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February 18, 2008

Is Private Equity Cheating?

Andrew Ross Sorkin
Chief mergers and acquisitions reporter for the NYT and editor of Dealbook
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If Jerry Springer had a show about business, this might have been an early episode. There was even special security in the audience.

On Friday, I moderated a panel at CBS’s annual Private Equity and Venture Capital Conference. The topic: Pushback — Private Equity’s Social Impact.

The rabble-rouser among the panelists was Andrew Stern, the outspoken president of Service Employees International Union (SEIU). On the other side, defending the private equity industry, was Gwyneth M. Ketterer ’91, the COO of Bear Stearns Merchant Banking and John Franchini, Partner, Milbank, Tweed, Hadley & McCloy.

With the panel taking place less than a month after the SEIU staged a massive protest that drew police to the scene in the middle of a presentation by Carlyle Group’s David Rubenstein at a Wharton conference, the organizers of this conference were understandably nervous. They took precautions by having undercover officers in the audience, which quickly became standing-room only.

While there were no protesters this time, Mr. Stern didn’t disappoint: he threw several proverbial grenades into the room that caused sparks to fly. He derided private equity on its tax treatment, its debt load and its treatment of its employees. By constantly wrapping his arguments against the industry in the context of being an American patriot and by framing the debate as one about inequalities, he quickly gained some sympathy from the audience members (most of whom were either in private equity or students seeking to enter the industry). But when it came to offering concrete ways to improve the industry and its relationship with labor, he was short on details.

Ms. Ketterer, a feisty veteran of the industry, sparred with Mr. Stern, calling him out on his lack of specific suggestions. For example, she asked why unions were typically not willing to take equity in lieu of cash as a way to incentivize the workforce. Mr. Stern said he agreed that they should be more progressive in their thinking.

Several vocal members of the audience lit into the private equity industry, at times becoming quite emotional while Ms. Ketterer and Mr. Franchini tried to explain the dynamics of the marketplace.

Towards the very end, in effort to reach a common ground, Ms. Ketterer said she appreciated how explosive the issues had become and expressed an interest in finding a solution. But the fight seemed to never end.

Like Mr. Springer’s show, the panel ended with audience members still involved in a raucous debate.

Stay tuned for the next episode.

Comments

by Mike Wilson | March 07, 2008 at 1:45 AM

Very interesting situation

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