[lbo-talk] Michael Jensen: PE's gonna take a hit

[Carl Remick]

On 9/16/07, Doug Henwood <dhenwood at panix.com> wrote:
>
> It's Just a Matter of Equity
> By GRETCHEN MORGENSON
>
> ...This is not just your humble research assistant talking. It is the
> view of Michael C. Jensen, professor emeritus at the Harvard Business
> School, leading scholar in finance and management, and the man whom
> many consider to be the intellectual father of private equity. In
> other words, a person uniquely qualified to opine on the matter.
>
> ...Mr. Jensen's interest in private equity goes back to 1989, when he
> wrote a seminal article titled "Eclipse of the Public Corporation."
> In it he argued that new and more effective organizations were
> emerging that unified the interests of managers and owners,
> eliminating value-destroying practices so common at public companies.
>
> These practices, examples of the so-called agency problem, are a
> product of corporate structures that allow managers — i.e., agents —
> to feather their own nests at the expense of owners — i.e., investors
> — whose interests they are supposed to serve.
>
> For years, private equity firms seemed superior to the public company
> model, Mr. Jensen said. But recent developments, he said, have wiped
> out many of the advantages in private equity's original design.
> Agency problems, precisely what private equity was supposed to
> eliminate, are cropping up as a result of the disastrous changes made
> by these firms, Mr. Jensen argues.

Jensen may be "not just your humble research assistant," but he comes
across as just your average academic naif here.  He seems completely
ignorant that Bizarro-World Schumpeterianism actually defines the real
world and that destructive creation is capitalism's cardinal trait.
The system's protean capacity to subvert any reform that blocks
conflicts of interest and subverts narrow self-interest keeps the
whole damn thing chugging along.  Public ownership, private ownership,
back and forth -- the yo-yo goes up down to no public benefit at all,
just generating investment banking fees and ever more brilliant
schemes to boost plutocratic control.

Carl