The Impact of Private Equity on Management Practices in European Buyouts - Short-termism and Anglo American Effects
Private equity firms are accused of increasing the short-term performance of buyouts by reducing investments in human capital. To explore this issue, this paper presents findings from the first representative pan-European survey of managers’ perceptions of the impact of private equity on management practices in buyouts.
A broad debate has recently developed in Europe with regards the increasing prominence of financial market institutions, their impact on corporate governance, and the possible transition to a new stage of financial market capitalism, or fund-driven capitalism. The activities of financial market institutions, such as the private equity industry, appear to affect the conduct and outcome of employment relations. The question now raised in Europe is whether the alternative organisational forms created by the private equity industry are able to effectively develop and motivate employees to improve levels of organisational performance, or whether they contribute to greater corporate restructuring and less secure employment.
This paper reports the results of the first representative pan-European survey of managers' perceptions of the impact of private equity on high performance work practices (HPWPs). In contrast to critics' claims, often based on isolated examples, managers report that private equity investments result in more HPWPs. The findings provide little evidence that private equity involvement prevents investment in HPWPs or is damaging to the long-term viability of companies.
This paper also evaluates whether changes to HPWPs vary according to the anticipated time to exit of the private equity investors, whether the private equity investors are Anglo-American, and whether they were foreign to the local context. Fewer HPWPs are reported where private equity firms anticipate a shorter time to exit. The evidence helps inform the policy debate regarding whether the short-term orientation of private equity backed buyouts fails to support investment in management practices to deliver increased levels of productivity and efficiency over the longer term. Anglo-American private equity buyouts are just as likely to introduce new HPWPs as non-Anglo-American private equity backed buyouts. However, Anglo-American private equity buyouts are more likely to extend financial incentives to cover a greater proportion of employees.
The paper is available for download below.
A version of this paper appears in Industrial Relations.