Toys R Us died this year after going bankrupt, leaving hundreds of stores closed and tens of thousands of workers unemployed. Now, there is at least the beginning of a happ(ier) ending to this story of corporate greed.
Toys R Us was not just a victim of Amazon and the changing retail environment—it was, to an even greater extent, a victim of private equity, an industry that bleeds companies dry and often leaves them for dead. In 2005, a group of private equity investors including Bain Capital and KKR bought Toys R Us and took it private. More than $5 billion of the $6.6 billion purchase price was debt that the company was obligated to repay. Eventually, as is always a risk in major private equity deals, that debt strangled the company, sending it into bankruptcy. And as is usually the case, the private equity firms themselves were richly rewarded with millions of dollars of fees, while more than 30,000 employees of the company were told that they were not only losing their jobs, but that they would receive no severance pay, even after years or decades of service.
But this time, that was not the end of the story. Though bankruptcy laws do not favor the workers, they decided to organize and apply public pressure to the financiers who destroyed their jobs. With the help of existing progressive labor groups, the laid-off Toys R Us workers spent months lobbying and protesting and running a media campaign to shame the private equity firms who were trying to leave them with nothing.
And it worked, at least a little. Bain Capital and KKR have now agreed to kick $20 million into a “Financial Assistance Fund” that will decide how to pay money out to laid off workers. The activist employees say that they will continue pressing the other former owners of Toys R Us to contribute to the fund as well. The Wall Street Journal notes that “The severance fund... is an unusual move by the private-equity firms. The fund isn’t required under bankruptcy law and has no ties to the chapter 11 process itself.” In other words, it was won by activism, not in court. That is a precedent that employees at any company screwed by private equity vampires can turn to in the future.
Of course, the total fund is only a fraction of the $75 million in severance pay the workers say they are owed. But it is a start. It is something. It is money in the bank. And it is proof that even without a formal labor union in place, the richest, most powerful, and most rarefied financiers in the world can be moved by a strong labor campaign. Never forget it.