How Much Control Do Investors Have Over Companies They Invest In?

  • Posted by on October 20th, 2014 at 8:55 am

When Romney ran for President, the people opposing him cherry picked companies that had some perceived problems and accentuated them.  In Illinois, Bruce Rauner is similar to Romney in that he ran a very successful private equity firm.  Private Equity firms find companies to invest in, and then reconfigure and resell them to make a return for the entities that invest in them.

I have read a couple of articles that last couple of days that were pretty interesting.  They tangentially relate to “businessperson turned politician”.  Also, from investing in 20 startup companies, I can speak from experience that investors have almost zero control over who the company hires and fires.  They also don’t have too much control over strategy.  It’s not as if investors are puppet masters that pull strings.

CEOs of companies are more like dictators and politicians.  They can pull strings.  Investors in companies, and voters for politicians are on the outside of the glass looking in.

The first article I read was an interview with Venture Capitalist Marc Andreessen.  It was awesome.   Here was his answer to the diversity question when it comes to hiring and companies.

Shall we? Let’s launch right into it. I think the critique that Silicon Valley companies are deliberately, systematically discriminatory is incorrect, and there are two reasons to believe that that’s the case. No. 1, these companies are like the United Nations internally. All the diversity studies say that the engineering population is like 70 percent white and Asian. Let’s dig into that for a second. First, apparently Asian doesn’t count as diverse. And then “white”: When you actually go in these companies, what you find is it’s American people, but it’s also Russians, and Eastern Europeans, and French, and German, and British. And then there are the Chinese, Japanese, Koreans, Thais, Indonesians, and Vietnamese. All these different countries, all these different cultures. To believe in a systematic pattern of discrimination, you’d have to believe that we’re discriminatory toward certain people without being discriminatory at all toward an extremely broad range of ethnicities and religions. Because of Pakistanis, we’re seeing a higher-than-ever proportion of Muslim employees in a lot of our companies.

No. 2, our companies are desperate for talent. Desperate. Our companies are dying for talent. They’re like lying on the beach gasping because they can’t get enough talented people in for these jobs. The motivation to go find talent wherever it is is unbelievably high.

 

When it comes to hiring talented people, it is a meritocracy.  But, at the same time everyone cannot be networked everywhere.  For investors, getting a warm introduction from someone is better than a cold email.  If you want a job at a PE/VC firm you will need to get an introduction someway.  By the way, if you want to become a PE/VC principle the current best path is win the lotto, or work and perform well for a company that they back.

Then I read Laura Washington’s column in the Sun-Times this morning.  There is a huge battle for the black vote in this years governor’s election.  The Democratic party has made promise after promise and never followed through.  Ironically, their policies hurt the constituencies that they want to help.  Higher minimum wages create more unemployment not only among teens and single moms-but higher up the wage ladder as well.  As soon as minimum wage goes up, union wages go up.  There is less incentive to hire anyone.   Illinois almost has the highest unemployment among all 50 states, and is the worst economic performing state in the Midwest.

Laura writes one statement, and asks a question.  The statement

I can’t get past Rauner’s hiring record. Earlier this year, ABC7 Chicago reported that there was not one African-American among the top executives at GTCR, his private equity firm. In an interview, he said he couldn’t find any black folks to hire. “They weren’t there.”

I refer back to Marc Andreessen.  I cannot speak for anyone but my gut tells me there are a few reasons why Rauner couldn’t find anyone to hire at GTCR.  First is no one was networked or made a warm introduction to him.  Second is that there wasn’t anyone that worked for one of his companies that wanted to go into Private Equity.  PE isn’t for everyone.  There is a lot more to it than cutting checks and serving on boards.  That’s the glamour part of the business.  PE partners log long intense hours crunching numbers.  Most work through the weekend.  There is little time with family.

The question she asks is this.

So, I return to this: What have “we” asked for? Where is the comprehensive, united, detailed set of demands from the African-American community? Why are we waiting for the candidates to say what they will deign to do for us?

After Nov. 4, it will be back to business as usual, the vast majority of African-Americans standing in line, awaiting new promises, eventually, with a tin cup.

I totally empathize with her.  They are being taken for granted.  Instead of being treated like people, they are treated like drones.  Just a block of votes that preserves power.  I think the “we” should be examining how can government create policy that will allow them to have opportunity.

Policies like:

  1. School Vouchers-School Choice.  This is a crucial issue of our time.  No one should have to be forced to go to a lousy school.  The current system benefits bureaucracy and unions, not students and parents.
  2. Lower costs to start a business-Illinois has one of the largest LLC costs in the country.
  3. Stripping away most of the regulation and bureaucracy that individuals have to wade through to start a business in Illinois, Cook County, and Chicago
  4. Access to capital (Since Dodd-Frank killed community banking)
  5. Statistically driven policies to stop violence in neighborhoods.  Banning guns and the war on drugs has made things worse.  Too many young people are going to prison.  They don’t have hope for the future.
  6. Getting rid of the welfare state, and instead going to a basic income guarantee
  7. Becoming a right to work state; Right to work states have lower unemployment
  8. Lower taxes and fees.  Too much of Illinois income goes to support big government.  That money needs to stay in the hands of private individuals and they’ll invest or start businesses.

I agree with Ms. Washington when she identifies crony capitalism as a big problem in Illinois.  It seeps into every single area of government and even in the non-profit sector.  We need to get rid of it.  I think there is only one candidate running that has a chance of starting the process.  It’s not Quinn, it’s Rauner.

 



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