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date: 23 February 2007

embargo: noon Saturday 24 February 2007

TUC challenges private equity to talks

TUC General Secretary Brendan Barber has challenged the private equity industry to attend a round table with their critics, and has posed three challenges:

• to tell us what they stand for and whether they accept any responsibilities to their workforce or the wider community
• to open the industry to greater transparency and disclosure, particularly of the rewards paid to, and the tax paid by, top private equity executives
• to establish whether private equity can establish long term sustainability and not just fuel a short term - high risk bubble waiting to burst.
• Text of a speech to the annual conference of the Midlands TUC in Rugby by Brendan Barber, General Secretary of the TUC, said:

'In recent weeks we have seen a growing interest in the part played in our economy by the private equity companies. Almost three million people are already employed by companies owned by private equity.

'Other major companies are now being circled and weighed up as possible targets. Sainsbury's are high on the list. Thousands of workers look over their shoulders fearful of the future, uncertain what such takeovers might mean.

'Yes, some companies taken over by private equity have prospered; and their employees with them. Yes, private equity provides crucial start-up capital for new businesses. So why is the industry coming under so much critical scrutiny with union campaigning finding such an echo from so many serious economic commentators.

'I would pose three key challenges, and invite the private equity industry to engage in a serious dialogue with the trade union Movement on these issues. Industry leaders say they want to be better understood. I think it's time to talk.

'The first challenge is for the industry to tell us what they stand for. Do they accept a real responsibility to the workforces they take on, indeed the wider community of business stakeholders? Alongside the positive business stories we hear of too many others where jobs have been ruthlessly stripped out and standards hammered down. The best of our companies have always accepted responsibilities to their workforces and communities in which they operate. In businesses that typically the private equity operators only want to hold on to for 3-5 years - sometimes even shorter - do they want to be regarded as responsible corporate citizens? If so what are they prepared to do to earn that?

'Second, are they really committed to greater transparency and prepared to open their operations up to public gaze? I note with regret that in his Financial Times interview yesterday Damon Buffini of Permira ruled out disclosing information on the rewards packages of private equity executives. I wonder why? Industry commentators suggest that these are lavish beyond belief adding up to tens of millions of pounds. Researchers point out that these rewards may often be taken as capital gains, which has huge tax advantages when the higher rate of income tax in the UK is 40%. The Financial Times reports gossip that leading British private equity partners have paid tax of no more than 4-5% on multi-million incomes. There are huge issues involved here. Should the Treasury be entirely indifferent to the scale of rewards being hoovered up in this sector and its tax treatment? We need a serious debate on top pay and the corrosive effect on society of an ever-greater divide between the super rich and the rest of us. But we don't just need greater transparency on rewards; company law as applied to PLCs requires reporting and transparency on a host of key issues. Why should this growing sector in our economy be allowed to operate in the shadows?

'My third key challenge is about the long-term sustainability of the private equity buy out model, based on debt finance and fancy financial engineering. As the Financial Times has said, businesses loaded with debt become 'riskier and more likely to go bankrupt'. And as Paul Myners has highlighted those most at risk are the workforce. I worry for the pension funds, being encouraged to buy into the promise of spectacular returns, that they need to be very careful and the TUC is producing a briefing for our network of over 1,000 Pension Fund Trustees on these issues. When The Guardian tells us 'Buffini and Co may be living in a bubble' and the Daily Telegraph that 'the model is being tested to destruction' it's time for all of use to take a long hard look. It has been said that the private equity funds already have more money than they can sensibly invest. 'When it ends it always ends badly. One of the signs is when the dummies can get money, and that's where we are now'. That was Stephen Schwarzman head of private equity giant Blackstone, about a year ago.

'I hope the private equity industry really does want to engage and I'm hoping they'll accept a TUC invitation to a round table discussion and talk seriously. I hope it's helpful to them to have advance notice of some of the hard questions coming their way.

NOTES TO EDITORS:

- The conferences takes place at The Indian Community Centre, Edward Street, Rugby

- All TUC press releases can be found at www.tuc.org.uk

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Contacts:

Media enquiries: Tim Lezard T: 020 7467 1248; E: tlezard@tuc.org.uk

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Press release (1,000 words) issued 24 Feb 2007