Do Private Equity-owned Firms Have Better Management Practices?

Nicholas  Bloom; Raffaella  Sadun; John  Van Reenen

Chapter | The Global Economic Impact of Private Equity Report 2009 | 2009

Do Private Equity-owned Firms Have Better Management Practices?

by Nicholas Bloom, Raffaella Sadun and John Van Reenen

Abstract

We use an innovative survey tool to collect management practice data from over 4,000 medium sized manufacturing firms across Asia, Europe and the US. These measures of managerial practice are strongly associated with firm-level performance (e.g. productivity, profitability and stock market value). Private equity firms are significantly better managed than government, family and privately owned firms. Although they are also better managed on average than publicly listed firms with dispersed owners, this difference is not statistically significant. Looking at management practices in detail we find that private equity owned firms have strong people management practices (hiring, firing, pay and promotions) but even stronger operations management practices (lean manufacturing, continuous improvement and monitoring). This suggests that private equity ownership is associated with broad based operational improvement in management rather than just stronger performance incentives. Finally, looking at changes in management practices over time, it appears that PE targets poorly managed firms and these firms improve their management practices at a faster rate than other ownership types.

Keywords: Private Equity; Management Practices and Processes; Production; Private Ownership; Performance Improvement; Performance Productivity;

Format: Print

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Citation:

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. "Do Private Equity-owned Firms Have Better Management Practices?" Chap. 1 in The Global Economic Impact of Private Equity Report 2009, edited by Josh Lerner and Anuradha Gurung, 1–23. Globalization of Alternative Investments Working Papers. Geneva, Switzerland: World Economic Forum, 2009. (Slides.)

Case | HBS Case Collection | September 2019

Earth Bank of Codes: Making Nature's Biological Assets Visible and Valuable for the Benefit of All

Tarun Khanna, Raffaella Sadun and Susie Ma

In 2019, entrepreneur Juan Carlos Castilla-Rubio was developing a project he hoped could generate and share wealth from the natural resources of the Amazon without destroying those resources. His idea, called Earth Bank of Codes (EBC), would create a library of the genomic codes of all known species that could be tapped for discovery and innovation, from new medical interventions to more efficient manufacturing processes. He proposed to use blockchain technology to make the data both accessible and trackable so that its use could be monitored. Castilla-Rubio envisioned a time when a company in the U.S. could access a biological asset from the Peruvian Amazon, develop and commercialize a product based on the asset, and have a fraction of the resulting sales land directly in the bank account of various beneficiaries, including the Peruvian government and indigenous communities. Now he was facing major decisions about how to structure EBC to achieve his goals. Should he start at the top and build partnerships with national governments and inter-governmental organizations as the cornerstone of EBC? Or would it be better to forge ahead with a few stakeholders in an entrepreneurial project?

Keywords: Decision Making; Development Economics; Entrepreneurship; Innovation and Invention; Intellectual Property; Emerging Markets; Market Design; Marketplace Matching; Science; Genetics; Natural Environment; Environmental Sustainability; Weather and Climate Change; Social Enterprise; Strategy; Strategic Planning; Technology; Ownership; Social Psychology; Trust; Society; Biotechnology Industry; South America; Amazon Basin;

Citation:

Khanna, Tarun, Raffaella Sadun, and Susie Ma. "Earth Bank of Codes: Making Nature's Biological Assets Visible and Valuable for the Benefit of All." Harvard Business School Case 720-356, September 2019. View Details

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Plant management at Pasta Serafina, a pasta producer in the south of Italy, is struggling to contain employee absenteeism. While the misbehavior is concentrated in a minority of the workers, its effects impact not only the plant’s performance, but also the climate and work environment. Embedded in an institutional and legal environment that allows very little room for corrective action, and already dealing with persistent low margins, management decides to address the issue by asking the employees themselves to find a solution to the problem. The case exposes students to managerial challenges associated with curbing moral hazard and changing the company culture in a setting where standard legal and contractual tools, such as firing workers for performance or using incentives to influence behaviors, are not available.

The case complements Pasta Serafina (A) by describing the aftermath of a town hall meeting in which management had publicly denounced the absenteeism problem and challenged the employees to find a solution. In spite of the initial mistrust against management, the fear of an imminent plant closure coupled with the relief associated with finally being able to be heard by management, pushes the employees to act to contain the problem themselves. Within a short time, absenteeism hits record lows. Management, however, is left wondering about the sustainability of the new culture.

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Do Private Equity-owned Firms Have Better Management Practices?

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