Business Strategy as Human Rights Risk: the Case of Private Equity

Abstract

In this article, we apply the UN Guiding Principles on Business and Human Rights to the private equity (PE) business model. PE firms often adopt a controversial, ‘value extractive’, business model based on high debt and extreme cost-cutting to generate investor returns. PE firms own large numbers of companies, including in many rights-related sectors. The model is linked to increased human rights risks to workers, housing tenants, and in privatized health and social care. We map these risks and analyse the human rights responsibilities of PE firms. Our analysis has major implications for understandings of human rights responsibility. We argue that value extractive methods are the root cause of eventual harm to human rights, even though they may not harm rights directly. To respect human rights, PE firms must mitigate the risks of these value extractive methods. We define how human rights due diligence (HRDD) could achieve this and argue that given the extent of harm and the lack of a business case for adopting such a view of human rights responsibility, business strategy level HRDD should be a core component of forthcoming HRDD laws.

Private Equity Ownership in Healthcare

“…In addition to hospitals, another lucrative market for private equity firms has been clinics and outpatient centers, with over $158 billion invested over the past 20 years. In 2010–2019 alone, private equity firms were responsible for 60% of outpatient center acquisition transactions 3 . For private equity, outpatient centers are financially attractive due to their low cost and simplified organizational structures.…”

“…The fate of American retail companies acquired by private equity firms is also a potential cause for concern for healthcare organizations. As an example, in the past 10 years, retail companies owned by private equity firms have seen the elimination of 1.3 million jobs among stores and suppliers, while at the same time the industry overall has seen the addition of 1 million new jobs 3 . Private equity firms own large amounts of companies, and there are human rights risks associated with their business model 3 .…”

“…As an example, in the past 10 years, retail companies owned by private equity firms have seen the elimination of 1.3 million jobs among stores and suppliers, while at the same time the industry overall has seen the addition of 1 million new jobs 3 . Private equity firms own large amounts of companies, and there are human rights risks associated with their business model 3 . It is estimated that 1 in 14 US workers are employed by a company owned by a private equity firm 3 .…”

“…Private equity firms own large amounts of companies, and there are human rights risks associated with their business model 3 . It is estimated that 1 in 14 US workers are employed by a company owned by a private equity firm 3 . These concerns are genuine and require more research into the outcomes of private equity–owned hospitals to inform policymakers.…”

“…These concerns are genuine and require more research into the outcomes of private equity–owned hospitals to inform policymakers. Human right principles must be embedded into every business model, and governments have the duty to ensure policies enforce the principles 3 …”