Euro-US Disconnect: Let’s Blame Enron

I had lunch yesterday with a couple of bankers who focus on currency foreign exchange related to private equity transactions. Both were European natives, so the question arose of why the European public seems so much less charitable toward private equity than does its U.S. counterpart. After all, each day’s European press carries a new story of proposed private equity regulation from one country or another, while the general attitude on this side of the Atlantic has been shocked awe. In fact, I’m don’t recall any member of Congress proposing a single piece of PE-related legislation (although there have been a number of state bills).

None of us could come up with a terribly good explanation for this fissure, particularly when one considers that PE is perhaps more institutionalized in Europe than in the U.S. – given all the publicly-traded funds over there. But here’s one possible culprit: Enron.

No, not the quasi-PE partnerships that Andy Fastow created – but the overall Enron experience as remembered in the collective American psyche. It was a very complicated story, but the simple abstract was: Enron executives cooked the books each quarter to meet or exceed Wall Street expectations, in order to artificially inflate their stock price. In other words, had Enron not been public, this would not have happened.

This is not to excuse criminal malfeasance, but rather just to suggest that the episode made ordinary Americans just a bit more skeptical of public company motivations – while corporate Americans have become less enthralled due to all the post-Enron regulatory changes (SOX, etc.). Europeans obviously know the Enron story, but it doesn’t quite hit home the same way…