CBI chief criticises private equity

Richard Lambert, director-general of the Confederation of British Industry, a pro-business lobby group, has criticised some of his own members for failing to get their message across, warning of a political backlash if they fail to justify their benefits to the public at large.

Richard Lambert

In his speech, Lambert singled out the private equity industry for special criticism, saying: “Until recently, too few of those involved have been willing to stick their heads above the parapet”. The industry had to get better at explaining itself, he said. “Not enough information about particular deals has gone to employees, creditors and suppliers. Not enough effort has been put into explaining the positive side of the story.”

His words come just weeks after some of the UK’s biggest buyout firms turned to the CBI to make their case more forcibly to the wider public, an area where industry trade body the BVCA has noticeably struggled.

Lambert also warned that the “new capitalism” of private equity and hedge funds was leading to marked income inequality – which could have dire political consequences. In the current market, he said: “small numbers of highly incentivised managers are able to earn large multiples of their employees’ wages,” and “an even smaller number of financiers can realise fortunes running into billions of dollars in a remarkably short period of time.”

“In this way, the new capitalism is adding to the general sense of insecurity and unfairness that is already a consequence of global trade and technology,” Lambert argued. “A big question is whether and how this concentration of wealth and income will play into democratic politics”. The recent row over private equity was a notable example of this, he said.

Business must present itself as part of the solution to globalisation, he suggested. “If it fails to do that, it will be seen instead as the problem – with very damaging consequences for all of us.”

However, Lambert – a former financial journalist – did warn against “knee-jerk changes in the tax system aimed at clobbering the winners in order to cheer up everyone else”. This was especially true in the UK, he said, “where the financial services sector is a major source of comparative advantage to the national economy”.