Private equity firms have long been at the center of public debates on the impact of the financial sector on Main Street companies. Are these firms financial innovators that save failing businesses ...or financial predators that bankrupt otherwise healthy companies and destroy jobs? The first comprehensive examination of this topic,Private Equity at Workprovides a detailed yet accessible guide to this controversial business model. Economist Eileen Appelbaum and Professor Rosemary Batt carefully evaluate the evidence-including original case studies and interviews, legal documents, bankruptcy proceedings, media coverage, and existing academic scholarship-to demonstrate the effects of private equity on American businesses and workers. They document that while private equity firms have had positive effects on the operations and growth of small and mid-sized companies and in turning around failing companies, the interventions of private equity more often than not lead to significant negative consequences for many businesses and workers.
Prior research on private equity has focused almost exclusively on the financial performance of private equity funds and the returns to their investors.Private Equity at Workprovides a new roadmap to the largely hidden internal operations of these firms, showing how their business strategies disproportionately benefit the partners in private equity firms at the expense of other stakeholders and taxpayers. In the 1980s, leveraged buyouts by private equity firms saw high returns and were widely considered the solution to corporate wastefulness and mismanagement. And since 2000, nearly 11,500 companies-representing almost 8 million employees-have been purchased by private equity firms. As their role in the economy has increased, they have come under fire from labor unions and community advocates who argue that the proliferation of leveraged buyouts destroys jobs, causes wages to stagnate, saddles otherwise healthy companies with debt, and leads to subsidies from taxpayers.
Appelbaum and Batt show that private equity firms' financial strategies are designed to extract maximum value from the companies they buy and sell, often to the detriment of those companies and their employees and suppliers. Their risky decisions include buying companies and extracting dividends by loading them with high levels of debt and selling assets. These actions often lead to financial distress and a disproportionate focus on cost-cutting, outsourcing, and wage and benefit losses for workers, especially if they are unionized.
Because the law views private equity firms as investors rather than employers, private equity owners are not held accountable for their actions in ways that public corporations are. And their actions are not transparent because private equity owned companies are not regulated by the Securities and Exchange Commission. Thus, any debts or costs of bankruptcy incurred fall on businesses owned by private equity and their workers, not the private equity firms that govern them. For employees this often means loss of jobs, health and pension benefits, and retirement income. Appelbaum and Batt conclude with a set of policy recommendations intended to curb the negative effects of private equity while preserving its constructive role in the economy. These include policies to improve transparency and accountability, as well as changes that would reduce the excessive use of financial engineering strategies by firms.
A groundbreaking analysis of a hotly contested business model,Private Equity at Workprovides an unprecedented analysis of the little-understood inner workings of private equity and of the effects of leveraged buyouts on American companies and workers. This important new work will be a valuable resource for scholars, policymakers, and the informed public alike.
This paper examines the private equity (PE) corporate governance model by bringing together insights from legal scholarship, management studies, finance economics, and government data. While the PE ...business model emerged to solve the principal–agent conflicts found in large publicly traded corporations, we argue that it creates principal–agent conflicts higher up the investment chain-between the limited partner investors (LPs), or principals in PE funds, and the general partners (GPs), or agents who administer those funds. We draw on and extend multiple agency theory and examine three types of asymmetries that may undermine the interest alignment of GPs and LPs: asymmetries of power, information, and incentives. Using this framework, we consider the economic outcomes for stakeholders, whether solutions exist for better interest alignment, and the implications for future research and policy development.
Data transparency has become an increasingly salient issue in academic scholarship. Of course, it has always been a core principle in scientific research based on the assumption that studies must be ...replicable in order to be verified, extended, and debated. Transparency also helps build trust and collaboration among scholars in a field, advancing theoretical and empirical knowledge. In the social sciences, and particularly economics, we have often replied on data sets generated by government agencies in which the population and sampling frames, variable definitions, survey administration methods, and coding are documented in detail. The Census, Current Population Survey, American Community Survey, and the General Social Survey are considered gold standard data sets.
This study examines the relationship between alternative approaches to employment systems and quits, dismissals, and customer service, using cross-sectional, longitudinal data from nationally ...representative surveys of call center establishments. In results contrary to those of prior research, the antecedents and consequences of quits and dismissals are quite similar. We find that high-involvement work organization and long-term investments and inducements are associated with significantly lower quit and dismissal rates, but short-term performance-enhancing expectations are related to significantly higher quit and dismissal rates. Establishments with higher quit and dismissal rates have significantly lower customer service, as reported by managers.
Many have argued that the field of human resource (HR) management has successfully transformed itself from the functional orientation of personnel management to a strategic orientation that is more ...relevant to the goals and effectiveness of business in the current competitive landscape. In this article, we assess that proposition by reviewing almost 1000 award-winning papers and articles published in leading US and British management journals since the mid-1990s. We use this data to evaluate the scope of HR research in the field, the extent to which it has changed, and whether changes in this research have kept pace with changes that organizations face in the current global economy. Consistent with the strategic HR framework, we find that the question of the link between HR and performance has, indeed, become the dominant one among both micro- and macro-organizational scholars. Contrary to expectations, however, micro-level research continues to be more prevalent than macro-organizational studies; and we find little change in the subjects and sites of research or theoretical approaches adopted. These characteristics of HR research are in sharp contrast with the dramatic changes occurring in the world of work - suggesting a mismatch between what HR scholars study and what issues and dilemmas organizations face. Finally, by assessing similarities and differences between the American and British scholarship, we are able to suggest a research agenda, more relevant to the current global economy, which builds on the strengths of each tradition.
This multilevel study examines the role of supervisors in improving employee performance through the use of coaching and group management practices. It examines the individual and synergistic effects ...of these management practices. The research subjects are call center agents in highly standardized jobs, and the organizational context is one in which calls, or task assignments, are randomly distributed via automated technology, providing a quasi‐experimental approach in a real‐world context. Results show that the amount of coaching that an employee received each month predicted objective performance improvements over time. Moreover, workers exhibited higher performance where their supervisor emphasized group assignments and group incentives and where technology was more automated. Finally, the positive relationship between coaching and performance was stronger where supervisors made greater use of group incentives, where technology was less automated, and where technological changes were less frequent. Implications and potential limitations of the present study are discussed.
This article offers a political explanation for the diffusion and sustainability of team‐based work systems by examining the differential outcomes of team structures for 1200 workers, supervisors, ...and middle managers in a large unionized telecommunications company. Regression analyses show that participation in self‐managed teams is associated with significantly higher levels of perceived discretion, employment security, and satisfaction for workers and the opposite for supervisors. Middle managers who initiate team innovations report higher employment security but otherwise are not significantly different from their counterparts who are not involved in innovations. By contrast, there are no significant outcomes for employees associated with their participation in off‐line problem‐solving teams.
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