My Kind of Positivity (More than $$)

My work environment --

Megan Greenwell, in an article “Can Private Equity Be — Nice?” (published 9/19/23 in Moneybox), makes a clear statement about the publisher Simon & Schuster being bought by private equity firm KKR (Kohlberg Kravis Roberts & Co.): "Private equity’s entire M.O. is maximizing profits.” Greenwell posed questions to the co-head of KKR about what it means to employees that they will now be “given a stake” in the company. 

Q. How would KKR maximize publishing profits to enrich employees as well as high-level officers and big-money investors? 

"I’m sure you know the brand Zara. The entire success of Zara is their supply chain. Zara basically said, 'We’re going to massively shrink lead times. We are going to more locally source everything that we do, and we are going to have the most responsive supply chain in the world. We will test at the beginning of a season, colors, fits, and we’ll see what sells. And then we’re going to shift our whole supply chain to what’s selling.' That’s how Zara made gazillions of dollars. No one has ever tried that type of thinking in book publishing, and there’s no reason those types of ideas can’t work, right? It’s just, what’s the incentive?” - Pete Stavros, KKR’s co-head of global private equity, quoted by Greenwell from interview with him

"No one has ever tried that type of thinking in book publishing." He said that. Shifting the supply chain to what sells best — whatever that may be — in order to maximize profits is to be the new face of publishing under the old name Simon & Schuster. The best-case scenario that Stavros outlines would result in more employee engagement and fewer people quitting their jobs: 

"I think people would agree, if those two metrics move meaningfully, it’s irrefutable that the culture has improved. The other part, from an employee perspective, is that they generate meaningful wealth for themselves, and it’s great for our investors. That’s the home run you’re always trying to hit: People are happier, they participate in the value creation, and investors did great. That doesn’t have to be a blowout deal. It can be a good deal and people can make a lot of money.” - Pete Stavros

Two important points, less anyone misunderstand me: 

1) I am not saying KKR is some kind of evil entity. Reading their public statements, one finds strong commitment to employee welfare and also to investments that are environmentally as well as financially sustainable, worthy principles that certainly cast maximization of profits in a kindly light. And I don't know much more about them.

2) Nor do I believe that making a profit is bad. Modest as my own business is, if it hadn’t turned some kind of profit over its history, it would not exist today, 30 years after its inception. 

(I am not anti-capitalism, only anti-unregulated/unrestrained capitalism that leaves no area of human life untouched, but even that is a bigger topic than I have in mind today.)

My only concern with a private equity company owning a publishing house is the idea that a publisher should crank out “whatever sells.” Not that they shouldn’t make money, not that they shouldn’t share profits with employees, but in my ideal world a book publisher would also be concerned with quality of its list -- value apart from dollars; a different kind of value -- and that I don’t see anywhere in the interview.

A private equity company buying a publishing house is one way employees can be given a stake in the business, but it’s not the only way. W. W. Norton & Company has been an independent, employee-owned publishing house since 1952. Here is a link to the fascinating Norton story, concluding that Norton’s “Books That Live” motto, adopted in the 1930s, meant then and means now that the books Norton publishes are “not for a single season but for the years.”

And that, my friends, as I insist on continuing to see the world, is the best principle of traditional publishing: to publish books the house believes will be of lasting importance. Books are not hula hoops or pet rocks, and manufacturing and selling them in the same way as those fad items cheapens the history of literature.

Mint -- nothing to do with my story.

Postscript: Since I drafted the foregoing, a happy story has come from Ann Arbor, Michigan, to the effect that Zingerman's partners are "giving the store away" -- to their employees. Quoting from the Ann Arbor Observer: 

Zingerman’s Perpetual Purpose Trust will be the legal owner of the Zingerman’s brand. Its terms prohibit the company from going public, being sold to an outside company, or franchising. “The intent is that it keeps the decision-making power and the profit local,” says Weinzweig, “as opposed to what generally happens [when founders sell], which is both of those move further and further geographically afield”—a process he likens to “colonialism.”

You can read the whole story here. When I re-read the story or even think about it, I can't stop smiling! 

Postscript two days later:

 

The latest issue of the New York Review of Books (October 19, 2023) takes a look at two new books that scrutinize private equity firms, Plunder: Private Equity’s Plan to Pillage America, by Brendan Ballou, and These Are the Plunderers: How Private Equity Runs – and Wrecks – America, by Gretchen Morgenson & Joshua Rosner. I don’t have the books at hand but already find plenty to worry about in Kim Phillips-Fein’s review, entitled “Conspicuous Destruction” (NYRB, Vol. LXX, no. 16). Before considering the titles under review, Phillips-Fein gives readers an introduction to what “private equity” is.

 

At its most basic level, a private equity fund is a type of exclusive investment fund – a pool of money managed by professionals to maximize returns for rich investors. Because private equity funds are not subject to regulation by the Securities and Exchange Commission, investors must be accredited and provide proof of family wealth, and funds often have minimum investment requirements of $10 million or more…. [They] buy up all the shares of publicly traded companies, gaining complete managerial control. …Usually a purchase is financed with heavy borrowing, so that a newly acquired company is saddled with debt that it needs to repay quickly – often by selling assets or laying off workers.

 

Later in the piece she writes –

 

Distant investors [who have managerial control, unlike other forms of investment] have little knowledge of day-to-day operations.

 

Nor do they have any commitment to community or workers. In effect, private equity funds are the newer, leaner, hungrier model of what were “leveraged buyouts” (LBOs) in the 1970s and 1980s, many financed by junk bonds that brought about the bankruptcies that brought us bailouts of banks “too big to [be allowed to] fail.”

 

Note that private equity funds are only for the very, very wealthy who can prove their financial worth. Note also that they are exempt from SEC oversight. 

 

Now, here is a partial list of the kinds of businesses that private equity likes to take over: hospitals, nursing homes, medical billing centers, day care centers, for-profit universities, medical practices, dental practices, veterinary practices, payday loan companies, ambulance companies, hospices, and prison services, from collect phone calls through ankle monitors to debit cards. In other words, private equity likes businesses that rely on vulnerable populations, are often funded in part by government programs, and can be counted on to generate debt for the populations “serviced” and profit for investors in the funds. 

Reading this makes me say again, with Christopher Morley’s fictional character Roger Mifflin, “Thank God I am a bookseller!” And then I add, “And not a millionaire!”

"Merely a medium of exchange" (to quote my father)