Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 25
KKR's golden rule
When we are interviewing candidates wishing to join KKR, we look beyond financial acumen, strategy and leadership skills.
We look for like and trust and we look to understand who the person is. We want to make sure they are a good cultural fit.
One way we look at this is as simple as a taxi ride, a dinner or even seeing how they treat other individuals they meet in our office during the interview process.
How do they treat other people outside of the people they may be aiming to impress in the interview session?
We would have dinner together, perhaps with their significant others, and see how they interacted with them or the individuals working in the restaurant. Are they sincerely polite? Do they sincerely say "thank you" each time the waiter comes by with food or drinks? Those who are arrogant fail this test. Those who are not liked and do not have followership fail this test, assuming that strong performance and a great track record is all that matters. We want people to have a great track record not just on a spreadsheet -- but with people too -- those they know and those they don't.
This stems from our values and how George and I grew up with parents who instilled the "golden rule" in us. We expect everyone at KKR to follow this tacitly and "do unto others as you would have others do to you."
When it came to our culture and the kind of place we wanted to be, the single most important thing we did outside of not hiring people who failed all of the above tests was set a sense of sharing and ownership from the very beginning. And we've never deviated.
When we started the firm, we gave "phantom equity" in companies we invested to all KKR employees. We wanted everyone to feel that they were part of the team and had an economic interest in everything we did. And when we went public, everyone at KKR was issued shares and became an owner, no matter how long they'd worked at the company.
When we started to build out the business beyond our well-established private equity business, we operated the firm with one compensation pool, and we still do that today.
That sounds like something every company probably does, but this is not the case. In asset management, most firms talk like they operate as a single unit, at least from a cultural perspective. But when you dig into the details, they basically have different compensation pools for different funds or businesses. This may work for those places. What we do differently and believe has been central to our ability to get everyone to work together and cross-pollinate ideas -- even outside of their businesses -- is creating a system in which we all succeed and fail together.
When we started a real estate or a growth equity business, we didn't say go raise capital and figure out how to compensate your team and we will give you a finite time to do that. We instead seeded that business with our own capital from our balance sheet and everyone was always compensated from the global compensation pool. In the most simplistic terms that means some of the most successful businesses were going to be supporting other, newer unproven teams or the rest of the firm. And it takes time to scale new businesses.
To be sure, this was not accepted overnight. As we diversified the business, it took time for everyone to realize the sum of the parts could be greater when operated as one. But, over time, it stuck.
If you are in one business, you have your expertise and lean on your direct teammates. But you can also tap into a whole network of people to strengthen an investment thesis, close a deal, and show why we have an edge and should be the partner of choice when trying to identify or close a deal. We know we work better as a team all driving toward the same goal -- it's not about individual glory.
We started this way in 1976 and are operating the same way today. We want people who want to be part of this team and work together.