‘Bad Company’: It’s a Gordon Gekko World

Everyone knows that journalism is dying, and Megan Greenwell’s new book Bad Company helps explain why. In 2019, Megan Greenwell was at the front line of this, watching Deadspin collapse and tendering her resignation in protest. Why Deadspin, of all publications, would collapse makes little sense in retrospect and even less at the time. It was a sports blog- not the kind of boring, fact-based news that supposedly, no one has an attention span for these days.

The dirty secret Greenwell uncovered was that what happened to Deadspin had very little to do with the actual content of Deadspin and everything to do with a new management structure centered around private equity. Her book Bad Company doesn’t deal with Deadspin, although it does deal with Gannett, and three other industries with little in common except the fact that the venture capital firms in nominal control of these institutions take advantage of opaque and perverse government incentives to make huge profits after destroying the actual business via grotesque mismanagement.

Greenwell’s first case study, Toys ‘R Us, is, at least by any reasonable definition, a normal business. But the other three cases beg a lot of questions about what profit motives are supposed to do, exactly. In the case of Sagewest taking over hospitals in Wyoming, Greenwell notes somewhat sardonically that the decision to close departments in Riverton and Lander under the rationale that only one hospital in the area needed a specific specialty actually defies the principles of free market competition.

There’s also quite literally no evidence suggesting that specializing regional hospitals improves performance. In one particularly graphic case of a mental patient gouging out an elderly woman’s eyes, it’s quite clear that an elimination of basic standards is, well, just that. An elimination of basic standards.

Who benefits from this? To a surprising extent, Greenwell isn’t really sure. We know that executives at both the parent firms and the daughter companies reap huge bonuses and severance packages even as those daughter companies collapse. We also know that the laws governing the dissolution of these companies basically place actual employees as the last priority. Daughter companies get to discharge debt in bankruptcy, yet for some reason the venture capital firms who own them aren’t legally responsible for this debt they forced the daughter companies to incur. Nor, for that matter, does there appear to be literally anything disincentivizing venture capital from just collapsing a company they bought so they can sell the spare parts.

This contrast is most stark in the part of Bad Company that discusses CIS Group’s takeover of the Southern Towers in Alexandria , Virginia. To put it bluntly, CIS Group became a landlord of an affordable housing complex and just…didn’t bother doing any maintenance, as far as anyone could tell. The building has mold. It has flooding. It also has a horrible reputation. A normal real estate management company operates under some basic standards of ethical, if not legal responsibility. But the entire concept of an out-of-state venture capital firm owning housing in areas they have no connection to seems to be to make it more difficult for anyone to complain to management.

 Even if you wanted to try to sue such a landlord, the often arcane means in which responsibility is delegated makes it very easy to pass the buck. And by the time you catch up with the buck, they’ll have readied an army of lawyers. Of all the stories profiled, the Wyoming hospital has the most encouraging ending mainly because instead of trying to fight Sagewest directly, the town of Riverton just decides to try and fund their own hospital which doesn’t completely suck. Yet even when it comes to public financing, venture capital firms have the advantage because the phrasing in most legislation tends to favor longstanding institutions.

This is true even with Sagewest. But the entity that owns the hospital may as well be a ghoul wearing the face of the person it devoured. Actual residents, like the Texas physician who moved to Wyoming because he couldn’t stand the stereotypical golf seventies doctor culture of Dallas, built that hospital and helped sell it only to learn that he may as well have made a deal with the devil.

This is also the case with Gannett papers. That portion of Bad Company deals with a young journalist who moves between award-winning newsrooms that face constant payroll shortfalls. This is a running theme. They tell people, again and again, that cutting staff and services are the only methods for making businesses solvent. But this isn’t how actual businesses work. The extended explanation of the origin of Toys ‘R Us notes that the companies entire primacy owed itself to the ambitions of Charles Lazarus thinking bigger than used bicycles, correctly forecasting the baby boom, and then focusing on selling toys year round by reading the rooms of his baby specialty store.

In one of the funnier ironies of Bad Company, Babies ‘R Us, a nineties era spin-off of Toys ‘R Us, existed under the premise of observing, once again, that people having children generally like to talk to an actual person to purchase the best possible products for their situation. One layered irony of the Babies ‘R Us story is that Babies ‘R Us tended to have much better management than Toys ‘R Us. Mainly because as a subsidiary of the larger company, the venture capital alliance of KKR, Bain Capital, and Vornado sat at too far a remove from the structure to tell Babies ‘R Us what to do most of the time.

Technology is less the culprit in Greenwell’s story than the excuse. Time and again, we see organizations that might have been doing poorly, quickly start doing much worse, once they come under venture capital ownership. Did Toys ‘R Us make a stupid move, giving Amazon a sweetheart deal to kill eToys? Oh, most definitely. But any cursory examination of why this was a stupid move would seem to imply that selling the lands the Toys ‘R Us stores are on for a short-term cash infusion and having to cut payroll to pay the rent is a much, much stupider one.

A couple of times Greenwell notes a curious ally in the venture capital media blitz–the 1987 movie Wall Street. While we best know this movie for Gordon Gekko sociopathically arguing that greed is good, people often forget that the actual protagonist of the film, Bud Fox, spends the whole movie trying to use venture capital for good, trying to save a company rather than destroy it.

The trouble is, venture capital doesn’t find motivation in whether Gordon Gekko or Bud Fox is calling the shots. It’s motivated by what makes the number goes up. And what makes the number goes up has nothing to do with what a company actually does, or even if it’s supposed to make money at all. It has to do with abusing any possible legal rule or enforcement mechanism to cut costs and bribing anyone who could stop them.

While Greenwell most directly discusses executives in this regard, she also notes the strong bipartisan lobbying power of venture capital, despite the irony of both President Biden and President Trump claiming to support legal measures designed to decrease their power. Is there a political solution to this problem? Unfortunately, Greenwell has no hugely optimistic answers in this regard. The ongoing situation which we are in right now is a sort of experiment to see if we as a society can survive without toy stores, health care, journalism, or housing.