The private equity business model and associated strategies for HRM: evidence and implications?

Abstract

Are private equity firms significant actors in the UK market for corporate control? Do they represent a new organizational form befitting a new business model? What are the direct and indirect pressures on management that flow from the diffusion of this business model and its associated organizational form? In terms of human resource management does acquisition by private equity have a significant or negligible effect? This paper looks at the development and diffusion of private equity and the ‘take private’ private equity business model (PEBM) and the effects of these on the management of HR. In addition to this the paper evaluates the PEBM within comparative institutional approaches to international business and HRM.

Keywords:

• business model
• HRM
• national business systems
• private equity
• shareholder value

Acknowledgements

Support of the Treasury Select Committee on Private Equity, the Financial Services Authority and the GMB trade union is gratefully acknowledged. An earlier version of this paper was presented at the Cardiff ERU Conference, September 2007.

Notes

1. Research supported by the ESRC (R000238350). The project team comprised Phillip Almond, Peter Butler, Ian Clark, Trevor Colling, Anthony Ferner, Len Holden, Michael Muller, all then at De Montfort University, Leicester and Tony Edwards King's College London. Specific findings were followed up and further developed by the author in work commissioned by the Financial Services Authority and the Treasury Select Committee in its examination of private equity. Case study interviews were facilitated and supported by the GMB trade union and fund managers in UK based private equity partnerships. Financial support administered by Jacqui Ward and office management by Jane Whitmarsh.

2. ‘Sight of’ means that during the interview process contracts of employment and the remuneration, target and bonus details of senior managers was made available. In addition to this several managers were happy to talk about their own incentive packages. But in both cases it was not possible to copy these contracts or show them to or talk to other managers about them.

3. In the interests of balance during the TSC sessions and in numerous media interviews Fund Managers from Permira regularly cited the investment in and expansion of the Travel Lodge chain of budget hotels as evidence that points away from an Asset Stripping strategy, and it was the case that during the period of PE ownership the chain did expand significantly its number of outlets with new investment money.