Hedge funds and Private Equity - PES

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policy are not being met. This regulation is not directed at the Private Equity Funds’ financing
activities, but rather at the implications of the complete range of Private Equity Fund managerial
decisions upon the infrastructure operator’s public service responsibilities.
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Regarding the financing activities of public utilities, industry-specific regulation will continue to
be based on an assumption of effective financial governance of Private Equity Funds. In addition,
governments may wish to consider whether they should retain a “golden share” of equity in all
public utilities, including a seat on the board. Such shares were retained by many governments
in the early stages of public utility privatisations, and some still hold them. This ensures government
is informed of the utility’s plans and major decisions, and reserves the power to veto
decisions they believe are contrary to the public interest. This is justified because of the importance
to the general public, the economy and society of the major decisions of public utility
managers and owners.
However, a more effective approach may be to strengthen the industry-specific regulation in the
infrastructure industries, establishing specific powers to regulate the financial as well as the
operational activities of infrastructure providers. The initial requirement is to ensure full transparency
to the regulator and the public with respect to all transactions that affect the
implementation of the operator’s public service responsibilities, including financial transactions.
For all its major financing activities, the infrastructure operator could be required to obtain
advance approval from the regulator that they are in the public interest. The regulator would
need broad powers to require the operator to supply all the information necessary to make the
necessary public interest judgments.
The strengthened regulator’s powers suggested here are not without precedent. In the past,
most regulatory agencies in the US and Canada had similar strong financial regulatory powers
over public utilities precisely because they were businesses in which there was a public interest.
Some of these regulators retain financial powers today. A leverage buyout of an incumbent
public utility operator could not take place in the US today without advance approval from one
or more industry regulatory authorities.
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To promote the Rhineland model of public companies, thereby ensuring co-responsibility of all
stakeholders for the future performance of the company, we could propose further initiatives:
One other potential mechanism for regulating operations in the financial sector concerning
employees’ social rights is the Transfers of Undertakings Directive 77/187 of 1977 (ARD). The
ARD incorporates two central principles of the social acquis communautaire: protection of individual
employees and a role for collective labour representatives, and entitlement to information
and consultation 90 . Enterprise restructuring driven by mergers and acquisitions following the
transformation of capital markets and the invention of new mechanisms of corporate finance and
credit instruments allowing for the financing of takeovers raises the question of whether the
Transfers of Undertakings Directive 77/187 of 1977 (ARD) could be adapted to this new environment.
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90 The idea goes back to Brian Bercusson, London, as explained to the ETUC/SDA ‘Path to Progress’ project, forthcoming 2006, Brussels.