‘A plague of locusts’: SP economic affairs spokesman on private equity funds

17 November 2006

‘A plague of locusts’: SP economic affairs spokesman on private equity funds

SP Member of Parliament and spokesman on economic affairs Ewout Irrgang was in Geneva yesterday for an exchange of experiences regarding the negative consequences of the enormous power wielded by private equity funds in their role as shareholders. The conference was organised by the international trade union movement.

Ewout Irrgang“In addition to the direct negative consequences for workers of the predatory activities of private equity funds, emphasis was laid at the conference on the negative effects on firms’ productive investments,” Mr Irrgang explained. “Takeovers are financed by private equity funds by saddling the firm being bought out with an enormous burden of debt. Because of the fixation on short-term profit and of the interest which must be paid on the debts, takeovers come at the price of long-term productive investments. In come cases large sums of money are borrowed in order to pay superdividends to the new shareholders. No wonder the funds have been compared to a plague of locusts: they gorge themselves on a firm and then move on to the next victim.”

The SP economics spokesman last month presented to parliament a five-point plan to address the problems caused by the equity funds. His proposals included giving Works’ Councils – bodies on which workers representatives sit which are statutory for PLCs operating in the Netherlands – the right to nominate half of the members of a company’s board of directors. The aim would be to ensure that employment considerations were taken more strongly into account in a firm’s decision-making. Last week Irrgang again presented a series of written questions to the cabinet regarding the consequences for financial-economic stability of the rise of private equity funds.

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