expected to play a part in seeking and smoking out explanation for any divergence from the guidelines. No other monitoring process is therefore proposed.”
Commenting on the provision of such summaries, Ms Ludkin said: “If I was asked to summarise my approach to anything, it would be easy for me to put a positive spin on whatever I said. There’s going to be no real accountability. That doesn’t sound very challenging or difficult to us. We were looking for something much more equal to what a listed company has to produce. We’re not seeing any teeth to what [Walker’s] enforcing at all.”

And responding to a description of private equity as a “positive agent of economic change”, Ms Ludkin said: “It’s impossible for anyone to argue with that. The private equity industry never publishes its results in a way that anyone can independently evaluate them.”

The Walker group is due to issue its final recommendations to the industry by the end of this year.