Apollo Hasn't Put Epstein Crisis Behind It Yet

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The money is doing the talking as Apollo Global Management tries to rid itself of the stink around co-founder Leon Black’s dealings with deceased sex offender Jeffrey Epstein. Monday saw the giant buyout firm unveil fresh governance changes alongside the findings of an external investigation into the relationship between the two men. The shake-up sees Black cede his chief executive officer title to another co-founder, while retaining his role as chairman leading the board. It’s a fudge that comes with costs.

Black paid Epstein some $158 million for financial advice that apparently saved him up to $2 billion, according to the report by law firm Dechert LLP. This was after Epstein had pled guilty in 2008 to charges of procuring a person under the age of 18 for prostitution and solicitation of prostitution. Black’s justifications for this included that Epstein had served time and deserved a second chance. Their relationship was to descend into a row over fees by the time new allegations about Epstein emerged in 2018.

Dechert said it saw no evidence Black or any Apollo employee was involved in any way with Epstein’s criminal activities, or knew of any before they became public. Black said he and Apollo condemned “Epstein’s reprehensible conduct in the strongest possible terms.” To address the “grievous error” of maintaining their relationship, Black is pledging $200 million to initiatives promoting gender equality and the empowerment of women.

Still, the formal account of the relationship will astonish the Main Street observer. Black used Epstein for estate planning — largely, it seems, to limit his tax liabilities. The connection was both professional and personal — one-on-one breakfast meetings for business, social meetings in the afternoon with other guests. Dechert’s account provides a window into the efforts to which the super-rich go to pay less tax — all the same, it’s Black’s efforts in the spotlight here.

Fortunately for Apollo itself, Dechert asserts that while Epstein sought business opportunities with the firm, no other employee ever seriously considered hiring him, “much less actually retained him.”

Apollo rightly feels its response to all this must be to ensure its governance is beyond reproach. A process of institutionalization was already underway. Now it is adding four independent directors and considering a one-share, one-vote structure. But the changes to the chairman and CEO roles have the feeling of moves reverse engineered to keep Black involved while minimizing the impact on client flows into Apollo’s funds.

The CEO job goes to the lower-profile Marc Rowan. Co-founder Josh Harris had pushed for Black to step down completely (but later backed the new arrangements), while some of Apollo’s top clients voiced their preference for Black to stay on as chairman, Bloomberg News reported.

As lead shareholder and the architect of Apollo’s growth, Black is always going be influential. The resulting structure nevertheless keeps him as the firm’s figurehead. His removal from executive duties may assuage the concerns of investors mindful of their environmental, social and governance responsibilities, while his continuing presence on the board may simultaneously retain those clients who wanted him to stay on.

This may, overall, help the funds keep flowing in. But it makes it harder for Apollo to shake off its link to the Epstein scandal, not least in the eyes of new recruits. Appointing an independent chairman would have marked a clean break and been more consistent with the highest standards of governance. Having stopped short of that, Apollo must now work doubly hard to show it takes women's rights and equality seriously.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2021 Bloomberg L.P.

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