07/07/2025
Private equity firms and the companies they own come in some circles with a dubious reputation for behind-the-scenes wheeling-and-dealing. In this reading private equity is uninhibited by the public scrutiny and reporting that their publicly listed competitors are subject to. It wields much more discretionary power, often in exploitative fashion, inside its portfolio companies than shareholders and last not least it is egregiously successful in lobbying for preferential tax treatments that governments of all stripes have sought to close.
So does the increasing privatisation of public markets – the share of publicly listed companies is in decline while private equity is growing steadily – also bode ill for corporate political transparency?
Not necessarily!
Here are three reasons why:
- same lobby treatment: it is useful to recall that private equity is subject to the same lobbying disclosure requirements as other commercial interests that are engaging in lobbying – once more this shows the importance of lobby transparency rules and their complementarity with company reporting: if corporate transparency is limited due to private ownership, good lobbying rules – in the growing number of countries where they exist – are still forcing transparency around political engagement.
- at times even more stringent: in several countries, such as the US, companies in the financial sector face even more stringent pay-to-play regulations than other industries. This means for example that many investor relations practices are considered lobbying and face stricter limits on revolving door, political finance and hospitality practices than lobbyists in other sectors.
- higher political risks via direct ownership: while shareholders are somewhat protected from direct liabilities for the many material political risks that their portfolio companies may encounter, the same is not true for private equity. Direct ownership also means a much more direct exposure to and responsibility for any political missteps and breaches of conduct by investees. This in turn suggests that political due diligence should be bread-and-butter risk management in private equity.
None of this should distract from the fact that private equity and some of its peers have been marvellously successful in their lobbying, often exercising outsize influence with regard to issues that political scientists tend to call quiet politics, technically arcane aspects of policies outside the public limelight.
But it is a reminder that monitoring lobbying and calling out asymmetric, unfair influence is not impossible even when public markets turn private. Lobby regulators should stress-test their rules to ensure that they are ready for a further rise of private equity vs. public markets. And last not least, the institutional investors that provide large chunks of the capital for and thus power private equity need to ensure that their political screens and expectations of political probity also apply to their private equity asset managers. This may require some hard-nosed conversations…
Written by Dieter Zinnbauer