Private equity with a smile
Francis Northwood on the pitfalls of employee ownership
The investment firm KKR became famous as a symbol of rapacious capitalism in the late 1980s after its high-profile leveraged buyout of RJR Nabisco. Now the firm boasts of a kinder, gentler approach to money-making: employee ownership. In an interview with New Private Markets earlier this month, CFO Robert Lewin extolled the higher profits reaped by the 85 KKR portfolio companies that provide workers with an ownership stake. “You’ve got higher engagement scores. You’ve got higher retention rates. Working capital efficiency is up, margins are up, and ultimately, profitability is up.” Sounds like a win-win.
Not so fast, Francis Northwood writes in his Issue Seventeen essay “ESOP Fables.” All too often, employee ownership schemes serve as a vehicle for capital owners to unload risky or downright toxic assets onto workers while discouraging the formation of unions and ginning up good PR for companies like KKR looking to shake a predatory reputation. No matter how much today’s financiers rhapsodize about helping workers to own the means of production, greed is still good on Wall Street.
ESOP Fables | The False Promise of Employee Ownership
FRANCIS NORTHWOOD
If history is any guide, experiments with employee ownership typically end up juicing returns for the investor class rather than benefiting workers. Profit-sharing and employee ownership sound like a nice deal for workers as long as there are profits to share. The question is what happens when there aren’t.