New Investment Funds, Restructuring, and Labor Outcomes: A European Perspective

• Author: Peter Wilke,Howard Gospel,Andrew Pendleton,Sigurt Vitols
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00848.x
• Published date: 01 May 2011
• Date: 01 May 2011

New Investment Funds, Restructuring, and

Labor Outcomes: A European Perspective

Howard Gospel*, Andrew Pendleton, Sigurt Vitols, and

Peter Wilke

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: This article considers the consequences for employment, work organization, and industrial

relations when companies are acquired by private equity, hedge funds, or sovereign wealth funds. It also assesses the role

of national labor regulation in moderating labor outcomes.corg_848276..289

Research Findings/Insights: The article draws on three case studies–aSpanish supermarket chain, a German engineering

company, and a ports and logistics group hitherto based in the UK. Employment reductions are found in each case, though

to varying extents. There are few changes in work organization but some developments in employee voice and represen-

tation. National systems of labor regulation do not impact substantially on employment reductions but they do affect the

extent to which worker representatives receive information after, though not during, the acquisition.

Theoretical/Academic Implications: Contrary to extant theory, the extent of national employment regulation does not

appear to be an impediment to restructuring by investment funds. The differential effect of the three funds suggests thatthe

extent of ownership is not decisive in explaining the level of activism or its impactson labor. Instead, the objectives and time

frames of funds appear to be more important.

Practitioner/Policy Implications: The implicationof the f‌indings is that greater disclosure and regulation of new investment

funds is more likely to enhance employee protection than further labor regulation. Broadly, this has been the main thrust of

recent policy within European Union institutions.

Keywords: Corporate Governance, Funds, Labor, Europe

INTRODUCTION

The activities of investment funds, such as private equity

(PE), hedge funds (HF), and sovereign wealth funds

(SWF), have been controversial in Europe and beyond, espe-

cially in relation to their effects on labor and employment.

On the one hand, European trade unions and the European

Socialist Party group of parliamentarians have been major

critics. In a study of PE and HFs, the Socialist Party argued

that funds threaten the viability of target companies, lead to

employment reductions and wage cuts, put pensions at risk,

and ignore employee voice (European Socialist Party, 2008).

On the other hand, the European Venture Capital Associa-

tion, representing PE funds, argues that PE is engaged in

value creation rather than value destruction or value redis-

tribution. PE funds inject new investment and new manage-

ment and, in the long-term, have a benef‌icial effect on

employment and jobs in the companies that they acquire.

According to this view, the cases where PE has had adverse

effects on employees are relatively few, but have attracted a

disproportionate amount of publicity. Moreover, these

instances tend to be where target f‌irms have been weak

performers with poor prospects (European Venture Capital

Association, 2008). For their part, HFs make similar defences

of their activities, arguing that activist involvement in f‌irms

is relatively rare, HFs bring liquidity to markets, and their

higher returns lead to real benef‌its to workers, not least for

the pension funds that invest in them (see for example the

Alternative Investment Management Association material

quoted in Gospel, Haves, Pendleton, Vitols, & Wilke, 2010:

88).

This debate between protagonists has been mirrored by

controversy among academics, at least in relation to PE.

Some large-scale US survey evidence has suggested that PE

tends to be associated with job growth, at least in the

*Address for correspondence: HowardGospel, 18 St John Street, Oxford OX1 2LQ, UK.

Tel: +44 01865 516700; E-mail: h.gospel@kcl.ac.uk

276

Corporate Governance: An International Review, 2011, 19(3): 276–289

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00848.x