If there’s one positive of the credit crunch, it’s that the volume of criticism aimed at the industry has dropped off measurably in the United States. It’s hard to blast firms when they’re no longer buying and selling companies at such an extravagant pace.
In Europe, by contrast, the public remains in a state of agitation against buyout shops—the argument from critics is that firms, which by their nature are secretive and therefore potentially nefarious, profit enormously from buying and selling portfolio companies while rank-and-file workers at those same companies get nothing in the bargain. The argument, so far, has gained much more traction in Europe than in the States, and the outcry has spread from labor unions to elected officials. In fact, the criticism is getting so voluble that leaders of the European private equity industry are trying to make a show of how they can police themselves in an effort to head off potentially damaging legislation.
The European Parliament, the legislative branch of the European Union, is set to take up two bills this summer dealing with greater regulation of private equity firms and hedge funds. The bills could limit leverage levels on deals and require greater transparency from firms.
Earlier this month, Dominique Senequier, the chief executive of Axa Private Equity, one of Europe’s biggest private equity firms, called on her colleagues to map out a voluntary code of conduct, according to the Financial Times. While the details of her plan remain vague for now, the code would lay out how buyout professionals, portfolio company managers and company employees divvy up profits made on company sales.
Senequier issued this call following what the FT describes as “public uproar” over some enormously profitable deals. One of the deals, a €2 billion ($3.2 billion) exit of a French power company by Barclays Private Equity, deposited €700 million into the pockets of eight of the power company’s managers. A principal at Barclays Private Equity has since promised to pay two months’ salary as a bonus to the power company’s 5,000-person staff.
“Public opinion is demanding more transparency and ethics on management packages, so we need to be ready for this,” Senequier told the FT earlier this month.
Last month, Jonathan Russell, who leads the buyout team of London firm 3i and is the new chairman of the European Private Equity and Venture Capital Association, added to the growing chorus. He said the industry has reached a “critical point” in Europe in terms of its public perception. Russell said the industry needs to police itself or invite supervision from the E.U. He told the FT that there has been “a fundamental shift of focus by the European legislative base on private equity that has taken place over the past year and is still gaining momentum.”