The devastating role of hedge funds
The famous “hedge funds” made record acquisitions in 2006. These new players in the global economy, however, give rise to many reservations and concerns. Their strategy consists of acquiring companies using debt (up to 80%), managing them as best as possible and reselling them a few years later, generating a capital gain in order to remunerate their shareholders. Takeover bid, then return to the stock market, are the alpha and omega of these new types of companies. Employment, development and synergies are far from being priorities.
The billions of euros available and the heightened competition between investors are causing the price of companies and consequently the volume of financing debts to soar. Economists are now openly worried about the formation of a financial bubble. According to the British FSA (Finance Service Authority), “current levels of debt and recent developments in the economic cycle” will inevitably cause “the failure of a large company or a myriad of small companies bought by funds .”. The European Central Bank is concerned about the influence of the funds on the stability of the financial system. According to Philippe Matzowski, spokesperson for the LBO committee (CGT), “the financial pressure linked to the repayment of the acquisition debt is necessarily detrimental to the company. It is for employment and for investment” (Source: Infinitudes, 01/29/2007)
Gradually, in recent decades, we have witnessed the assumption of almost unlimited power by shareholders or their representatives over the management of firms to the detriment of other actors in the life of the company: managers, employees and surrounding society. “Good governance” as it has developed has the function of ensuring transparency of management for the benefit of investors. Recently, a small speculative investment fund such as TCI (with an ethical pretext but based in the Cayman Islands…), was able to put effective pressure on the management of ABN-Amro so that the bank gets closer to Barclays, “in the ‘interest of shareholders’. But was it the company’s? The micro- and macroeconomic impact of funds appears negative, even if a second-rate business school was recently able to praise their advantages in terms of “liquidity” and “diversity”…
Indeed, financial investors pursue a logic which, as their name suggests, is neither industrial nor social. To increase profits in the shortest possible time horizon, they cut everything that is not immediately profitable: employment, industrial investment, research. It is true that these more or less long-term investment positions are not of interest to the search for profitability – especially the staff, whose contribution to the company has never been demonstrated in a palpable and quantifiable way, nor translated into accounting, despite the accepted rhetoric on “strategic human resources management”. Furthermore, there is no principle of identity of the company, since it is only considered as a package of shares which will be resold sooner or later to the highest bidder.
To respond to this situation, it is not desirable to take up the old Jacobin schemes of ATTAC on the regulation of the circulation of capital, nor the regulatory inclinations of a European Central Bank worried about mitigating the consequences of its own policy. We must consider a reform of company law which recognizes the interests of shareholders, but also that of the social and natural environment, as well as employees. It is about developing a balance between these different principles. In other words, the company must integrate into the community, while receiving its own real status. This can only happen through a sharing of decision-making power between shareholders, management and other stakeholders, a sharing which presupposes the establishment of new decision-making bodies. “Socially responsible management” will then be able to go beyond the stage of rhetoric.
