The formulas, tricks and trade secrets of Private Equity

Private Equity Industry Governance

Sample Chapter

The earlier English Kings operated their kingdoms mostly unfettered. Pre-13th century, if a king acted against the greater good or in an unethical manner, the response was more of an “oops” than a judicial hearing. But, as King John of England increasingly abused his power, the barons challenged him and the Magna Carta was written. While there may be more regulation around private equity in the 21st century, consensus is that they act in a similar invincible manner. Sometimes when they effect their power, companies collapse, people become unemployed, the banking system suffers, and the final result is chaos and catastrophe. With this in mind, do we need a form of Magna Carta for the private equity industry? Does private equity governance need attention?

Well… with risk comes reward and without risk, companies and people resign themselves to mediocrity. With risk also comes failure, but it’s a failure that’s a byproduct of reaching for the sky. Particularly with venture capital, we wouldn’t see the innovation and advancement that we do if it wasn’t for people willing to take abnormally high risks. This is just a fact of life, but at times when there is more bad news than good, the scruples of private equity firms come into question. However, many private and public businesses are collapsing without private equity industry influence. Is this more a governance issue then?

This argument could easily go round in circles indefinitely, but I believe private equity is just another form of risk capital that… inherently has risks (sounds like a tautology, but it’s often forgotten). We should expect failures, but we shouldn’t bring the whole asset class into question as a result of a few. If anything, we need to learn from these failures and continue to support private equity by creating lasting value for shareholders, employees, the community and global economies. So in answer to the headline question: No, I don’t believe the private equity industry needs better governance, neither its own Magna Carta.

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