Regulatory authorities, politicians and trade unions across Europe have recently accused private equity institutions of improving the performance of buy-outs merely by reducing employment costs with negative implications for jobs, working conditions and training investments. These claims are assessed by analysing high commitment management practices and changes in these practices in private-equity backed and non-private equity backed buy-outs in the UK and the Netherlands using a large-scale representative sample that combines both questionnaire and archival data. We find that both private equity backed buy-outs compared to non-private equity backed buy-outs, and Dutch buy-outs compared to UK buy-outs, are less likely to report introducing new high commitment management practices but do not on average reduce high commitment management practices. The findings suggest private equity backed buy-outs represent only a limited adaptation of the European social model.
AIC Submission by The Association of Investment Companies.Treasury Select Committee Inquiry into Private Equity, 2007 .
2.
Amess, K. & Wright, M.The wage and employment effects of leveraged buyouts in the U.K. International Journal of Economics and Business, 2007, 14, 179-95.
3.
Amess, K., Brown, S. & Thompson, S.Management buyouts, supervision and employee discretion. Scottish Journal of Political Economy, 2007, 54, 447-74.
4.
Appelbaum, E., Bailey, T., Berg, P. & Kalleberg, A.Manufacturing advantage. Ithaca, NY: ILR Press, 2000.
5.
Bacon, N., Wright, M. & Demina, N.HRM in management buy-outs. British Journal of Industrial Relations, 2004, 42, 325-47.
6.
Becker, B.E. & Huselid, M.A.Strategic human resources management: Where do we go from here?Journal of Management, 2006, 32, 898-925.
7.
Bradley, K. & Nejad, A.Managing owners: The National Freight Consortium in perspective. Cambridge: Cambridge University Press, 1989.
8.
Bruining, J. & Wright, M.Entrepreneurial orientation in management buy-outs and the contribution of venture capital. Venture Capital, 2002, 4, 147-68.
9.
Bruining, H., Boselie, P., Wright, M. & Bacon, N.Business ownership change and effects on the employee relationship: An exploratory study of buyouts in the UK and the Netherlands. International Journal of Human Resource Management, 2005, 16, 345-63.
10.
Cameron, A. & Trivedi, P.Econometric models based on count data: Comparisons and applications of some estimators and tests. Journal of Applied Econometrics , 1986, 1, 29-53.
11.
CMBOR Market Overview and The Netherlands. In M. Wright, A. Burrows & A. Scholes (Eds), European management buy-outs . Nottingham: Centre for Management Buy-out Research, 2005.
12.
Combs, J., Yongmei, L., Hall, A. & Ketchen, D.How much do high-performance work practices matter? A meta-analysis of their effects on organizational performance. Personnel Psychology , 2006, 59, 501-28.
13.
Cressy, R., Munari, F. & Malipiero, A.Playing to their strengths? Evidence that specialization in the Private Equity industry confers competitive advantage. Journal of Corporate Finance, 2007, 13, 647-68.
14.
Cumming, D., Siegel, D.S. & Wright, M.Private equity, leveraged buyouts and governance. Journal of Corporate Finance, 2007, 13, 439-60.
15.
Dess, G.G. & Davis, P.S.Porter's (1980) generic strategies as determinants of strategic group membership and organizational performance. Academy of Management Journal , 1984, 27, 467-88.
16.
Edwards, P., Hall, M., Hyman, R., Marginson, P., Sisson, K., Waddington, J. & Winchester, D.Great Britain: From partial collectivism to neo-liberalism to where? In A. Ferner & R. Hyman (Eds), Changing industrial relations in Europe. Oxford: Blackwell, 1998, pp. 1-54.
17.
Financial Services Authority.Private equity: a discussion of risk and regulatory engagement. Discussion Paper DP06/6, Financial Services Authority, London, 2006.
18.
Gerhart, B., Wright, P.M. & McMahan, G.C.Measurement error in research on the human resources and firm performance relationship: Further evidence and analysis. Personnel Psychology , 2000a, 53, 855-72.
19.
Gerhart, B., Wright, P.M., McMahan, G.C. & Snell, S.A.Measurement error in research on human resources and firm performance: How much error is there and how does it influence effect size estimates?Personnel Psychology, 2000b, 53, 803-34.
20.
Gospel, H. & Pendleton, A. (Eds). Corporate governance and labour management: An international comparison. Oxford: Oxford University Press, 2005.
Guest, D., Michie, J., Conway, N. & Sheehan, M.Human resource management and corporate performance in the UK. British Journal of Industrial Relations, 2003, 41, 291-314.
23.
Hellman, T. & Puri, M.The interaction between product market and financing strategy: the role of venture capital. The Review of Financial Studies, 2000, 13, 959-84.
24.
Het Financieel Dagblad. Algemeen Nederlands Persbureau (ANP).HEMA sluit vrede met bonden na CAO-strijd, 31 March 2006.
25.
Hitt, M.A., Hoskisson, R.E. & Ireland, R.D.Mergers and acquisitions and managerial commitment to innovation in m-form firms. Strategic Management Journal, 1990, 11, 29-47.
26.
Holmstrom, B.Agency costs and innovation. Journal of Economic Behavior and Organization, 1989, 12, 305-27.
27.
Huselid, M.A.The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal, 1995, 38, 635-72.
28.
Huselid, M.A. & Becker, B.E.Comment on `Measurement error in research on human resources and firm performance: How much error is there and how does it influence effect size estimates?' by Gerhart, Wright, McMahan, and Snell. Personnel Psychology , 2000, 53, 835-54.
29.
Ichniowski, C., Kochan, T.A., Levine, D., Olson, C. & Strauss, G.What works at work: Overview and assessment. Industrial Relations , 1996, 35, 299-333.
30.
ITUC.Where the house always wins: Private equity, hedge funds and the new casino capitalism. International Trade Union Confederation, Brussels, 2007.
31.
IUF.A workers' guide to private equity buyouts. International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers' Associations, 2007, Geneva .
32.
Jensen, M.Agency costs of free cash flow, corporate finance and takeovers. American Economic Review, 1986, 76, 323-30.
33.
Kotha, S. & Vadlamani, B.L.Assessing generic strategies: An empirical investigation of two competing typologies in discrete manufacturing industries . Strategic Management Journal, 1995, 16, 75-83.
34.
Kumar, N., Stern, L.W. & Anderson, J.C.Conducting interorganizational research using key informants. Academy of Management Journal, 1993, 36, 1633-51.
35.
Lerner, J.Venture capitalists and the oversight of private firms. Journal of Finance, 1995, 50, 301-18.
36.
Long, R.The effects of formal employee participation in ownership and decision-making on perceived and desired patterns of organisational influence: A longitudinal study. Human Relations, 1981, 34, 847-76.
37.
Manigart, S., de Waele, K., Wright, M., Robbie, K., Desbrieres, P., Sapienza, H. & Beekman, A.Determinants of required return in venture capital investments: A five country study. Journal of Business Venturing, 2002 , 17, 291-312.
38.
Marginson, P., Armstrong, P., Edwards, P. & Purcell, J. with Hubbard, N.The control of industrial relations in large companies: An initial analysis of the second company level industrial relations survey. Warwick Papers in Industrial Relations no. 45, Industrial Relations Research Unit, Coventry, 1993.
39.
Oliver, N.An examination of organizational commitment in six workers' cooperatives in Scotland. Human Relations, 1984, 37, 29-46.
40.
Paauwe, J.HRM and performance: Achieving long term viability. Oxford : Oxford University Press, 2004.
41.
Paauwe, J. & Boselie, P.Challenging `strategic HRM' and the relevance of the institutional setting . Human Resource Management Journal, 2003, 13, 56-70.
42.
Pendleton, A. & Gospel, H.Market and relationships: Finance, governance, and labour in the United Kingdom . In H. Gospel & A. Pendleton (Eds), Corporate governance and labour management: An international comparison. Oxford : Oxford University Press, 2005 , pp. 59-83.
43.
Pendleton, A., Wilson, N. & Wright, M.The perceptions and effects of share ownership: Empirical evidence from employee buy-outs. British Journal of Industrial Relations , 1998, 36, 99-124.
44.
Pfeffer, J.Competitive advantage through people. Boston, MA : Harvard Business Press, 1994.
45.
Phan, P.H. & Hill, C.W.L.Organizational restructuring and economic performance in leveraged buyouts: An ex post study. Academy of Management Journal, 1995, 38, 704-40.
46.
Podsakoff, P., Mackenize, S. & Lee, J-Y.Common method biases in behavioural research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 2003, 88, 879-903.
47.
Porter, M.E.Competitive advantage: Creating and sustaining superior performance . New York: The Free Press, 1985.
48.
Poutsma, E. & Braam, G. Corporate governance and labour management in the Netherlands: Getting the best of both worlds? In H. Gospel & A. Pendleton (Eds), Corporate governance and labour management: An international comparison . Oxford: Oxford University Press , 2005, pp. 148-72.
49.
PSE Socialist Group in The European Parliament.Hedge Funds and Private Equity-A Critical Analysis. Report of the PSE-Group inEuropean Parliament, 2007.
50.
Rhodes, S. & Steers, R.Conventional vs worker-owned organisations. Human Relations , 1981, 34, 1013-35.
51.
Robbie, K. & Wright, M.Management buy-ins: Entrepreneurship, active investors and corporate restructuring . Manchester: Manchester University Press, 1996.
52.
Robbie, K., Wright, M. & Albrighton, M.High-tech management buy-outs. Venture Capital, 1999, 1, 219-40.
53.
Schuler, R.S.Strategic human resource management and industrial relations. Human Relations, 1989, 42, 157-84
54.
Schuler, R.S. & Jackson, S.E.Determinants of human resource management priorities and implications for industrial relations. Journal of Management, 1989, 15, 89-99.
55.
Sweeting, R. & Wong, C.A UK hands-off venture capital firm and the handling of post-investment investor-investee relationships. Journal of Management Studies , 1997, 34, 125-52.
56.
Thompson, S. & Wright, M.Corporate governance: The role of restructuring transactions. Economic Journal, 1995, 105, 690-704.
57.
TUC. Private equity a TUC perspective . Trades Union Congress Evidence to the Treasury Committee Inquiry , May 2007.
58.
Van Neerven, T., Bruining, H. & Paauwe, J.Managing without traditional owners. In P.C. Flood, M.J. Gannon & J. Paauwe (Eds), Managing without traditional methods. Wokingham: Addison-Wesley , 1996, pp. 105-46.
59.
Visser, J.Unions and unionism around the world. In J.T. Addison & C. Schnabel (Eds), International handbook of trade unions. Cheltenham: Edward Elgar, 2003, pp. 366-414.
60.
Visser, J. & Hemerijck, A.`A Dutch miracle': Job growth, welfare reform and corporatism in the Netherlands . Amsterdam: Amsterdam University Press, 1997.
61.
Wall, T.D. & Wood, S.J.The romance of human resource management and business performance and the case for big science. Human Relations, 2005 , 58, 1-34.
62.
Walton, R.E.From control to commitment in the workplace. Harvard Business Review, 1985, 63, 77-84.
63.
Work Foundation.Inside the dark box: Shedding light on private equity. London: Work Foundation, 2007.
64.
Wright, M. & Coyne, J.Management buyouts. London: Croom Helm, 1985.
65.
Wright, M. & Robbie, K.Venture capital and private equity: A review and synthesis. Journal of Business Finance and Accounting, 1998, 25, 521-71.
66.
Wright, M., Bacon, N. & Amess, K.Private equity and buyouts: Employment, remuneration and other HRM practices . Journal of Industrial Relations, forthcoming.
67.
Wright, M., Chiplin, B., Thompson, S. & Robbie, K.Management buy-outs, trade unions and employee ownership. Industrial Relations Journal, 1990, 21, 136-46.
68.
Wright, M., Coyne, J. & Lockley, H.Management buyouts and trade unions: dispelling the myths. Industrial Relations Journal, 1984, 15, 45-52.
69.
Wright, M., Robbie, K., Chiplin, B. & Albrighton, M.The development of an organisational innovation: Management buy-outs in the UK 1980-97. Business History, 2000a, 42, 137-84.
70.
Wright, M., Hoskisson, R.E., Busenitz, L.W. & Dial, J.Entrepreneurial growth through privatization: The upside of management buyouts . Academy of Management Review, 2000 b, 25, 591-601.
71.
Wright, P.M., Gardner, T.M., Moynihan, L.M., Park, H.J., Gerhart, B. & Delery, J.E.Measurement error in research on human resources and firm performance: Additional data and suggestions for future research. Personnel Psychology , 2001, 54, 875-901.
72.
Zahra, S.A.Corporate entrepreneurship and financial performance: The case of management leveraged buy-outs. Journal of Business Venturing , 1995, 10, 225-47.
