Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 24
Everything comes down to 'like and trust'
Every company has a culture and I hope it also has strong values or principles.
We speak a lot about culture and values and are guilty of using the words interchangeably. While different, they go hand in hand.
A culture is a shared set of beliefs, attitudes, standards and behaviors that characterize a group of people, like employees in a company. The culture shapes how individuals perceive the world, influences behavior and it fosters a sense of identity and belonging within the community, in this case, a corporation.
Values are the foundation and the fundamental beliefs and ideals that define what an organization stands for and what it considers important. They define the desired attitudes, ethics and standards of conduct, forming the basis for all employee behavior. Values are used to make decisions about right and wrong.
A company needs both or it will eventually collapse no matter how many smart people it has. I feel so strongly about this that I would like to reflect on the corporate culture that KKR has built over nearly 50 years in the next several installments.
We don't remember if George or I said it first, but when people ask about KKR and what the people are like or what it is like to work here, we often refer to one or more of our sayings such as, "People do business with people they like and trust." It's very basic, but it is probably the most apt phrase that speaks both to our culture and our values.
Our business really runs on trust. People don't want to work with you, let alone entrust you with their capital, if they can't trust you will do what you say -- or that you will try as hard as you can to live up to that. And they also won't want to work with you if they don't "like" and want to keep interacting with you. Without being liked and trusted by people, you cannot do business.
"What is the best deal you ever did?" I'm often asked this question. I always answer: "It's a company that went bankrupt." People who have assumed it is a highly profitable deal are often surprised.
In 1987, we acquired Walter Industries, an industrial conglomerate that was forced into Chapter 11 bankruptcy proceedings two years later due to asbestos litigation.
It was a good company pulled into a mess of litigation. Without getting too deep into the legal machinations, the technical facts were very much on our side, but it was inevitable that there would be appeals or new lawsuits.
One day when we were back in the bankruptcy court, the bankruptcy judge said, "I had a dream last night." OK, I thought ... he had a dream last night.
He said, "I dreamt this case was settled. I know. You guys are wondering what I'm talking about. You won in my court, because I gave that decision, and it was even strongly upheld in the appeals court, and I have no doubt you will win when it gets to the Supreme Court. No doubt whatsoever."
So, he said, "I'd like to see Mr. Walter and Mr. Kravis in my chambers. Then I want to see the bondholder representative. Then I want to see the representative of the asbestos plaintiffs."
To us, he said, "Look, you're going to have to settle this. That is the only way it's going to work because somebody could file the same suit again and you're just going to start all over. You're in the right, a hundred percent in the right! I'd recommend you go ahead and settle."
So, we ended up paying over $300 million to plaintiffs and bondholders for a case that never should have come to the court. And we only had $117 million of equity invested, as KKR, in Walter. But I was determined, as was George, to get our equity holders their money back.
After settling, we helped the company get back on solid footing, and we got our fund investors their money back, and a small profit. It took us almost 17 years. It could have been very easy. We could have said, "Look, here are the keys. Forget it. Why are we spending all this time trying to do this?"
That tells you everything you need to know about KKR and what we aimed to build. If you've given us money, we're going to do everything we can to honor that. Not only get your money back but give you a profit. And we could have just given up and moved on.
Investors had entrusted their money to us. As long as there was a chance for the money to come back to them, we had to try to honor our word and do our best to the end. I am not proud of the overall financial outcome of that transaction, but I am proud that we did everything we could for our fund investors. We won't always get everything right but I hope we are a place that always honors our commitments to the best of our abilities.
Building trust takes a long time.
From like and trust, one of our other cultural tenets was born: "Our word is our bond." To maintain trust, one must keep his or her word.
"I'm surprised." About 10 years ago, I received a call from the chief executive officer of a major bank. He complained that one of our employees had "retraded" a deal meaning the employee had changed the terms of a loan to a company we were investing in -- a deal we had already struck with the bank -- in favor of KKR.
I called the employee and asked if anything had changed from the agreement such that we had to change the terms. "No," the employee said. "Then you should not have tried to change the terms because that is not what we do at KKR," I said. "What you agreed to is what we're going to do. Period," I told him. I also apologized to the bank's CEO.
There is something that eats away at like and trust. It is arrogance. Behind my seat, there's a framed saying, "Arrogance kills." I have been saying it for a long time, and my assistant had heard me say it so many times that one Christmas she had a sign made and framed it for me. It became one of the early sayings that we used to describe our firm and culture. There's no reason for anyone to be arrogant. And I have the sign behind my desk as a reminder.