The Oregonian reported last fall that iconic Oregon retailer Les Schwab Tire Centers had been sold to Meritage Group, a California investment fund headed by billionaire Nat Simons.

Now, the worst fears we have when a great company is sold to private investors are being realized. Les Schwab management has announced that the company will cease paying its employees a $3000 per year annual dividend, characterizing these payments as “a discretionary gift made by the family and paid outside of our company programs”. 

It’s hard to decipher what this carefully worded statement actually means, but it’s extremely unlikely that employees received these payments by any means other than their paychecks. The company couldn’t make themselves call it what it was: a pay cut, and not a small one. According to the Oregonian, the average pay of people working at tire dealers is $45,000 per year. Mr. Simons and Meritage just reduced the pay of the average Les Schwab employee by nearly 7 percent.

Since its founding in 1952 in Prineville, Les Schwab had been owned by its founder and his descendants, and has grown into one of Oregon’s largest companies, with annual sales approaching $2 billion, over 7000 employees, and nearly 500 outlets throughout the West.

The company has won numerous awards over the years for both customer satisfaction and its business practices in general. As reported in the Oregonian, founder Les Schwab took pride in paying these bonuses. He knew his own success was due in no small part to making his employees successful.

New owner Nat Simons clearly has a different philosophy, and it very likely is centered on the concept of “enhancing shareholder value”, a euphemism for putting as much money in the pocket of the new owners as possible, regardless of collateral damage. For investors like Simons, nothing else matters, and if the employees aren’t happy about their compensation, they are free to go.

This is the business model employed by private equity companies, a lightly regulated industry where billionaires take money from large investors, often public employee pension funds, and deploy it by buying companies like Les Schwab. Their stated goal is to make the companies more valuable, then sell them at a profit. All good so far. And to be fair, the private equity industry has notched many successes, making it the darling of large investors looking to enhance returns. But their spectacular failures are increasingly drawing wide-spread criticism.

 In 2017, national retailer Toys R Us was driven into bankruptcy by three private equity firms, one of which (KKR) had received hundreds of millions of dollars in Oregon pension fund investments over the years. Overnight, KKR and its partners closed over 700 Toys R Us stores in the U.S. and fired over 30,000 employees. When the fired employees revealed they had been offered no severance pay, a national firestorm of criticism broke out, a part of which I personally witnessed at a meeting of the Oregon Investment Council (OIC), the entity that oversees Oregon’s $85 billion public employees retirement fund.

At an OIC meeting a few months after the Toys R Us bankruptcy, a group of young women who had lost their jobs made a poignant presentation to OIC. They pleaded with council members to pressure the private equity firms involved to create a fund for severance pay. The extraordinary display that occurred next says a lot about OIC and the private equity industry in general.

Members of OIC, sitting face to face with people whose jobs had just been destroyed by abusive private equity practices, were silent and compassionless.  There was not the slightest expression of empathy. And there is no record that anyone at OIC ever made an effort to advocate for the severance fund.

Wide is the reach of the corrosive practices of an industry whose sole goal is to “enhance shareholder value”.

Fortunately, the Toys R Us story does not end completely unhappily. Despite OIC’s indifference, others mounted a  public pressure campaign, ultimately resulting  in at least a pittance of severance for the employees (all of $600 per employee on average) and providing a ray of hope that future such abuses will not pass unnoticed and uncriticized.

For the Les Schwab company and its employees, it’s hard to imagine a there will not be more pain in the future, given the swiftness with which billionaire Nat Simons transferred almost $25 million per year from the pockets of 7000 working men and women to his own bulging wallet. In the name of “efficiency” and “enhancing shareholder value”, Les Schwab could fall, another victim of soulless investment companies and the enablers that invest with them.

Congress has let these business practices run rampant for decades. That’s not OK, because it’s not OK for billionaires to put their well-polished shoes on the necks of hard-working, middle income people, time and again. There are many things Congress needs to do to restore dignity to the working people of our country. Regulating companies like Meritage and KKR would be a good start.