It is every private equity firm's worst nightmare: A portfolio company fails, costing scores of workers their jobs. The media pounce on the news, which elicits a stern rebuke of the PE (private equity) industry from Wall Street watchdogs like Elizabeth Warren, an influential Democratic U.S. senator and industry critic. Her words spark more media attention. Congress and the White House take note.
While such perfect storms of adversity are rare, the entities and audiences involved—portfolio companies in crisis, the media and government policymakers—have an outsized influence on the industry's image and functional health.
These type of recurrent public relations pain points stood out in a recent pulse survey that Edelman conducted of 64 private equity investor relations, communications and marketing professionals. Two-thirds said that communications around portfolio company crises were a part of their 2021 agendas. In addition, at least 80 percent view policymakers and the media as somewhat or very important stakeholders—ahead of corporate CEOs, trade unions, retail investors and the general public, and behind limited partners (LPs), employees and portfolio companies.
Yet 40 percent think that policymakers hold the PE industry in low esteem, compared with just 13 percent who believe policymakers judge it positively. These findings were roughly on a par with their views about the media. Clearly, PE firms face an uphill battle to improve these metrics.
The stakes are high on the policy front. With Democrats in control of Congress and the White House, the industry likely will face tougher regulation for the foreseeable future. Gary Gensler, President Biden's nominee for SEC chairman and a zealous enforcer when he led the CFTC from 2009 to 2013, is expected to police Wall Street and the PE industry aggressively. Senator Warren has pushed for PE firms to share more of the financial burden when the companies they control fail. She and Biden have endorsed boosting taxes on carried interest, and Biden has proposed raising corporate taxes across the board to pay for infrastructure improvements.
Survey respondents know the score, with 81 percent naming higher taxes and tighter regulation as concerns. Despite that, only 12 percent plan to use their communications programs to engage more with policymakers on PE issues.
The reason for this is not hard to fathom: The biggest firms in PE already employ a battalion of lobbyists to ensure that they, and the industry as a whole, have Washington's ear. And they do. Even so, PE firms may be wise to borrow a page from Senator Warren's communications playbook. Warren leverages the media to great effect to advance her cause—sweeping mainstream outlets for news reports that reflect poorly on PE, then framing them into fresh denunciations that the media playback, driving home her message. It is a masterly use of the media to sway political and public opinion.
Edelman's survey suggests that PE marketing and communications teams are also deploying a full arsenal of communications tools to express their narratives, build their brands and protect their reputations. While print and other traditional media remain key channels, the emphasis on digital outlets such as websites, LinkedIn and Twitter continues to grow, with 88 percent of respondents saying that online communications has risen in importance over the last year. Nearly nine out of 10 cited strengthening relations with LPs as a communications priority, and two-thirds said ESG initiatives were a focus of external communications.
Meanwhile, the recent power shift in Washington has amplified the need for PE firms to combat the growing mistrust PE faces in political circles. They must do all they can to ensure that elected officials, regulators and the wider public recognize PE's beneficial role in the economy and the financial security it affords millions of retirees. Smart and effective communications can go a long way to protecting their reputation and building their brands as an integral part of our financial system.
Renee Calabro is head of U.S. capital markets communications and David Carey is a senior content specialist.