It's time now for a Wall Street week daily segment, and the host of Wall
Street Week David Westin joins us now. Who have you been talking to has been a
big week? Well, it has been a great day.
We had Brian Moynihan, but one of the things I found fascinating was coming
from KKR Pete Stavros, who's the co head of global private equity there.
And he has been implementing what we call stakeholder capitalism.
Remove that from Business Roundtable with the letter from Jamie Diamond Ring.
Yes. So I don't know what you think of that
as associated with private equity, but he's been doing it with some great
results. So we talked to him.
We started by asking exactly what is this stakeholder capitalism in his mind,
stakeholder capitalism. For me is finding a way to not only
deliver great outcomes for shareholders, but doing right by workers and the
climate. And I have to say, there's tons of
brilliant people working on climate issues.
Obviously, it's critical. There's not enough people focused on
labor. And so that's really my passion.
A lot of it has to do with how I grew up.
My dad was a construction worker for 40 years, earned an hourly wage and really
taught my sister and I around the dinner table what it's like being an hourly
worker. You know, you don't have a voice.
Nobody listens to you. There's no incentive alignment and you
have no stake in the outcome. So that ignited a passion in me from a
very early age to think about these labor issues.
And then when I became an investor, you know, wow, what an opportunity, because
you're responsible for all of these companies with all of these many
employees. And if you can cascade change through a
variety of a number of companies, which private equity is well suited to do, you
can impact, you know, thousands, if not hundreds of thousands of people.
So that sounds fine. But you'll forgive me if many of us who
don't understand private equity the way you do don't associate that approach
with private equity. We tend to think you go and you buy the
company you strip out cause you leverage it up, you sell it.
Yeah, well, but private equity is not perfect.
Capitalism's not not perfect. But this is a superior way of operating
a company in every respect. You can align incentives not just of the
senior team, but of all of the employees, help them create wealth for
themselves and create a better culture. I mean, if you can figure out a way and
we think we're on the right path here to have employees less likely to quit their
jobs, more engaged on the job, you've got a better opportunity to deliver on
value creation initiatives, which is the core of private, but the core of private
equity is. Transformation, take a good business,
make it great. And you're not going to be as effective
as you could be in that effort. If you don't have everyone aligned.
So that sounds great. Also sounds fairly simple, is it when
you actually do it? Because often the implementation is
where the tricky part. Yes, it's incredibly difficult.
So if this were easy, this would have been done 50 years ago.
And there's many challenges starting with.
So let me just define the program. The program that we've been working
around, around employee ownership is about much more than handing out stock.
If it's just handing out stock. Then we're in a compensation discussion,
which is important, but that's not going to change cultures.
As my friend Doug Seidman always says, you can triple people's compensation,
not get ownership behaviors, which I think is very true.
So we are taking ownership as the foundation, as an ethos.
And then on top of that, we are building a robust employee engagement effort,
teaching financial literacy, opening up the business plan to all employees,
financial information, sharing financials with all employees, and
teaching basic corporate finance so they can understand the information being
shared with them. All of this stuff, taken together, is
what can move a culture. And to your point, it's hard, you know,
day one. People say, I don't believe it.
I don't believe I'm gonna have a voice in my work.
I don't believe this DAX ever gonna be worth anything.
To your point, I've read about private equity.
You know, I'll believe it when I see it. Another challenge is CEOs are
overwhelmed. A lot of CEOs will say to me, OK, let me
just get this straight. You want me to double my profits?
You want the financials by the 12th of the month.
The metrics package by the 15th of the month.
You want me to decarbonise add diversity to the board, change the way I recruit.
So we add diversity deep into the organization.
And now you want teach financial literacy, drive employee engagement,
make everyone an owner in the business. Come on, Pete.
What are the real priorities? And so CEOs are overwhelmed to unlock is
in this. This enables all of it is for CEOs to
understand if you do these last four things right.
It's going to make everything else easier.
So, no, it's not easy, but it's worth the effort.
Does it also hurt their cost structure when you start talking about sharing and
copying things like that? Does that actually add to their cost
structure or do you offset in the compensation and the salary and
benefits? Well, one important thing to understand
is this is never a trade for wages and benefits.
So we are. This is not about pushing risk onto
workers. So we're not asking workers.
Here's some stock. Can we take some company benefits back?
It's always incremental. It's always free.
We're not asking workers to invest out of pocket.
So to your question, is it.
It's not an incremental fixed cost. It's it's sharing in upside.
So it's there's no payout if there's no value creation.
And in our experience, this pays for itself when it's done well.
And I don't want to make it sound like it's easy when you're patient and you
put years of effort into this. This pays for itself many times over.
Let me give an example. So public company that we bought in 2013
was called Gardner Denver. So we took it private.
In 2013, there were six thousand employees at the company out of six
thousand people. Eighty six people had ownership, which
is what we see. Typically, it's 1 to 5 percent.
They had never done an employee engagement survey ever.
Massively high quit rates when we started measuring engagement, 20 percent
was the way we measured in the 20th percentile, according to Gallup.
We brought in a new leadership team, totally changed the way the company ran.
We shared openly the business plan, financials, we made huge improvements
and things like worker safety. And when I give you the results, I want
to stress this took us almost 10 years, but the engagement scores went from the
20th percentile to the ninetieth and the quit rate went down 90 percent.
So we were hiring 3000 fewer people every year.
Think of the benefits of that.