Examination of Witnesses (Questions 180-199)|
20 JUNE 2007
Q180 Angela Eagle: What about TUPE?
Mr Kenny: Effectively, it was
not applied because the staff association could not apply it.
In terms of other good examples, in the case of Birdseye that
was sold by Unilever to the same group that owns the AA. We were
told because of our concerns of what had happened elsewherewe
did a lot of public campaigningthat for three years things
would be honoured and there would be no problems. In less than
three months one of the big sites employing 600 people was targeted
for closure. Does that happen elsewhere? Yes, of course factories
close, but if you are paying £1.1 billion for an operation
you cannot say you do not know that you will shut 50% per cent
of the UK manufacturing base within three months. It is just naive
to suggest that. Therefore, it does not apply and it needs to
Q181 Angela Eagle: Are you worried
about pension fund liabilities? I notice in your evidence you
talk about private equity having broken pension promises and that
a whole series of insolvent pension funds has been linked to private
equity. What are your worries about that in terms of the savings
Mr Kenny: We have earmarked these
for the Committee. There are some examples in that document that
we would ask you to look at where effectively companies were put
into administration and re-floated within 24 hours minus the pension
fund liabilities which were transferred to the financial assistance
scheme; in other words, the taxpayer.
Q182 Peter Viggers: The aim of private
equity firms is to get out an investment in three to seven years,
so their idea is to seek to maximise value during that period.
On the other hand, investors in PLCs have an average investment
time of something like 15 months. That is a shorter term than
for equity investors. You have been clear in explaining to us
some of the disadvantages of equity investment. What research
have you done about the impact of private equity companies on
investment and jobs in the longer term, because the industry will
tell you that perhaps initially there are job losses but in the
longer term there are job improvements?
Mr Kenny: First, if those are
the figures supplied by the PVCA or Nottingham Business School
we do not have access to them; we cannot go through them and audit
them to make sure they are correct. They are not made available
to us. Second, based on what they have said it appears that they
include all three wings that I described earlier: the jobs created
through straightforward venture capital entrepreneurs and the
management buyouts. If we could scrutinise that research we would
say there would be a plus on that side of the balance sheet but
a minus on the management buyins. I am afraid that that research
does not provide us with a great deal of comfort; in other words,
we do not believe it is true.
Mr Dromey: If you look at what
is incontrovertible in relation to workers, one of the world's
leading debt assessment agencies, Standard & Poor's, is absolutely
clear that the impact of leveraged buyouts is to depress pay and
conditions of employment and pensions. As to jobs, in our submissions
we have put forward evidence of losses. The industry on the back
of a fag packet has put forward an alternative argument. One of
the things that this Committee could usefully call for is further
work to be commissioned to establish beyond any doubt what the
impact is on jobs. The impact on terms and conditions and pensions
is clear, but we strongly believe that any independent analysis
of the impact on jobs will bear out the criticisms that Mr Kenny
Ms Ludkin: I led the research
for the GMB. We turned to academics throughout the country to
look for independent research on the statistics provided by the
BVCA. We did not find any independent evaluations that supported
their numbers. The limited amount of research that is available
discredits them at every turn.
Q183 Peter Viggers: It seems that
quite recently there has been a growth in shareholder action in
public limited companies, perhaps stimulated by a fear of a private
equity approach, and that individual small shareholders have been
instrumental in achieving change in PLCs. That leads me to ask
whether it is the glare of public scrutiny which operates in PLCs
that prevents them from taking action, for example the leverage
that you are able to exert on public companies acting as a brake
to stop them carrying through action that they would like to take?
Mr Dromey: Accountability of public
companies is a thoroughly good thing; it is right that public
companies should have to account to all stakeholders including
workers. You will forgive me for saying that only on Monday of
this week your leader spoke about social responsibility. It is
to deny social responsibility to go from a public company to a
world of private equity where people make fortunes in secret with
workers paying the price.
Q184 Ms Keeble: Mr Kenny, you have
made a very detailed submission on pensions. You gave the example
of a takeover where the pension fund collapsed virtually straight
away and the liability went to the FAS. Do you agree that that
is a very dramatic shift from the private to the public sector
in terms of risk and liability?
Mr Kenny: Companies go bust and
pension schemes are in trouble. The FAS and pension protection
fund were set up to deal with the realities of life. I am saying
it is unacceptable for owners to put a company into administration
in order to transfer their pension responsibilities to the state.
That should be looked at. In the submission there are examples
where companies have done exactly that.
Q185 Ms Keeble: Do you believe that
given that tendency there should also be a much higher level of
accountability, scrutiny and transparency of what private equity
funds are doing because at the end of the day the public sector
will pick up the tab?
Mr Kenny: Absolutely.
Q186 Ms Keeble: What further powers
would you like to see in terms of the protection of pension funds
in these kinds of takeovers and buyouts?
Mr Kenny: I believe that the example
of Boots is quite a good one. Maybe without the kicking about,
as one Member said, that debate would not have taken place.
Q187 Ms Keeble: Do you think that
the pension regulator has sufficient powers?
Mr Kenny: I was going on to say
that I believe the trustee should have specific powers to block
or call in the regulator on those deals. The Boots example is
a very significant one, but there are lots of others. Recently,
United Biscuits which made its biggest gross profit for donkeys'
years sent to the workforce a list of questions and answers. One
of the questions was why they were not paying money into the pension
fund because they had to pay off the debt.
Q188 Ms Keeble: In terms of the Boots
deal, what do you think about a private equity firm earning £43
million a year over 10 years when in the meantime it will pull
out and there has been an £11.1 billion buyout?
Mr Kenny: Where I live £41
million is a lot of money, but in the context of an £11 billion
buyout that is chicken feed particularly in view of the thousands
of pensioners involved.
Q189 Ms Keeble: I put the question
another way. A lot of your members and perhaps the GMB pension
fund will have investments in private equity schemes and therefore
will have an interest in the kind of returns that they can provide.
What do you say to those of your members who have got interest
the other way?
Mr Kenny: I say two things. One
is about the union's own investments. Our position is that we
do not invest in private equity unless it is for a specific reason
and we are after something.
Q190 Ms Keeble: When you say "we
are after", what do you mean?
Mr Kenny: For example, we recently
bought stock in 3i on the basis of a particular issue to do with
its treatment of staff on a particular project.
Q191 Ms Keeble: But that is a publicly-listed
company and so it is a bit different.
Mr Kenny: Yes. In terms of the
pension scheme the union as the employer does not have control
over the investments in the scheme; that is a matter for the trustees.
But I think people have been a little naive about the supposed
performance of private equity and the returns to pension funds
over the past couple of years. Now that the rest of the market
is doing much better people are beginning to understand some of
the risks that they did not understand before. If you look at
the 20% that is taken out, maybe when you put it all together
the performance now will be comparable; we will have to wait and
see, but this discussion among trustees would not have taken place
12 months ago and now it is.
Q192 Mr Newmark: You have been critical
of private equity. Notwithstanding the fact that you have tried
to pass the buck to the trustees, the reality is that private
equity firms are getting bigger and bigger mainly on the back
of pension funds, including money managed on behalf of trade union
pensioners. I am curious as to how psychologically you square
the circle with the fact that it is your own pensioners who are
driving this growth in the business. What checks and balances
would you like to see in place so you can have more influence
Mr Kenny: I am not entirely certain
that it is our pensioners who are driving the growth, with great
Q193 Mr Newmark: Are you saying that
none of your pensioners invest in private equity?
Mr Kenny: I do not think that
the pensioners who are members of the GMB union fund, who represent
00000000.0% or whatever, are driving the market. I think it is
a slightly bigger number than that. I was not passing the buck
at all; I was just telling the truth. The union as an employer
cannot determine where those investments go. As you well know,
that is a matter for the trustees and actuaries to advise upon.
It is done in an arm's length arrangement from the union. As to
why that has been done increasingly, there has been low yield
from gilts in the bond market, a lack of confidence in public
equity, though we now see that coming back a bit, and overall
people have been somewhat seduced by the amount of money available
to get into that sector. It is now flattening out with the 20%
fees that are charged, the changes in some gilts and bonds and
the knowledge trustees now have about the potential danger. It
is high risk and there is danger if interest rates rise.
Q194 Mr Newmark: I will not debate
with you what you see as the danger. I should like to move on
to an assertion made by Mr Maloney today, which I assume was on
the back of the booklet about private equities and broken pension
promises, that £2 billion of unfunded liabilities were due
to private equity. To take a leaf out of Ms Ludkin's bookshe
said one should look into the detailI have had a look at
two deals that represent 50% of the £2 billion. One is to
do with MG Rover which turned down a private equity investor and
went with a bunch of opportunistic investors, entrepreneurs, call
them what you want, but they were certainly not private equity.
The second point concerns Turner & Newall and a corporate
raider called Carl Ekern. Again, it was nothing to do with private
equity. I question the validity of this if just two of the examples
which represent half have nothing to do with private equity.
Mr Kenny: We spent about seven
months researching this.
Q195 Mr Newmark: I spent two minutes
on it and found that half of it had nothing to do with private
Mr Kenny: May I suggest that you
take a little longer?
Q196 Mr Newmark: Why?
Mr Kenny: I suggest that you do
because you will find in it the examples of Apex and British Shoes.
Q197 Mr Newmark: Is that Mr Cohen's
Mr Kenny: It is. A lot of other
people have an interest in that. That company went into administration
and £30 million and 1,000 pensioners lost out. That is worth
a bit of scrutiny. This report represents only 21 about which
we were able to get results out of 96 that we could identify.
That lot came to £2 billion. You say that that accounts for
50%. No, it does not. We could not establish it. The challenge
for the Committee is to try to establish where the other 95 have
gone and how much they are.
Mr Dromey: As far as Rover is
concerned, can we nail once and for all the Alchemy myth? It is
simply not true that what they were offering was between £40,000
and £60,000 in redundancy payments for those who wanted to
go and protection of pensions for those who stayed. I know because
I was involved in it; I know the workers concerned. Do not accept
propaganda from private equity that is untrue.
Q198 Mr Newmark: I am not accepting
this propaganda either.
Mr Kenny: With great respect,
you can at least do us the courtesy of studying this.
Q199 Mr Newmark: I have given you
the courtesy and cited two examples that represent £1 billion.
Mr Kenny: You said that you had
spent two minutes reading a document that contains the details
of 96 pension funds. I do not think that is doing it credit.