Private equity had not shown itself to be a great friend of journalism: Alden Global Capital, another firm, had just gutted the Pulitzer Prize–winning Denver Post. Still, my colleagues and I on the company’s investigative team were cautiously optimistic about the new management, personified by our new CEO, an executive named Jim Spanfeller, who had previously run Forbes’s digital arm. Following a rough few years, an infusion of cash seemed like it could be a good thing. Our soft skepticism, it turns out, was disastrously naïve.
I stuck it out for a while; I truly adored my job reporting alongside people who alternately delighted and intimidated me, journalists I had admired for years. I finally made the decision to quit when management rewrote a sensitive story, entirely fabricating key details, and tried to pass the work off as my own. It wasn’t just that the company was being run poorly, or that Great Hill was trying to squeeze every last penny out of our labor. It was that the people in charge seemed actively hostile to our attempts to do good, ethical, even profitable work. No one is going to visit a website they can’t trust or even use. I’m not a businessman, but a libel lawsuit seems bad for the bottom line. And there was something almost hallucinatory about working under people with such a vague grasp of our corner of the industry, who were so deeply incurious about the work that went into the brands they were allegedly trying to save.
Greenwell’s entire staff followed her lead shortly after, mass quitting largely in protest of a mandate to abandon higher-traffic stories about politics and internet oddities (and irreverent classics like “my enemies in nature, ranked”) to focus entirely on sports. In the years since, the Deadspin story has become something of a parable about media and private equity and the ultimate value of those guys in the ill-fitting suits.
Years later, I still acutely remember the shock of watching a few guys armed with little more than inspirational quotes turn a functional if imperfect company into a series of spammy content farms. “Making it difficult to know what’s going on is exactly the point of so much about how private equity operates,” argues Greenwell in Bad Company. She follows four people in disparate industries—retail, health care, journalism, and housing—trying, as we did at Gizmodo Media, to understand why people claiming to revitalize our companies did exactly the opposite.
Ostensibly, private equity firms flip underperforming private companies kind of like houses: The firms raise capital to buy “distressed assets” wholesale, take out (often massive) loans to cover a rehabilitation job, and pay their investors when the business either goes public or is sold. Greenwell locates the origin of these leveraged buyout arrangements in the “bootstrap deals” of the 1960s, when financial firms took on companies that were successful but too small to go public. Within a decade, opportunistic executives started targeting larger companies. By the ’80s, hostile takeovers of Fortune 500 companies became common, if not exactly the norm.
As recounted in Greenwell’s book, stories like these aren’t simply anecdotal. Private equity’s influence on the economy, and our livelihoods, is significant. Twelve million Americans, she writes, work for companies that are owned by private equity. The industry operates 8 percent of private hospitals, four out of five of the largest for-profit day care chains, and currently controls $8.2 trillion in assets—a number that accounts for more than the GDP of any country besides China and the United States. And, where 2 percent of companies go bankrupt within 10 years of their founding, that number jumps to 20 percent when private equity is involved. Between 2009 and 2019, 1.3 million Americans working in retail lost their jobs as a direct result of the industry’s touch.
But in practice, Greenwell argues, private equity bears vanishingly little risk. And its mandate to not just profit but maximize shareholder value has the effect of abstracting critical industries to a point where, the author writes, “a company doesn’t even need to exist at all.” If reducing the quality of service, selling off real estate, and collecting fees are more profitable than running a successful business, argues Greenwell, “liquidation is not just the best option, but indeed the only one.”
As one team of researchers found over a decade ago, as much as two-thirds of a private equity firm’s profits typically come from these kinds of management fees. Many deploy sale-leaseback arrangements to make a quick buck, selling off property and requiring acquired companies to pay rent on real estate they once owned. And then there are classic cost-saving measures like mass layoffs. “Taken together,” Greenwell writes, “it is very, very difficult for private equity to lose money.” In this context, whether a company provides anything of value beyond dividends to investors is somewhat beside the point.
Over the course of Bad Company, Greenwell follows four people whose lives have been altered by a private equity takeover. The history and policy analysis act as a scaffolding for these stories; it’s in these intimate portraits that the book truly shines. Though never stated outright, the experiences of Greenwell’s subjects act as a powerful foil to a certain kind of managerial thinking that is implicit at the heart of private equity’s pitch: that profits could only possibly matter to the people in charge of the ledgers, that employees need to be micromanaged, that businesses suffer because of a lack of commitment from the people who clock in and out every day. In other words, Greenwell managed to find a collection of characters utterly devoted to what they do.
These are not people who need dividends to commit. Throughout Bad Company they find creative ways to circumnavigate the constrictions placed on them by faceless billion-dollar firms. They work longer hours and organize their neighbors. They unionize and campaign. They leverage their tangible connections to their communities to combat people they’ve never met in gleaming Manhattan office towers they’ll never see. In comparison, the copy-paste labor private equity firms perform looks awfully lazy.
Most memorably, Greenwell describes a Machiavelli quote that once hung in the private conference room of a senior partner at Kohlberg Kravis Roberts, the hundred-billion-dollar firm responsible for Toys “R” Us’s leveraged buyout as well as hundreds, if not thousands, of others: “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its outcome, than to take the lead in introducing a new order of things,” it read.
But, as Greenwell points out, there are successful retail operations and small hospitals and profitable publications operating in this country today. Many apartment buildings manage to house residents without flooding their apartments or turning off the heat. Extracting every ounce of shareholder value from these companies was far from inevitable—and it’s certainly much harder for an organization to adapt to changing conditions when it’s shedding workers and crippled under a mountain of debt.
Of course, it’s impossible to know how any individual company would have fared without private equity’s involvement. Greenwell detours to earlier instances of managerial ineptitude that proved fateful before new ownership stepped in. It could have been in Toys “R” Us’s foolish early deals with Amazon, or the conventional wisdom that underperforming medical centers should slash services, or newspapers’ sluggishness to embrace new models in the digital age. Those were all decisions made by highly paid executives, too. In this sense, Bad Company is a call to bring more creativity and expertise to our country’s critical institutions—to extract them from the hands of people for whom a business isn’t a dynamic entity full of actual people but instead a collection of assets and debts.
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