It\’s quite wonderful how the narrative can change really, isn\’t it?
There we all were, only a couple of years back, being lectured that stock market capitalism was a bad thing.
Lots of small shareholders, supine institutions, it just left management to do their own thing. What we really needed was a good dose of that old fashioned stuff.
Shareholders who had a significant long term stake in a company. Who would do it right, keep the management in line and look to the long term, not just the next day\’s trades on the exchanges.
What does Southern Cross, the care home provider at risk of bankruptcy, have in common with Manchester United, Boots, Woolworths, the AA, Debenhams, Thames Water, MG Rover, Reader\’s Digest, National Car Parks, and Birds Eye? The answer is that all of them are or have been owned, partially or wholly, by private equity funds. Maybe you knew that, and also that private equity takes over firms and often does bad things – otherwise known as \”efficiencies\” – such as sacking workers, cutting wages, selling off assets, walking away from pension liabilities and screwing suppliers. But exactly what private equity is, why it does bad things and why it is so important are not widely understood. Business journalists rarely explain it, presumably on the same principle that sports journalists don\’t explain leg-before-wicket or offside.
Now engaged shareholders, those with a significant stake in the companies, those influencing and keeping in line the management. They\’re wrong.