A trade union has been testing a new approach to escalating employment-related conflicts with private equity owners of businesses: instead of confronting the general partner or the management team that they back, why not put pressure on the investors in the GP's funds?
This, in a nutshell, is the tactic adopted by UNITE HERE, a group representing approximately 450,000 active members and 400,000 retirees in the hospitality, catering and industrial sectors in the US and Canada. The group has written to institutional investors active in private equity, urging them to tread carefully when weighing commitments to funds managed by Texas Pacific Group, the US LBO giant.
TPG, says UNITE HERE, does not have a good track record as an owner, least of all in Europe. The union contends that employees of portfolio companies Gemplus International (France), Grohe Water Technology (Germany) and Gate Gourmet (UK) have suffered at the hands of TPG's allegedly hard-ball approach to labor relations.
The private equity firm responded to the charge by drafting a 16-page memorandum titled ?Texas Pacific Group in Europe: The Real Story? and sending it to clients. The document asserts: ?The UNITE HERE report is a thinly veiled and factually inaccurate attempt to exert pressure on TPG and its investors to impose decisions in labor matters that portfolio company managements have concluded are not in the best interest of the companies they run.? TPG also argues that Gemplus, Grohe and Gate Gourmet have made good progress since becoming part of the firm's portfolio.
TPG declined to be interviewed on the matter. No one at UNITE HERE could be reached for comment. A US-based investor in a recent TPG fund said he was aware of the dispute but declined to comment.
The episode suggests that the private equity industry's relationship with organized labor is becoming an increasingly important determinant of investment success. As private equity's public profile has grown, trade unions have come to recognize general partners as key counterparties in their attempts to protect workers' interests, especially in cases where buyout firms are looking to rationalize a portfolio company's operations in order to ensure medium- to long-term prosperity.
UNITE HERE's success with the TPG campaign appears to be limited, however: according to industry sources, the new $10 billion LBO fund currently being marketed by the group is attracting huge demand from limited partners.
Silvester scandal claims another
Yet another professional has been tainted by the eight-year-old Paul Silvester scandal, in which Silvester, the former Treasurer of the State of Connecticut, was found guilty of accepting kick-backs from placement agents in exchange for committing state capital to a series of private equity funds. Last month, Jerome Wilson, formerly an attorney with law firm Rogers & Wells, agreed to pay a $50,000 fine to a federal district court in Connecticut. Wilson agreed to the fine without admitting or denying charges that he aided in a fraudulent scheme in which Silvester directed finders fees to political supporters in exchange for private equity fund commitments. A statement from the Securities and Exchange Commission did not note which private equity fund Wilson had represented. The scandal has to date led to several other similar fines, as well as to the imprisonment of Silvester and Fred McCarthey, the former head of now-defunct Boston-based Triumph Capital. McCarthy pled guilty to criminal gratuity in 2004 for directing favors to associates of Silvester's. A case remains pending against Charles Spadoni, a former vice-president and general counsel of Triumph Capital.
SEC solicits comments on small companies
The US Securities and Exchange Commission's Advisory Committee on Smaller Public Companies has published for public comment a draft of its final report and proposed recommendations to the commission. In a statement, the committee said it would consider any comments received before finalizing the recommendations in the report, which is due to be submitted to the commission by April 23, 2006. The Advisory Committee was established by the SEC to examine the impact of the Sarbanes Oxley Act and other federal securities laws on smaller companies. Many smallcompany CEOs and the private equity firms that back them have complained that SOX rules governing internal controls are too expensive and bothersome for smaller companies that are publicly listed, or would like to be publicly listed. Comments may be submitted to the Advisory Committee through the SEC's Web site by April 3.
Ex-SEC chairmen air views on SOX
Speaking at the Council on Foreign Relations in Manhattan in February, four former chairmen of the US Securities and Exchange Commission aired divergent views on how the Sarbanes Oxley Act should be fine-tuned for smaller companies. Arthur Levitt, the SEC's chairman from 1993 to 2001 and now an advisor to The Carlyle Group, said it would be ?absolutely wrong? to require different standards of internal controls to companies of different size. In February, the SEC proposed lighter regulations for the smallest 80 percent of publicly traded companies, which make up just 6 percent of the market capitalization of US stock markets. William Donaldson, chairman from 2003 to 2005, opposed changing rules for small companies, but said Section 404 of SOX, which relates to internal controls, could be ?tweaked or adjusted,? according to reports. Harvey Pitt, chairman from 2001 to 2003, called SOX ?one size fits all?which makes absolutely no sense.? But he added: ?The cost of 404 in the aggregate?is probably one ten-millionth of the cost of executive compensation. I don't hear anybody saying we should get rid of executive compensation.?
Journalist goes IR route
Guy Paisner, formerly a reporter with London-based Financial News, has joined Altius Associates as European partner in charge of client services. Paisner covered private equity at the Financial News, where he worked for seven years. Altius was established in 1998. The firm manages private equity commitments to US and European private equity funds.