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Study finds private equity buyouts create safer workplaces

Business optimization and better monitoring lead to lower injury rates under new ownership
Tuesday, June 1, 2021 - 4:19pm
Merritt Melancon
Warehouse worker balancing on office chair to reach something high


  • Workplace injuries decline after companies are purchased by private equity firms.
  • The decline is due in part to increased data monitoring, new reporting structures and, subsequently, better adherence to safety rules.
  • Private equity firms often make new investments to improve safety systems and catch up deferred maintenance.

When it comes to worker well-being, private equity firms aren’t usually seen as allies. But it turns out workers are often safer after their companies have been bought out.

University of Georgia finance professor Malcolm Wardlaw reviewed years of job injury data at companies with public ownership that were purchased by private equity firms and at public companies that remained owned by shareholders.

“There’s a conventional wisdom that when a private equity firm buys a company, the goal is to strip it down to its bare essentials, and that would entail stripping away the investments in workplace safety,” Wardlaw said. “But that doesn’t seem to be the case.”

Analyzing data from the U.S. Bureau of Labor Statistics Survey of Occupational Illnesses and Injuries, Wardlaw and his co-authors found between an 11% to 15% drop in injury rates.

Wardlaw’s findings appear in “Private Equity Buyouts and Workplace Safety,” which was published in the Review of Financial Studies in December 2020. He worked with Jonathan Cohn at the University of Texas and Nicole Nestoriak, a statistician with the Bureau of Labor Statistics, on the study.

American workplaces are safer now than they’ve ever been, but the number of reported accidents still totaled close to 100 million injuries between 1990 and 2015. Teasing out the actual decline in injuries that could be attributed to the actions of private equity firms — and not the result of job cuts or safety regulations imposed nationally — was complicated for the research team.

But job cuts and other factors couldn’t fully explain the decline in workplace injuries documented by the research team. Wardlaw said the positions eliminated during private equity reorganizations were mostly administrative and support roles in back offices, while manufacturing and front-line positions were kept in favor.

“You don’t have as much of a reduction in the riskier jobs,” he said. “The riskier jobs — the line jobs, the warehouse jobs — those are not where the deeper cuts are,” he said. “Simultaneously, these jobs appear to get safer, suggesting a recognition that this is where value can be created.”

Wardlaw interviewed former employees of private equity firms to help explain what might be driving the decline in injuries. It turns out it’s built into the business optimization processes.

When companies are purchased, the new management starts monitoring data generated at every level of the business, according to Wardlaw. In “balancing the scorecard,” managers keep a closer eye on whether the workplace safety procedures are being followed.

“Yes, workplace safety involves infrastructure, investments and a commitment to safety,” he said. “But what it really requires in larger businesses is an end-to-end communication and reporting structure. For an investment in workplace safety to be useful, in any real capacity, there has to be that kind of communication and reporting structure.”

Data reporting often becomes the new normal at privately acquired companies, he said.

At the same time, the new ownership structure and an infusion of capital allow companies to make investments in workplace maintenance and training that may have been set aside while the company was trying to cut costs before the sale.

“When you are trying to meet abstract market expectations, it’s easy for firms to lose direction in their pursuit of short-term growth,” Wardlaw said. “This kind of weirder, less tangible type of end-to-end investment in public safety has positive value — but positive value that won’t be realized until the future. It’s easy to put it off when you’re cutting costs and trying to hit a moving target.”

Investments in worker safety do pay off over time, he said, in reduced operating costs, a better reputation and higher stock prices.

“It’s the mark of being a big boy company,” he said. “You have to meet certain standards — not regulatory standards — but standards that are going to be imposed on you by your suppliers and your customers.”

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