An interview transcript of Ken Mehlman on BigThink answering the question - how does private equity benefit society?

1. HOW DOES PRIVATE EQUITY
BENEFIT SOCIETY?
An interview transcript
featuring Ken Mehlman

2. Private equity started off as a
solution to some challenges
that American companies had
back in the mid-70s and the
challenge that a lot of
companies had was that the
management of those
companies thought of
themselves differently from how the owners of
companies might think. They got paid whether the
company did well or didn’t do well. They didn’t have
skin in the game. Also the problem in a lot of companies
was they thought short term, and not long term. They
thought quarter to quarter and because their capital
depended on public markets, what their stock traded
each quarter was critically important.
What private equity does is it
tries to deal with those and
some other problems too. First,
when we buy a company, the
management of that company
and the board of that company
are paid like we are - the owners
of that company. We’re paid on
whether it grows over the long term, not the short term. So
if you’re the CEO, you’re not going to be jetting around the
country on the company plane regardless of whether the
company’s doing well - because that’s your money that
you’re spending and that you’re not being efficient with
“How Does
Private
Equity
Benefit
Society?”
“They got paid
whether the
company did well
or didn’t do
well. They
didn’t have skin
in the game.”

3. respect to, and that’s important. So once you deal with what
some might call the agency problem, you make company
owners – company managers, excuse me- think like
company owners, not simply like agents.
The second thing that we are able
to do[is that] we own companies
for an average of seven years. If
your horizon is how do you grow a
company over seven years, not
simply what’s the stock trading at
each day, then you’re a lot more
likely to focus on things like “How
do I grow into a new market even if
that’s going to cost us something over an initial period?”
You think about how do you expand, for example, CAPEX?
How do you make companies think more long term than
short term?
The second area that’s important for private equity is if you
think about it the people that invest in private equity. We
look at our recent funds - there are 9 million retirees. A lot
of them were once teachers, they were once firemen or
police, they’re folks that have worked very hard all their
lives. And because their state pension funds chose to invest
in private equity their returns are better and their
retirements are more secure, and what that means is that
the communities in which they operate which otherwise
might have to divert resources away from public services or
education to pay for their retirement - they don’t have to.
“How do I grow
into a new
market even if
that’s going
to cost us
something over
an initial
period?”

4. Ken Mehlman is an attorney who
has been active in both the public
and private sectors. Mehlman
served as chairman of the
Republican National Committee from 2005-2007, during
which he reached out to constituents not traditionally part
of the Republican base. Mehlman also served in high-level
positions in Congress and the White House, including as
White House political director during President George W.
Bush's first term and as the the campaign manager for
Bush's 2004 re-election campaign.
Mehlman currently oversees global
external affairs for the private equity
firm Kohlberg Kravis Roberts & Co,
LLP. Before joining KKR, Ken
Mehlman was a Partner at Akin
Gump Strauss Hauer and Feld, where
he helped businesses and individuals
manage risk and seize opportunities
at the nexus of business and public
policy.
In 2010 Mehlman made headlines by coming out as gay,
making him one of the highest-ranking openly gay figures in
the Republican Party. You can find the interview referenced
by this transcript on Ken Mehlman’s profile at BigThink.com
“Who Is Ken
Mehlman?”