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So, welcome, George, to the GSB, and thanks for coming. We're happy to have you.
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I'm going to start by taking us back to the 70s.
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It's a little bit of a theme around here today.
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>> Speaker 2: Looks like a good theme.
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>> Speaker 1: [LAUGH] >> In 1976, you and your cousin Henry Kravis decided to leave your cushy banking jobs at Bear Stearns and start a new firm in an industry that didn't even really exist.
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So, what were you thinking?
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>> Speaker 2: Well, it seemed like a good idea at the time.
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The facts of people borrowing money to buy companies is not new and original.
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In fact, one of the largest buyouts, especially if you projected out today's value, was the buyout and the merger that created US Steel which JP Morgan did back in, I think it's 1906.
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And that transaction back there was, I think about a billion one in value, which was, quite frankly was 7% of the total US GNP at the time.
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And it was financed with some gold backed bonds, some convertible securities.
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JP Morgan and his buddies all bought some penny stock and then they sold it to the market at dollars.
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That's where the term watered stock came in because that's what they did.
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And eventually, there were laws against it.
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So, what we were doing was not new, the new part of it was really making management partners in what we did.
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And while I was at Bear Stearns, quite frankly, when I was at law school at Iowa, and we had done probably 12 or 15 management buyouts at Bear Stearns.
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The firm at the time really didn't want to [COUGH] invest capital in that area, so Henry, Jerry, and I borrowed the money for the equity to do it.
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Now, the deals were quite a bit smaller, and at the time very, very difficult to put together.
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Finally, we had built up enough credibility with some banks, some insurance companies, and some wealthy families that in 1975 we were [COUGH] able to buy a collection of nine businesses from Rockwell.
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And we paid $105 million for it.
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We were able to get that transaction done, it took about a year to do it.
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We called everybody that we knew and we needed everybody we knew to put up the money to do it.
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And that really convinced us that, hey, we could do this on our own.
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So we didn't just wake up one day and say, hey, this is a good idea, let's go do it.
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We had the training, the experience, we had some experience of some deals not working out.
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Quite frankly, you learn more from those than you do with your successes.
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And we had a reputation of fair dealing and integrity that we had established with some key financial institutions in order to do it.
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And then the final thing is, in 1974 and 1975 the US had gone through a tough economic period of time.
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It was really after the oil shocks and the oil embargo of 1973.
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Wage price controls were put on at some point in time.
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So we felt we were coming out of a recession into a reasonable period of time.
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And it just seemed like a good thing to do.
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Bear Stearns was going this way, they were growing.
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They wanted to do more agency business.
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They really didn't like investing in businesses that took five, seven, ten years to mature and to develop in something.
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I could understand that, Bear Stearns at the time by the way had $30 million of capital in 1976.
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Just as a point of reference, Morgan Stanley had 8 million and Goldman Sachs had 30.
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So you can see in the last 32 years how world has certainly changed. So that's what we did.
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>> Speaker 1: What concerns or fears did you have at the time about taking that step?
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>> Speaker 2: Well, that we wouldn't be successful and I have to go, I had wife and three kids, that we'd have to go live with my mother in law.
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>> Speaker 2: [LAUGH] >> But all kidding aside, and you all here are privileged to get the kind of education that you're getting here and obviously, to have the education you did before you came here.
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So I remember specifically saying to myself, what's my downside if this doesn't work?
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And always came back to the fact, look, I had a good education, I have a good education, and whatever we're going to do, we're going to keep our reputation and our integrity in shape.
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And you'll find, as you go out in the world, and many of you already know this, that the system we have in this country does not penalize failures, as long as you fail honorably.
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The system will give you a second and a third and a fourth chance if you're an entrepreneur and you take some risk, as long as you do it in the right way.
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And that truly was what I figured, that was my downside.
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And I also knew that if I didn't do this I would always look back and say I missed an opportunity and I had a very, very, very, very supportive wife. So, that good.
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>> Speaker 1: Talk a little bit about your partnership with Henry.
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How has that worked and how has it influenced the leadership or culture at KKR?
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And what advice would you give to a GSB student today thinking about picking a potential business partner.
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>> Speaker 2: Well, Henry and I are first cousins, our families were close [COUGH] growing up.
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I think the last argument we had we were about nine years old, and I wanted to ride Henry's new bike and he didn't want me to, so I shoved him through a window.
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>> Speaker 2: [LAUGH] >> And ever since then, we decided we better get along.
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We also had two older siblings, and we figured that if we stuck together, we could combat whatever bad things our older siblings were going to do to us.
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So it's a unique relationship.
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I don't know how many there are like this in life, more or less business.
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My father told me a long time ago, if you could really go through life and find one really, really good friend.
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And by that I mean somebody who's got your back and who's as much interested in your welfare being as he is in his own, you're a very lucky person.
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And things just sort of come naturally.
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I think that we've got a different style of how we do things, but our sense of values and what we want to accomplish, I think are pretty symbiotic.
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I don't know what advice to give you all in terms of finding the ideal partner, but you need to make sure that, one, you can trust them, and two, that you share Share the same value system.
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And I don't mean that about making money, I mean the same value systems about what's important to you in life and what you are as a person.
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I think that's essential to be able to do that.
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>> Speaker 2: That sounds like good advice.
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So let's talk a little bit about management.
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You've had the unique opportunity to see how lots of different businesses are managed.
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And I know you've come across a lot of undermanaged businesses throughout your career.
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Based on your experience, what are a few common mistakes that you see managers making or pitfalls that they run into?
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>> Speaker 1: Well, so many times, especially in larger companies, people get consumed with the idea of managing a corporation as opposed to achieving objectives.
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Anytime you have more than eight people in a meeting and it lasts more than an hour, it's not going to be very productive.
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Anytime you have three or four people in meetings and it lasts more than two hours, it's probably not going to be very productive.
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And so much business today is done by meetings and studies and all the stuff that goes on, politics that goes on in big companies that you really don't pay attention to what you should be paying attention on, which is to make the organization that you're responsible for run better.
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Obviously, the bigger the companies are, the more you have to delegate and rely on other people to achieve those results.
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And I think Peter Drucker said it pretty well, words I live by.
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And that is, the goal of, I would use the term leaders, not management is to create an organization where people can do their best work and be helped when they need help and not be interfered with when they don't.
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So basically if you give people responsibility, which we do, and rewards for that by making them owners of the businesses they're involved in, and you hold them accountable in as much of a non-political way as you can, you'll get the best you can out of the organization.
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Many times people don't think like owners, I'll give you one quick example.
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Back in the early 80s we bought a company called Union Texas Petroleum, which was at the time the largest independent oil and gas company in the US.
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We did it jointly with Allied Signal.
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They owned half, we owned half.
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We gave 10% basically in options to the management.
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And back in the 80s, that period of time oil went to $30 a barrel, which was way over the projections that we had used.
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And we were making money hand over foot.
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And then six months later it went to eight and we were losing a lot of money.
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And I remember going to a board meeting, we were going to discuss the budget, and the company had spent $600 million the year before.
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And they came in with a budget, same number, I said, well, this doesn't make any sense.
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Oil prices are down, why do we have to spend the same money?
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And they went through a whole litany of reasons, I mean, that you really couldn't fathom.
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So basically I said, look, if you as a management are willing to invest $60 million in this new budget, well, prove it.
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They said we don't have it, I said, yes, you do, you own 10% of the company.
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$600 million budget, 10%.
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$60 million is your own money.
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And the light went on, and they came back with a budget substantially lower.
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They found the same amount of oil.
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>> [LAUGH] >> Speaker 1: And I think a lot of that's human nature.
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I mean, to get people to think like owners of something as opposed to renters.
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If you own a house, you take better care of it than when you rent it.
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It's not real complicated.
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And you'd be surprised what's out there in the corporate world, where people don't necessarily think the same way.
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>> Speaker 2: [COUGH] Speaking of mistakes, what's a big mistake that you've made and what did you learn from it?
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>> Speaker 1: Well, we don't have enough time here- >> [LAUGH] >> In terms of- >> Just one. >> In terms of mistakes.
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But I don't know, I mean, you obviously make mistakes about business judgment, whether or not you should have made the investment or not. I mean, that's life.
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You're going to be in the real world.
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You're going to make mistakes, even with the best information.
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I'd say probably the biggest recurring mistake that we have a tendency to make, and this is in business now, is when our gut tells us that the management's really not doing the job they ought to be doing.
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There's a tendency to give them a second or third chance before you make some changes.
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And I think we've learned over time that if it's not going to work, you're much better off going in very quickly and making changes up front organizations, when there's a change of control, expect, [COUGH] excuse me, expect change.
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You should go do that and do it very, very quickly.
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So from a business standpoint, I think certainly one, you could probably, again, with hindsight, question whether or not we should have bought RJR, not so much because of how the economic returns work.
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Because actually, with all we went through, that wasn't so bad.
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But really what it did in terms of turning the spotlight on our firm from 1988 till this morning, or whatever it is, that really wasn't a very pleasant thing to do.
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It wasn't a pleasant thing to have to go to Washington to defend yourself before some of the brighter lights that we have in our Congress.
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>> [LAUGH] >> Speaker 1: So, I guess with hindsight, certainly wouldn't have done it again, not because of the dollars and cents, but because of everything else that went with it.
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I think it distracted our firm for a long period of time.
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I know it did because we faced an awful lot of issues that we had to do, including resetting a bunch of bonds.
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And if we hadn't reset them, there had been a number of banks that would have gone bankrupt.
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It's somewhat deja vu here.
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So it was a huge responsibility to have undertaken that when we exited the company, they were investment grade again, and a lot of the issues that we fought through had been accomplished.
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But I prefer not to have that experience again.
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>> Speaker 2: You talked about changing out management, and you've probably hired and fired a lot of CEOs and managers throughout your career.
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Are there any particular CEOs or leaders that you found especially inspiring or effective?
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And what was it about them that made them stand out?
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>> Speaker 1: Well, the first, I don't know if inspiring or not, but the first.
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The first company we bought when we left Bear Stearns was a company called AJ Industries, which was Alaska Juneau Gold Mining Company which was the second oldest company on the New York Stock Exchange.
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And it had transformed Barnard Baruch had been a big shareholder and it had a huge history, but it was no longer really a gold mining company.
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They'd become a conglomerate and they had aerospace business, military business, an automotive business, 83 lawsuits, a land business and a lot of other stuff.
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And Ray o' Keefe, who was the CEO that was brought into it, was really a unique individual.
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I mean, I think he had no balance in his life, but he basically worked 18 hours a day and he got this sorted out, and at the end of period time, we had no lawsuits.
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We had gotten rid of 30 some odd money losing divisions, we basically had four left.
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And we were heading into a recession back in the early 80s, which by the way, dwarfs anything that you're reading about in the newspapers.
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1980, 1981 in the US we had more people unemployed than we had during the Great Depression, we had a prime rate of 21%.
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We had a long bond of 14%, so things were tough then and there's Ray with four businesses right in the teeth of all this bad stuff going on.
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And he had a little saying on his desk, it basically, I've never forgotten, it basically says when the wind don't blow, row.
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>> [LAUGH] >> Speaker 1: And that's what he did, and the outcome was financially fantastic for all of us, first transaction we did and it was nice to get off to a good start there.
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So, I think and I can give you lots of other examples, but basically people that lead by example, that don't ask people to do things they wouldn't be willing to do themselves, I mean, there's Ray in the office, in the factories, talking to customers.
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He's the guy that was doing it, so how could you, if you work for him, how could you not want to do that too, so I'd say that would be probably a good example.
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>> Speaker 2: Well, you mentioned it, so let's talk about balance, I worked a lot of hours when I was at KKR.
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>> [LAUGH] >> Having these memories of sleeping in the office on more than one occasion.
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Given that, how do you think about work life balance, especially in an industry as demanding as private equity?
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>> Speaker 1: Well, having you working hard and sleeping at the office, makes my life easier.
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>> [APPLAUSE] >> And if you're not going to do it now, when are you going to ever do it?
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But put it seriously look, I think that I've been blessed in life because I found something at a very early age that I love to do.
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I mean, I'm very passionate about, the work, very passionate about the firm, certainly one of the fathers of it.
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I take a lot of pride in what we do and I think when you and I say blessed because I wish that for all of you that you find something in your life, regardless of what it is that you love to do.
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And if you do that, then even going through difficult times, which you will, will become easier because you'll look at these as challenges and ways that you know you're going to get over this and ways are going to make you stronger if you have something that you're really passionate about.
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So I start with that, I've always had, attribute this to my mother, a very strong sense of what's important in life, which is obviously your family and your family's health.
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And I focused in my life really on my family and my work, which in both cases were passions of what I love to do.
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So it's come pretty easy for me with respect to that, I mean, I've said this before, I was married for almost 36 years before my wife died.
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I've worked since I was 20 years old doing what I'm doing now and there was never a day that I didn't want to go to work.
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No matter what was life was like, there was never a day I didn't want to go home.
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So again, I think, find the right mate in your life, somebody that shares the same values that you do, and find something that you love to do, and you'll work out the balance.
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>> Speaker 2: So I think this is going to be our last question, and it's about some career advice for all of us.
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I'm trying to find a job right now, and I know that I would benefit and probably my classmates would for some advice about what we should be thinking about when we're deciding where and how to start our careers.
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>> Speaker 1: Well, first of all, have confidence in yourself, as I said earlier, you got what 99% of the people in the world don't have, and that's a good education.
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And believe me, this will come back to serve you, many times over in your life in lots of ways that you don't expect this will be there.
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Secondly, you don't have to make, you're not in Japan like Billy was for a while.
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You don't have to make a career decision for the next 50 years of your life, it's okay to go out and have a bunch of different jobs and doing what you're doing.
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So again, I would just go back to something where you don't overthink it.
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You go find a job that you really feel that you could contribute in and you could learn from sort of as a starter job out of business school and see where that takes you.
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And you'll meet lots of people along the way doors will open for you along the way.
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The experience you gain in one set of jobs will help you in something else that you're going to do, work hard and work with integrity all the time.
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And opportunities will be there plenty for you but the best advice I give you is don't stress out too much about it and don't try to overthink it.
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And if you need to change jobs in two or three years, you haven't committed a sin change jobs.
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>> Speaker 2: Well, I think that's enough for me, we'll turn it over to questions from the audience but thanks again for your candor and for your time and being here.
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>> Speaker 1: [APPLAUSE] >> Speaker 2: Okay. >> Speaker 1: So, Mr.
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Roberts, it's a privilege to see you here today, both as the father of KKR and the father of an industry that many of us come from and are returning to.
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You'll be pleased to know that something like four to ten of the people in this business school belong to private equity clubs.
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So you've inspired a generation of people to go and invest.
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In the short term, given the climate, where would you put your money?
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And in the long term, as you look through the fogginess of the madness right now, where do you see private equity going and KKR within that?
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>> Speaker 2: Well, [COUGH] I'm not a registered investment advisor, so.
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>> [LAUGH] >> Speaker 3: In terms of where you would invest today, I would really look at the debt markets.
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I mean, they're the ones that are the most extreme.
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Usually, what's the baseball term?
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If you want to get a hit where they ain't.
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So everybody's running away from things.
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You basically have had government agencies traded 300 over treasuries.
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You've got fear and panic in the credit markets today.
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So that's what I would go do.
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Probably the second area I would look at would be to go buy some mortgages or some homes from some banks in areas that you think at some point in time will recover and people won't want to live in.
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I think you'll do really well there.
25:44
[COUGH] In terms of the environment today, people lose sight of what's really our business.
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Our business is really making investments in companies and making them better.
25:58
So that's what our job has to be most people focus on. Well, can you do deals? Sure, we can.
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You can do them today, if you want to pay their cost of capital to do it.
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The markets aren't totally shut.
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We've done two deals, one in Turkey and one in the UK in the last six months.
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So if for us, what we need to do is continue to focus on making the investments that we have better, if we do that, we'll be able to continue to attract capital.
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And by that I mean not just financial capital, I mean human capital.
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And we'll be able to grow our business around the world, where we're basically set up today.
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So it's keeping your head down, keeping focused on what's important today, like yesterday and the year before.
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The most important thing we have is our investments.
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That's where we have our money, that's where the people that have trusted us have their money.
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We've got to make that work.
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If you make that work, lots of other good things happen and you can grow your business.
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But this form of investment, whether you call it private equity or buyouts or whatever it is, is not going away every ten or 15 years.
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And dean knows this better than I do.
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Banks figure out a new way to lose money.
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>> Speaker 2: [LAUGH] >> Not that they don't have enough existing ways, but they figure out new ways.
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And we'll go through this period, the banks will deleverage their balance sheets.
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There's going to be a lot of losses, there's going to be a lot of angst with this.
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There'll be a lot of layoffs of financial institutions.
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And then they'll wake up one day and say, well, we got to make money again.
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And they make money by lending and spread. So life will go on.
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>> Speaker 4: Can you hear me?
27:59
Okay, you mentioned the 81 recession and throughout your career, I think you've been through several cycles.
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And how do you see the current situation, probably heading into a significant recession and how do you see your companies being placed to actually weather the storm?
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>> Speaker 3: Could you give me the last part again, please?
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>> Speaker 4: Okay, basically, how do you see the portfolio company that you're currently owning weather through the storm and which kind of plans do you have or you see a massive challenge or not?
28:29
>> Speaker 3: As I understand, the question is how do we see KKR weathering this storm and what are our plans? Portfolio companies?
28:37
Okay, well, [COUGH] we have 44 investments today.
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If you aggregated them, sales are $185 billion and they employ 880,000 people.
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So we have a huge responsibility to all the constituencies that are involved in that.
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And from the day before we make an investment, we try to figure out what we're going to do to make that business better.
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And we spend a lot of time in our decision making process.
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That's why Selena sleeps on the couch when she worked for us.
29:20
>> [LAUGH] >> And trying to figure out what are we going to do when the dog catches the bus?
29:29
And then we have some very good processes in place to make sure that what we said we were going to do is going to get done.
29:36
We have an operations group within KKR.
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That's gets into all the details of the business in terms of how they can be improved.
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Many of the investments we've made, we actually had our team in and working in the company prior to actually owning it.
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So the focus from day one from the time you say, well, this is a good idea to actually make the investment, you have to live and breathe operational improvement in those businesses.
30:09
So it has to be ingrained in the culture of the people that work at KKR and everybody that's there to help you.
30:15
That's not to say you don't make mistakes or there are macro things that work today in the world, which they obviously are, that make that difficult.
30:24
But you have to stay after it every day and you have to follow up.
30:27
You have to hold your people accountable for doing what they say and have to be all over.
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>> Speaker 5: There has been a lot of emerging market fundraising activity recently.
30:44
Given the environment, given the financial markets the way they are currently, how do you see this trend panning out, particularly in light of flight to safety kind of argument that a lot of experts are coming out with?
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And where do you see the balance between chasing the returns versus flight to safety?
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>> Speaker 3: What was the last part again?
31:12
>> Speaker 5: Where do you see the balance between chasing the returns in emerging markets versus flight to safety?
31:18
>> Speaker 3: Okay, well, [COUGH] in the emerging markets, we're sort of there.
31:28
In China, we've got investments in China, we've got investments in India.
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So we're obviously looking at that.
31:36
But in terms of where you see values today, quite frankly, the stock market has not come down enough to really reflect what you would have to pay to buy something.
31:52
So we're sitting there in a very nice.
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Position with an awful lot of capital and in terms of in times of turmoil that we're in, it's great to be liquid.
32:08
It's great to have capital in this period of time.
32:13
I have no doubt that we'll be able to find some productive places to put this.
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I can't tell you what month or when or what it's going to be.
32:23
But we've been doing this long enough to know that there are cycles that take place.
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I've seen this happen 5 times now in my career.
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And the black swan always shows up sometime, and it always shows up differently than you would think, and then it goes away differently than you're going to think.
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These are periods of time where there'll be different kinds of opportunities than going out and buying 100% of a business.
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It could be taking a minority stake, which we did in Lake Mesa in the business.
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It could be creating a pool of capital to go buy debt, which we've done.
33:05
So you need to be able to go with the flow.
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So to speak, and look and see where the opportunities are when you have situations like this.
33:16
But you guys will look back in three or four years from now and you'll view this period of time as.
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A great opportunity to have made some money.
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If you pick the right bet. >> Speaker 3: Go ahead.
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>> Speaker 4: You spoke briefly about the RJR deal and how maybe that had brought a little more attention to the industry than you would have liked.
33:44
Again, you're still seeing maybe expensive birthday parties and other things bringing a little more attention than you may like to the industry.
33:52
What do you think has gone wrong and what can private equity do to show that they really are a net creator of jobs and not just a bunch of liquidators, essentially?
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>> Speaker 2: Well, all you got to do is to see what our records are, is to look at them. They're there. Ours have been audited. The information's there.
34:17
But that's not interesting for the press to write about, okay?
34:23
And look, really what's happened is and it's not just private equity, but there's been a lot of money made in the last 10 years in the United States.
34:35
And you can individualize that.
34:39
You don't see this Warren Buffet get the same criticism that Stevie Schwarzman gets.
34:47
But,, if people want to go pick Warren apart believe me, they could find a lot of warrants, but you don't see that.
34:58
So when the press can individualize this they do it.
35:04
It happened with Mike Milken. This is back in the 80s.
35:08
Mike Milken made $500 million one year.
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If he had been in a corporation and his stock had gone up, he had stock taken stock instead of cash, nobody would have done it.
35:20
So don't forget that the press needs to sell newspapers.
35:24
They need to get sound bites.
35:25
They need to do this and there are not a lot of people that, are too sympathetic to us.
35:35
You've got union activism here with respect to it, that have their own goals and objectives.
35:43
So you've got all these forces.
35:45
We've seen it, I've seen it happen now three times.
35:49
Certainly happened in the RJR deal days.
35:54
I can remember going down and having breakfast with the whole House Ways Means Committee.
36:01
This was the day after the savings loan bill got passed that bailed out all the SNLs.
36:06
So I figured nobody's going to be down there to listen to what we have to say.
36:11
But they all showed up, and I can remember one particular senator who's still a senator sitting next to me, said,, I don't care what you say.
36:22
You're never going to convince me and I said, well, why are you here?
36:30
And he said, well, at the time, Henry was married to a lady that designed clothes.
36:36
So my wife told me to come so that I could talk to Mr Kravis about his wife's latest designs, like Henry knew a lot about.
36:49
So you're always going to have this.
36:51
You have a populist movement now in the Congress.
36:58
And it's as hard as it is to read about stuff that's not right, eventually you get a thicker skin and you just got to let it roll off of you.
37:09
And there's some people that,, in the middle of a firefight, stick their.
37:14
Pop their head up and say or do some stupid things that add just to the adolescence.
37:25
>> Speaker 5: I noticed that you're carrying the book Leadership Secrets of Attila the Hun, and I don't think that's in the core curriculum right now.
37:32
So I'm just curious what selections you found most interesting and would want to convey to students.
37:39
>> Speaker 2: Well, I'm glad you asked.
37:46
Now, many of you don't know much about Attila the Hun, nor should you, but he was a unique character.
37:54
He was born in 400 AD thereabouts.
37:58
He was the son of a king of the Huns.
38:02
He basically united a nomadic group of people, which now is Eastern Europe.
38:11
And he was a tough guy, but again, I don't know whether he wrote some of the things in here, but there's some particular sayings that he had, I think, that pertain to leadership, which I thought maybe.
38:27
Maybe I'd just share with you a little bit.
38:33
Above all traits, one who desires to lead must possess an intrinsic desire to achieve substantial personal recognition and be willing to earn it.
38:42
In all fairness, you must have resilience to overcome personal misfortune, discouragement, rejection and disappointment.
38:53
You must have the courage, creativity and stamina to focus on accomplishing your responsibilities through the directed, delegated efforts of subordinates.
39:04
You must recognize and accept that your greatness will be made possible through the extremes of your personality, the very extremes that sometimes make the campfire sadder and legendary stories.
39:18
You must remember that success in your office will depend largely upon your sustained willingness to work hard.
39:25
Sweat rules over inspiration.
39:28
You must be committed to preserve, even in the face of opposition and challenge.
39:35
You must have a passion to succeed, a passion that drives you to prepare yourself and your Huns to excel.
39:45
You must be willing to remain your natural self, not take on an aura of false pride in your countenance.
39:55
So Attila had some pretty cool things to say that I think applied to everyone's everyday life.
40:04
And every once in a while I pick it up and read it and always find something a little bit different say about it.
40:12
Now he died, he had many, many wives and I think his last wife poisoned him because- >> [LAUGH] >> Speaker 2: Because he had killed her father. So don't do everything.
40:26
>> [LAUGH] >> Speaker 3: I was wondering if you could talk about succession planning and how you make the tough decisions around sharing economics as the firm grows.
40:42
>> Speaker 1: Well, in terms of succession planning, we think about it all the time, but voluntarily have no plans to leave in the foreseeable future.
40:53
But part of your job, if you're going to be a leader in an organization is to make sure that you have a good succession plan.
41:06
And my hopes are that the people that take over after Henry and I there do a better job than we've done.
41:12
I mean, I want to make sure that we have the quality of the people in the firm with those skills that can do that.
41:22
In terms of how we share the economics of the firm, I think this has sort of been unique to KKR.
41:30
Everybody [COUGH] that's a full time employee in the firm has an ownership in everything we do.
41:37
So when you go to our office, the lady that greets you at the door is an owner in everything that we do.
41:46
We've shared that ownership deeply throughout the firm.
41:50
Everybody participates, regardless of whether they're involved in a situation or not.
41:57
Basically, the folks that we have in China, or Japan, or Australia, or Europe or the US, we all participate equally in everything that gets done throughout the firm.
42:10
So when you take that out of the organization and without people having to fight every year over what they think they should be reasonably paid.
42:25
You create an environment where people communicate a little bit better and you've taken a lot of the politics out of it.
42:34
So if you take that and you make sure that you communicate with people two or three times a year, and if they have some issues and ways that they need to improve, maybe even more so.
42:46
So you get people feedback, you get the best out of your people.
42:54
I think we probably have lost nine people since we started KKR.
43:03
Only one really went into the buyout business and I don't know what he's doing now.
43:11
People tend to want to stay and make a career in what we do.
43:15
Some people have wanted to do other things.
43:17
Ned and Scott left to start a small hedge fund, basically.
43:21
We've had guys leave to go start nonprofits.
43:27
And most importantly, we've had a thousand when we go out and try to hire people.
43:33
So we must be doing something right.
43:36
So again, I think if you keep it simple, you treat people fairly and you communicate with them and you take uncertainty out of their lives, provided they perform, you'll get the best out of everyone.
43:55
[COUGH] >> Speaker 4: So you've obviously created this entity which has been hugely successful, been very good at doing that.
44:04
Just wondering, how do you think about spending for the rest of your time?
44:09
What is your vision for the rest of your life?
44:15
>> Speaker 5: I think it's what do you do besides work.
44:17
>> Speaker 1: What- >> [LAUGH] >> Speaker 5: More or less?
44:24
>> Speaker 2: Well, I try to stay fit.
44:29
I start around 5:30 in the morning, go do that for about an hour.
44:37
I work, I like to practice my golf.
44:44
I have four grandchildren and another one on the way.
44:48
They all, thank goodness, all my children live in the area, so I like to spend time with them. I like to read. Enjoy my friends.
45:03
>> [LAUGH] >> Speaker 6: I know you started REDF Venture Philanthropy firm.
45:13
And would love to hear a little bit about your vision for Venture Philanthropy in whether that will be the wave of the future in the nonprofit industry.
45:23
>> Speaker 2: Okay, well, my wife and I started that when we were fortunate enough to have the wherewithal to give back.
45:37
One of the things we wanted to do was to do something if we didn't do it, wouldn't get done.
45:46
Big institutions are going to raise money whether you help them or not, quite frankly.
45:54
So we looked for something to do and we basically focused on something that was not a success.
46:00
But the first thing we focused on was trying to create jobs for homelessness.
46:07
And we narrowed it down on women with children, the homeless women with kids, as a group that we thought we should really focus on.
46:20
And we tried to do that through jobs or jobs training and in many cases helping them create a business.
46:29
And that was not successful.
46:34
There are lots of reasons for it, but in many cases the women that were homeless were such because it came from abused relationships.
46:44
And there was a number of times they would keep going back in that same environment before they finally got out of it.
46:52
So we weren't successful there.
46:54
So then we spent six months with a guy named Jed Emerson.
47:01
And said, okay, what is it that that we've got some skills with that could apply to creating jobs for people that have either been in jail or the lowest 1% of the unemployed group in the Bay Area?
47:23
And what we found, there were probably 10 or 12 really good organizations within the Bay Area.
47:32
Rubicon Ventures, Yuma Ventures, you go through the list, that actually employed folks that were at that level in society.
47:47
So we said, well, why don't we create a venture business where we can take some money and some expertise Expertise of people and we can help those businesses grow.
48:00
And if they can grow, they can provide more jobs and training for people and so we did.
48:06
We started financing about eight of those and we built up a staff.
48:12
Jed, who was probably the most left wing social worker in the whole world, actually went back to business school in Santa Clara.
48:21
And he's become a real capitalist now.
48:24
>> [LAUGH] >> So he figured if he was going to do this, he better learn something about it and he did.
48:29
And we built up a team to basically go in and help organizations to do this.
48:35
And then we said, well, how do we know that what we're really spending is making a difference?
48:44
Are we really spending our money wisely?
48:46
Because funds aren't unlimited and we developed a metric system and tracking system of what to do there.
48:57
And we found by all measurements that many of these organizations were doing good things for people that at a reduced financial cost than if they did.
49:13
I mean, you compare it to going back to jail, you compare it to drug situations, you compare it to where their wages were, could they afford to actually rent an apartment?
49:24
Did they stay out of trouble?
49:27
And so we tried to develop the metrics for that.
49:30
And I think that's probably the heart of what's come out of all this. So today Jed's moved on.
49:40
We have a lady named Carla Javits who runs that.
49:44
We also said, well, we can't just keep supporting the same organizations over and over again because they need to stand on their own.
49:51
So let's go find some other groups that we can help, which Carla's done.
49:56
And the goal is over the next two years is to create another 3,000 jobs for people that wouldn't have had them.
50:05
Whether we can do that, I don't know.
50:07
But the whole purpose is really to take a very underserved population of people and be able to get them into some more permanent employment.
50:19
And a lot of the groups I go through, whether it be Rubicon or Yuma or whatever it is, they're really just training grounds for people then to go out and get a different job.
50:29
So that was the theory behind it.
50:32
I think it's 12 years now that we've been going at it.
50:37
We've expanded the board.
50:40
The other thing I said is, if what we're doing is so wonderful, then we ought to stand the market test and let's go out not for profit world and see if we can raise money from other people that really believe in what we're doing.
50:53
And EULA foundation has been very helpful with that, as Rockefeller and others.
50:57
So it's just this slice of what we're trying to do and we're trying to keep it local.
51:08
You can manage an organization like that nationally but it's amazing what you can do with just some time and effort.
51:19
>> Speaker 2: Well, unfortunately, George, I think we're out of time now.
51:22
But I just wanted to thank you again for coming and for sharing all of your insights and experiences.
51:28
And hopefully, we'll see you back at the GSB again soon. >> Speaker 1: Thank you. >> Speaker 1: [APPLAUSE]