My article on private equity funds in Dissent magazine (Winter 2008) is now available on line. I argue that PE funds are an important part of the institutional changes underway in modern capitalism. I believe the critique that some in labor and on the left make of PE funds is misconceived. Many argue that PE funds are part of something that is called “financialization,” which I think over emphasizes the role of the fictitious, or paper, side of the role of PE funds at the expense of understanding that PE funds reorganize the creation and appropriation of value.
Author Archives: sdiamond
Are there real unions in China? A debate with labor historians David Brody and Nelson Lichtenstein, labor economist Ken Jacobs and legal scholar Stephen Diamond
I was part of a debate recently with some other academics on labor rights in China. You can listen to it here. It runs about an hour and a half. The other participants were labor historians Nelson Lichtenstein and David Brody and labor economist Ken Jacobs.
The panel was chaired by Dr. Arthur Lipow of the Alameda Public Affairs Forum, which hosted the panel.
A helpful background report by Dan Gallin, former head of the International Union of Foodworkers and now head of the Global Labour Institute, can be found here.
(Note: the discussion followed a showing of China Blue, a terrific documentary on labor conditions in China today.)
The PetroChina Syndrome hits China
A few years ago I was interviewed by the New York Times about an article I had written called “The PetroChina Syndrome.” You can find a copy here. My basic argument was that the globalization process was largely an economic activity that had left behind legal and political institutions. As a result, globalization would trigger a backlash that could pose a crisis for global capitalism. The process I discussed then was based in large part on American reaction to the IPO of PetroChina, the giant state controlled oil company.
Now several years later, the “PetroChina Syndrome” has reached the shores of China itself as this New York Times story about protests against the environmental impact of a proposed petrochemical project by PetroChina suggests.
CalPERS CEO Search: CalPERS should maintain its activism – Los Angeles Times
As some have speculated, the departure of two top CalPERS execs is, at least in part, linked to the giant fund’s commitment to social accountability in a harshly competitive financial environment. The search for a new CEO will be critical in this effort. It won’t be easy for the fund to find an individual with the vision to understand the potential impact that CalPERS can have. Ordinary CEOs of fund managers are unlikely to be attracted to the highly political situation nor have the political skills to succeed.
One important development: the CalPERS board has struggled to find the right balance over the last decade, but finally appears to be on track (gone are the days when a labor representative ran against a labor friendly Willie Brown for the presidency!). And I say this despite my initial criticism about the lack of transparency right now in midst of this governance transition. This makes all the difference to an incoming CEO – when the board’s values and direction are clear it is much easier to provide the necessary internal and external leadership.
One bit of unsolicited advice to CalPERS: pick a CEO first, and then work with the CEO to pick a new CIO. The CIO has to follow the political lead of the board and the CEO has to be in place first to make sure the chemistry is right. And resist the temptation to hire interim figures. The search does not need to take forever. Make the right choice; do it quickly and get up and running!
CalPERS Turmoil: Pot calling the kettle black?
I am a huge fan of the efforts of CalPERS to clean up corporate governance, and I even helped in the drafting of their emerging market activist equity screen a few years ago. And I argue with my law and economics colleagues that the unusual board structure at CalPERS is evidence that boards representing all stakeholders can function efficiently.
But now it appears that CalPERS is itself embroiled in a governance problem. They have recently lost (fired? quit? pushed out? had lured away?) three senior figures, including their two top executives just this past week.
The heart of the problem appears to be a perennial one for large public sector pension funds. How do you create a culture in the professional staff that implements the board’s vision? And how do you do that when the vision itself is subject to change as politics changes? Six of the board members are elected by California public sector workers and retirees; four are ex officio appointments serving by virtue of their public office; two are appointed by the Governor and one by the state legislature.
When a pro-labor Democrat is in office usually things can go smoothly, but not always (the last time the CalPERS board was headed up by a labor representative and there was a Democrat in power in Sacramento, the board went after Warren Buffett!) But when you have a market oriented Governor and a labor influenced board, then you are in for some serious tensions.
Most recently, the CalPERS investment strategy had begun shifting away from some of its commitments to human rights and labor rights including opening up to investments in China. While that is problematic, in my view, that does not appear to be the source of the current problems. Instead, it appears that a decision to invest in private sector based infrastructure projects (where the giant fund might earn above market returns) clashed with the natural tendency of the labor folks on the board to want to protect union jobs on those projects and existing civil service positions.
It is also possible that the downturn in the economy is going to lead to some red ink in the fund’s returns. Better for those top execs to get out while the getting is good. No huge severance package like other failed CEO’s but at least they can land softly in the private sector.
But this is all speculation because CalPERS has as of yet not clearly explained what is going on. Since they have no SEC to worry about or shareholders they can say pretty much what they want. But it is disappointing and a bit hypocritical for the Board now to suggest that these executive departures are simply because the CIO and CEO could earn more in the private sector (that is the first line of defense, anyway). That was always the case for both individuals. The CEO, for example, has 20 years experience rising up the ranks of CalPERS. And now he wants to leave? CalPERS argues around the world that it values transparency. It should practice what it preaches.
Triple A Failure: Behind the Subprime Crisis
A very readable and clear explanation of some of the plumbing that led to the sub prime credit crisis. The author demonstrates how the so-called “gatekeepers” that our system of unregulated financial capitalism uses to “protect” us in pursuit of the goals of so-called self-regulation failed utterly. This was a giant case of “see no evil, hear no evil.” Or, if you have kids, “hot potato.”
Moody’s – Credit Rating – Mortgages – Investments – Subprime Mortgages – New York Times
Labor Goes Digital: Lessons from the Writers’ Strike
I gave a talk recently at my law school on the impact of the writers’ strike and its implications for the actors’ negotiations. You can download it here from iTunes for free (it takes about ten minutes on a broad band connection to download). Comments and thoughts welcome.
If Mohammed won’t come to the mountain….
One thing people who live outside the Valley take a long time to learn is that it is a small community and you have to be here to know what is going on. Location, location, location….even law firms around here have split up over whether or not to open up a second office on Sand Hill Road! And one factor in explaining the rise to the top in high tech of my former law firm, Wilson Sonsini Goodrich & Rosati, is that it opened up shop here in Palo Alto (in the late 60s) and stayed there through thick and thin. When entrepreneurs and venture capitalists needed them they were here while larger firms in NY, LA and SF were not. Now those firms are playing catch up here.
So, finally, the entertainment industry is catching on as this story in Variety today suggests.
Battle of the nurses unions turns physical : L.A. Now : Los Angeles Times
Some union members in the entertainment industry think that one union is safe from the actions of another because of the anti-raiding provisions of the AFL-CIO or because of the “option” of leaving the AFL-CIO and operating independently. They should pay close attention to the events underway in the health care industry these days. The AFL-CIO backed California Nurses Association is engaged in a heated battle across the country with the much larger SEIU over representation of nurses in healthcare. This past week the tensions became physical with thuggish tactics being used by the SEIU at an otherwise peaceful labor conference held in Detroit.
The only real solution for the entertainment industry is to work hard to find common solutions to common problems. Once the current final round of negotiations concludes – and the sooner the better given the divisions plaguing the remaining unions at this stage – let’s hope attention of union leaders in the industry turns to constructive long run planning.
Battle of the nurses unions turns physical : L.A. Now : Los Angeles Times
It’s Blu Ray in the 3d…..
Think DVD “packaged” entertainment is a thing of the past? Think again…this piece notes that demand for Blu Ray discs is expected to jump dramatically now that Toshiba/Microsoft’s DVD HD technology has thrown in the towel. Sony alone is ramping up to produce 38 million discs per month – roughly two-thirds of global demand as currently forecast. Let’s assume that’s the entire market and that each disc generates 5 dollars in profit for the studios – that adds up to about 2 billion dollars per year. And that is on top of the non Blu Ray revenues although those are likely to slide as Blu Ray comes online. Of course, as it currently stands 80% of that revenue is off the table when it comes to workers in the EMI sector – who to date have been unable to break into the so-called “distribution” side pile of cash earned by the studios.
Mousetrap Technology – Times Online – WBLG: Where are all the Blu-ray discs?