The Intersection of Private Equity and Environmentalism

The largest leveraged buyout ever is taking place and it has a uniquely environmental twist to it. Two private equity firms, Kohlberg Kravis Roberts & Company and Texas Pacific Group, are working to buy TXU, a Texas utility company. The price on the table is currently $45 billion. Not a small chunk of change for a bunch of individuals to bring together.

Though the deal is certainly remarkable for being the scale of the numbers involved and it may be interesting to ponder the consequences of utilities being traded around by investors, the most remarkable aspect is the degree to which environmental groups have been involved in the negotiations. The New York Times has this analysis of the situation and Business Week has this to say, but basically the deal went like this; KKR and Texas Pacific thought that buying TXU would make a good investment. One complication, however, was that TXU has long been the bane of environmental organizations because of its heavy reliance on coal power plants and its plans to build more of them in the future. (Coal is the least efficient fuel when considering carbon dioxide emissions per unit of energy produced.) So, what did the private equity firms do? They brought environmental groups, specifically the NRDC and Environmental Defense, directly to the table and worked to find a solution that the environmental groups would agree too.

Here's the result, taken from Marc Gunther:
1. TXU will drop plans for eight of the 11 coal plants.
2. TXU will support federal legislation regulating carbon emissions.
3. TXU will form a “sustainable energy advisory board” whose members will include Ralph Cavanaugh of NRDC, who knows more about the utility business than anyone else in the environmental movement, and Jim Marston, head of Environmental Defense’s Texas office, which had filed a couple of lawsuits against TXU.
4. TXU says it will “adopt corporate governance and executive compensation programs that tie the operations and goals of the company to climate stewardship.” In other words, executives will be paid more if their operations emit less.

So this seems pretty amazing and forces you to wonder why the private equity firms had such an interest in getting into the good graces of environmental groups before buying this utility company. Well, personality surely had something to do with it. David Bonderman is the co-founder of Texas Pacific and has plenty of environmental sensibilities to his name, serving on the boards of the World Wildlife Fund, The Wilderness Society and other environmental organizations. William Reilly, the EPA administrator under George H. W. Bush and long time conservationist is an investor at Texas Pacific.

So, was it just that these guys with a tinge of green at the private equity firm felt bad about buying a utility company and tried to clean their consciences as best as they could? Maybe, but I wouldn't discount for a second the interest that these guys have in making fiscally sound investments. That is their job after all and they aren't going to do anything that is going to hurt the bottom line of their deals. It would seem, then, that the answer is that these guys realize the economic consequences of pollution and, specifically, global warming. One the one had there is the threat of constant litigation against environmental groups and on the other hand is the fact that eventually the US Congress is going to begin to limit greenhouse gas emissions. The bottom line is that being environmentally irresponsible is quickly becoming an inefficient way to operate a corporation.

This, to me, is a great sign and is exactly as environmental regulation should work. There should be no expectation that corporations will act in the interest of the environment on their own. Their primary obligation is to their shareholders, plain and simple, and whatever costs they can externalize they should and will. Thus, all of the environmentalists who get upset at the corporations themselves are misguided and wasting their breath screaming at corporations to change their ways. Only insofar as environmentally-sound behavior is in the interest of the corporations shareholders should the corporation be expected to behave as such. The second main obligation that corporation has is to follow government regulations. As a purely free market would offend our moral sensibilities (people buying and selling other people, contract killers hanging up their shingle next to the barber, 7 year-olds working 16 hours a day in a factory, etc...) it is the place of the government to look at the consequences of the market and constrain it where necessary. Since individual most corporations have no desire or interest in considering the environmental consequences of their actions it falls on the role of the government to do so. Furthermore, other groups of interested individuals can make it their objective to lobby the government for increased regulation and work to ensure that corporations are behaving according to the regulations.

In this case we see all of these aspects coming together in a way that pleases the shareholders of the corporation, the private investors buying the corporation, and the environmental groups concerned about the activities of the corporation, not to mention the people of the world who will suffer less as a result of the reduced emissions. All in all, I find this to be great news and I hope that a trend develops and continues. I would think that, given the noteworthy size of this deal, that other investors will have to take notice of the environmental aspect as well.

Why Gmail?

Here's an introductory video about Gmail, produced by Google and starring various office products. If you use Gmail already you won't learn much but if you are not yet a user it could be interesting.

UPDATE: Ahh, la France...

Yesterday (Saturday for those of you keeping track, not Monday) I received a letter from the Social Security office saying that I had full coverage. It's not my official card, but it will work just the same. It seems like this chapter of French bureaucracy is over and with my new health coverage I'm looking forward to getting really sick and putting it to the test. That is, before it expires in two months...

How a Corporation Succeeds

Here is a great article from the New York Times Sunday Magazine about the remarkable trajectory of Toyota, especially compared to its American competitors. It's a long article but well worth the read if you have any interest in matters of economics, corporate governance, or group decision making in general.

In my opinion, the fact that is most telling of Toyota's method of success comes on the final page:

Toyota began developing the Prius at a time, 1991, when gas was plentiful and cheap.

There aren't many words there, but it says a lot about the perspective of the company and how it goes about making it's decisions.

A longer quote says essentially the same thing:

Toyota expects to be in business 100 years from now, one person in the company’s West Coast office told me, long after oil has been depleted or rendered unusable because of its carbon content, and for that reason it has placed all its bets on hybrid technologies. Indeed, Toyota created its hybrid systems not so much with the current era in mind, but because it views hybrids as more practical and energy-efficient. Whether the future is in biodiesel, ethanol or hydrogen doesn’t seem to matter; the hybrid system could be adapted to any of those fuels, says Bill Reinert, Toyota’s U.S. engineer in charge of advanced vehicle planning. Reinert also told me that the current Toyota system already has the ability to accommodate the larger battery capacity of a plug-in hybrid, which would use electric power for local trips and fuel only for longer excursions. But those large batteries don’t yet exist. Was that extra capacity put there on purpose? “Hell, yes,” he says. “This company is not stupid.”

Of course, this is just about product decisions, not the processes that have also been key to Toyota's success. That you can read about in the article. It's long, but I guarantee you that it's worth it.

Ahh, la France...

It's been a while since I've written anything specifically about France but the time has come again. Let me preface my remarks by saying that I really enjoy living in France, the people are wonderful and the food is delicious (though a bit heavy on the meats, but nothing like Germany). What could a person like me complain about? Well, the same thing that all of the French people complain about, the French Government and, specifically, the health care system.

Here's my story. I came to France to teach in their public schools as an English assistant, that means that I'm an employee of the government. As a visitor with a temporary residency permit I'm entitled to coverage under the national health care program. It sounds like a great idea until you actually get down to the nuts and bolts of it. To make the long story short, though I've been in France since September 2006 and have been working since October 2006, I won't get full coverage until March 2007. Then I leave the country in April 2007. Seven months in the country. Two months of coverage. Oh, and of course I've been paying for this since I began working.

Now, how is this possible you ask? Well, like many jobs you don't get immediate coverage and it's the same thing here, 90 days are required at the job before you get the benefits. This doesn't come as so much of a surprise, but again, the details. It's not that you someone turns on the tap and your benefits begin flowing on your 91st day of employment. No, you can apply to get your benefits starting on that day. As you may know from some of my previous rants, applying to the French Government for anything substantial is at least a 45-day process. This time it has taken a bit longer.

Since I am always looking for the opportunity to help others (and complain about the French government) here's a guide to getting government medical coverage in France, compiled from my own experiences:

1. Get message from employer that I can begin the application process.
2. Ask where I do that and get conflicting advice until Esther calls the central number and gets some correct information.
3. Take my papers to the Social Security office and attempt communication with civil servant.
4. Civil servant is surprisingly patient with mumbling foreigner and demands one more document, a pay stub from the employer.
5. Ask at place of employment how to get a pay stub. Get response that the only person who can possibly do that is sick for two weeks.
6. Wait for person to get healthy.
7. Talk to said person and get pay stub.
8. Take pay stub back to social security office. Speak with another civil servant who speaks very quickly. Leave a bit confused but understanding that you need to wait "a good month" before you will receive my coverage and card.
9. Wait said month.
10. Receive fat envelope in the mail from the Social Security office and eagerly open it.
11. Feel crushing disappointment when you see that they returned the entire file with a letter at the front explaining that you are not eligible for coverage because you are not authorized to work in France.
12. Feel confusion set in. Deep confusion. Didn't you include a pay stub? And a copy of your residency permit that says that you can work right on the front of it?
13. Realize that the first page of the file is a copy of your temporary temporary residency permit, the paper that you got while you waited for them to make the real card. This thing says that it itself doesn't authorize you to work, though, of course, the real one does.
    
14. Remember that you include a pay stub. Look for it in the file and realize that it is the second page.
15. Emphasize that your pay stub, from the French government is the second page.
    
16. Ask yourself, "If a person saw this pay stub from the government, how could they possibly think that I'm not authorized to work?"
17. Realize that this person never saw this pay stub because... THEY NEVER LOOKED PAST THE FIRST PAGE OF YOUR FILE!
18. Anger.
19. Realization that this person will get to retire with 80% of his/her salary (plus full benefits) at the age of 55 for such job performance.
    
20. More anger, though of a different sort, more visceral this time.
21. Anger flows to Esther who talks to her parents. Her mom resolves to go with you to the Social Security office together.
22. Go to the Social Security office with Esther's mom. Speak with civil servant who explains that you need one more little piece of paper in your file. She says it came with your residency permit when you picked that up. Respond that you never received such a little paper.
    
23. Go home with Esther's mom to make calls to figure out how to get a replacement for this paper.
24. Learn that the paper came from your medical examination ("Turn your head and cough...") not with your residency permit.
25. More anger because you had this little paper with you the whole time though no one ever told you that they needed it.
    
26. Return to Social Security office with Esther's mom.
27. Realize that you forgot the file at home. Run home and get it. (OK, I admit, this was my fault, but it didn't help the frustration level at all.)
28. Give civil servant little paper.
29. Civil servant promises that you will get your card on Monday.
30. Wait for Monday.

I'm still on Step 30, I'll tell you all tomorrow how it works out.

So that's been my experience with the French system so far. Pay for benefits you cannot receive and be told conflicting advice from different civil servants and their agencies. But hey, c'est la vie, non?

That said, I've counted that there are 10 weeks left on my working contract and four of those will be spent on paid vacation, beginning with the next two. Ha! Maybe this system isn't so bad after all...

Obama Funnier than O'Brien!

It's an old video, before Obama made his candidacy official, but it's enjoyable none the less.

LSAT: The Beginning

A new chapter has begun in Kurtistan, it will be a relatively short chapter but a very important one. Yesterday evening I began my preparations for the LSAT. I'm registered to take the test on June 12th which gives me about 17 weeks to prepare. I have 40 practice tests that I'll be using to prepare (thanks Zac). That means that I should be taking about two tests per week for the next couple of months. It's not exactly the most exciting proposition but given the weight of the LSAT in law school admissions it's a necessary investment.

I took the first one last night and the results were humbling to say the least. It's a good test in that it really tests your intellectual abilities to the limit but I can't say that I'm looking forward to completely exhausting my mind twice per week. That said, I do like the fact that I have a very specific goal to work toward, particularly one that has a numeric measure of my performance (I already have the Excel spreadsheet prepared to track my progress).

Anyway, if you have any advice as to the best practices for preparing for the exam, I'd love to hear them.

Why I like The Economist

I just shared three articles from The Economist, one of my favorite magazines. Two are about France and one is about Detroit. All come from a British, free-market perspective. All are informative. Read them!

(Also, if there should ever be something that you miss on my Shared Items, simply click the "Read more..." link at the bottom right of the widget, it will take you to a page with every item ever shared.)

A Few Photos from the Week

Zac on the Metro




Metro Alarm





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:)

Back to normal...

Recently the posts have been turning a little political which isn't exactly the direction that I want this blog to take. This isn't supposed to be Kurt's bully pulpit from which he can beat his readers about their heads with his opinions, rather it's a tool for staying in touch with family and friends. Of course you will see some of my opinions, political and otherwise, here from time to time but the main focus will remain on my life (a much more important topic, I might add). If you want to read political blogs there are a bunch out there, both for those of you who lean left and those who lean right.

So, what is going on in Kurt's life? Well, I haven't had any French classes for the past two weeks because we are in between semesters. Unfortunately, that all comes to an end tomorrow when classes resume. I did, in fact, make it into the intermediate level so I should be doing some more interesting things soon.

As for work, I'm beginning to fully comprehend the fact that I don't want to be a high school teacher professionally. Some of the kids are great but others are really insufferable. I find that the distinction is drawn between those who are intellectually curious and those who are not. When I throw out a question, "Should the government take money from the rich and give it to the poor?" for example, some students grab onto it and try and hash out the question. This pleases me, I can ask them questions that seem to lead them to an obvious solution and then ask another that shows that solution to be groundless. Basically, I get to do the fun things that philosophy professors did with me for a few years (please don't take this sentence out of context). There are others, however, that have perfected the art of the blank stare. No matter what the question, be it about redistributive taxes or popular music, they just stare at a point a few meters behind my head. This makes for difficult days. I'm finding that the best solution is to just maintain my energy and interact with the few students who offer some glimmer of interest.

That's work and school, but the main excitement recently has been our hosting of three guests; Zac, a good friend from the co-op; Josh, Zac's brother; and Catherine, a friend of Josh's. They spent five days here on what was a stop-over on a much longer journey for Zac and Josh (from Amsterdam to South Africa) and a sort of mini-vacation for Catherine. It was really great to see Zac and Josh again as well as to take them around Paris. It helps me to appreciate the city which is my current home to see some of the more stunning locations. It's easy to focus on the smells in the metro and to lose sight of the amazing monuments all throughout Paris.

I did get to take a few pictures and I actually took the time to properly process them. They will go up here shortly.