There are only a handful of business books I would recommend you read or listen to under my category of “essential” reading.
My pick for essential read this year is “These Are The Plunderers: How Private Equity Runs and Wrecks America” by Gretchen Morgenson and Joshua Rosner (Simon & Schuster, 2023).
Private equity is a dark den of capitalism that needs illuminating. Only a handful of companies dominate this business, which basically buys and sells other businesses using borrowed money then reaps obscene profits with little oversight.
“Privateers,” as the authors appropriately call private equity moguls, often devastate businesses in the process of “unleashing” value, which means lining their pockets and damaging the underlying enterprises. The results of private equity ownership are rarely positive for employees and people who need essential services like long-term care.
The authors “show how companies absorbed by private equity have worse outcomes for everyone but the financiers.” Their impact hurts communities: “employees are more likely to lose their jobs or their benefits; companies are more likely to go bankrupt; patients are more likely to have higher healthcare costs; residents of nursing homes are more likely to die.”
Moreover, “towns struggle when private equity buys the main businesses, crippling the local economy; and school teachers, firefighters, medical technicians, and other public workers are more likely to have lower returns on their pensions because of the fees private equity extracts from their investments. In other words: we are all worse off because of private equity.”
I’ve seen the black hand of privateers take over nursing homes, reduce staff and deplete their resources. One example was the major long-term care chain ManorCare, which suffered from a $1.3 billion extraction of capital from the company after a 2011 private equity deal. Code violations, Medicare overbilling and medical errors rose at the private equity-owned enterprise between 2013 and 2017, reported the Washington Post. In March 2018, ManorCare filed for bankruptcy with $7 billion in debt.
Morgenson and Rosner conclude, citing other examples of privateer pillaging in emergency medicine and other key services, that “while the impact of private equity on industries tends to be negative, in healthcare it can be deadly.”
The salt on the wounds of ravaged companies is that the privateers employ powerful lobbyists to preserve one of their most cherished profit-making tools: A meager 15% tax on their profits. Many attempts have been made to raise this tax, but the privateers, many of whom are based in Washington, beat it back consistently. Political courage, tax and campaign finance reform is needed to stand up to privateers’ deep treasure chests.
Clearly regulators such as the Federal Trade Commission, Department of Justice and Securities and Exchange Commission can regulate and scrutinize private equity deals more closely, as the authors suggest. But until then, badly needed healthcare and other enterprises from emergency rooms to memory care facilities will continue to be cruelly pinched for profits.
Read the full article here
