ANALYSIS: Private equity needs a make-over
Private equity has hit the headlines hard lately, and as is the general case with headline hitters, it has not been the subject of good news. The broadsheets and business sections attack the industry with ferocious regularity, whether to accuse it of secrecy, of operating within murky waters, or trampling all over jobs and pension schemes to line its own pockets. Add to this an ongoing high profile tax row, in which unions are calling for these buyout 'fat cats' to pay higher tax levies, and it's not hard to see why outsiders perceive the industry as being corrupt and underhand. One of the biggest fears, painted by and fuelled by the UK media, is that should one or two high profile buyout deals collapse given the huge financial liabilities that are required to fund them, then the country will be plunged into a new recession.
This is a bold statement, but one that average readers of the UK business media would probably agree has a ring of truth to it, because there is precious little out there to counteract it. An argument over whether the press's vilification of the private equity sector is balanced isn't particularly relevant, because the UK press is at the best of times biased, and at other times loathe to find the good in something. 'Nice' stories don't sell newspapers, so journalists don't go looking for them. This isn't to say that were the private equity sector to make some noise about the good it is doing for the economy the media wouldn't listen. At the moment though, there is nothing out there for them to hear.
So far, the only positive press floating about seems to stem from private equity leaders sulkily denying that any of the bad press is true. It's a pretty negative way of putting out a positive message. Last month for example, a headline emblazoned across London's City AM newspaper read 'We've nothing to hide', with the following story detailing how the bosses of four major buyout houses had gone to parliament to hit back at the criticism surrounding their activities. The entire piece showed them to be on the defensive. Quotes like âTo suggest we are asset strippers is ludicrousâ, and âwe are not about destroying valueâ would be enough to turn a PR machine cold; they are not words that instill confidence in those who read them.
The need for one voice
This isn't to say that the answer to the sector's woes is for every private equity company to hire a PR and brand agency and order it to put out some good press. For a start, the issue isn't necessarily centred around individual buyout firms. The industry as a whole is taking the rap over the tax issue; equity firms and their members are the target of an active campaign run by the GMB trade union for what it terms as âhostile acts including massive layoffs, dumping insolvent company pension funds, and poor industrial relations.â
To this end, it might be most effective for the industry to think holistically about its attitude to PR. âIt strikes me that the industry needs a collective voice that states why private equity isn't a bad thing,â says Patrick Barrow, CEO of the Public Relations Consultant Association.
He points out that as the tax issue isn't something that the sector can directly control â because that decision rests with the Government â it needs to focus on talking about what it can control; such as having a positive effect on the economy. Straight away, this puts a much more positive spin on the industry than the act of simply responding to negative comments and attacking critics.
Unfortunately, the industry's lobbying group (the British Private Equity and Venture Capital Association) which should already be doing this is itself the subject of current bad press. Its now former chief executive Peter Linthwaite walked out last month after receiving a verbal dressing down from MPs, and following a revolt by his own members over his failure to fend off any of the criticism the industry has received from MPs and unionists.
Talk to any number of branding experts about why the industry is so poorly perceived, and the same three words continually crop up; corporate social responsibility. âPrivate equity deals can create jobs, and trimming jobs in unproductive companies may ultimately result in the growth of the company, which is great for bondholders and will create jobs in the long run. (Therefore they) should be making clear and public efforts to emphasise CSR in these terms,â comments Ian Ryder, managing director at brand agency Uffindellwest. âPrivate equity firms generally have a bad image because people are suspicious of the secretive nature of their deals.â A point which demonstrates precisely why that quote from a buyout boss in City AM stating âwe've nothing to hideâ makes such disastrous press for the private equity industry, because reading it implies the exact opposite.
Speaking the lingo
Even if the industry were to stop digging its own hole and embrace PR, it would have another major issue to address which is that its spokespeople seem have a tendency to shun everyday language in favour of a code that fails to engage people outside of their circle.
âThose in private equity just don't have the lingo to market themselves, you can hear them being interviewed by the media and just be totally bemused by it,â says Andy Graham, positioning director at One Brand Group. Tied in with that comes a perceived image problem. Branding experts argue that the industry is still stuck in the eighties, when it was okay to assume a mentality that greed was good, âIt's almost like they shut the door on the rest of the world at that point and have refused to move with the times since. The industry hasn't embraced the need for transparency and CSR,â says Graham.
The industry has a lot of work to do to turn its public image around, but it seems the solution is staring it in the face. Financial PRs, who know a thing or two about highlighting the good in these supposedly big, evil corporations, are adamant that buyout bosses just need to work harder at proving they are a credible asset to the economy.
Perhaps, says Bobby Morse, partner at Buchanan, they are letting the government talk over them too loudly. âPolitics, which has its own agenda, has deliberately nurtured sentiment against the industry due to the 'fat cat' perspective without understanding the underlying rationale of the industry,â he says. âIf businesses can't access the capital they require they will either stagnate or go bust - private equity fulfils a largely hidden role in keeping people employed rather than the headline job cuts in mature businesses which have commercially become overstaffed.â
Negative press will never cease to exist on an issue as topical and with as much money tied up in it as private equity funding, but if the industry were to fight its corner, perhaps it would have a better case for arguing that all it is accused of is not necessarily true.