Unite on private equity and capital stewardship

Managed to miss this last week. More evidence that UK unions are getting into capital stewardship.

Unite warns private equity: act responsibly or risk losing our pensions investments
17/07/2008

Private equity could soon see its access to pensions funds challenged by unions as concern grows that members' savings are being used to support buyouts which hit jobs and communities.

The UK's biggest trade union, Unite, representing nearly two million workers in UK and Ireland, with members participating in pension schemes worth billions of pounds, has joined forces with major US union, the SEIU, to warn that union pension schemes should no longer be relied on by the buyout industry as a source of ready money.

Concerned that private equity buyouts mean job losses and insecurity, Unite is establishing a capital stewardship programme to scrutinise how pension funds managers are investing retirement savings. The move comes on the Global Day of Action (today, Thursday, July 17th, 2008) on private equity. To mark the day, MPs have tabled a Commons motion calling for tougher statutory regulation of private equity.

According to Tony Woodley, joint general secretary of Unite: "We will be taking a long, cool look at where our members' retirement savings are going.

"We shall not prop up leveraged buyouts where workers are made redundant, factories are closed, and jobs are outsourced or off-shored. Nor will we support poor investment decisions where our members' savings take the hit for reckless, get-rich-quick schemes.

"There will be no blank cheques. If private equity wants our pension money, then they must prove that this money will not help throw workers on the scrapheap while lining the pockets of the equiteers.

"Private equity operates in the mists of secrecy, which is not a culture we want to expose our members' pensions savings to."

According to Unite, pension schemes have a duty to ensure that they are not over-exposed to investments built on debt. They will be pressing pension trustees should consider the impact of private equity investments on society at large, including the treatment of workers and whether private equity is paying its full dues to the UK taxpayer.

A typical strategy of a buyout firm is to buy a company off the stock market, load it with debt and squeeze out profits by cutting costs, including labour costs. Buyout firms also avoid paying taxes by deducting the interest on their debt, reducing their tax obligation to zero and denying the British taxpayer hundreds of millions of pounds in revenue.

Job cuts soon followed when private equity took over Bird's Eye, the AA and Burton's Foods. A preliminary review of European companies acquired by one private equity company, KKR, indicates that KKR has been responsible for the loss of nearly 10,000 jobs across the continent in the past seven years.

The Global Day of Action will see coordinated action in 25 countries to highlight the operation of the leveraged buyout industry.

Hat-tip: Michael L