Warren Buffett once famously said, “the most important investment you can make is in yourself.” But Pete Stavros, Partner and Co-Head of Global Private Equity at KKR, one of the world’s largest private equity firms, has bet big on something else – other people.
Stavros, an expert in value creation, is best known for developing KKR’s employee-ownership model. He’s championed the idea of giving workers a meaningful stake in the PE-owned companies they help build. This approach, says KKR, has been “successfully implemented at more than 80 KKR companies and has positively impacted more than 180,000 workers.”
Stavros’s father spent forty years working as an hourly construction worker in Chicago. And this blue-collar background seems to have profoundly influenced his son.
As CBS reports, Stavros has emerged as “the leading evangelist for the concept of employee ownership. His idea: take the same incentives that have long helped the C-suite get rich, and apply them to the folks working factories, flatbeds, and farms.”
Stavros and KKR aim to give employees a sizeable payout when the company is sold. But, of course, stress that, ultimately, this is based on performance.
CBS again, “His idea, really, is simple: give rank-and-file workers a stake in their company on top of salary – plus a voice in how the business is run day-to-day. With skin in the game, they'll be motivated to work harder and smarter.”
One recent example – KKR’s sale of GeoStabilization International to Leonard Green & Partners. As Business Insider reported, KKR “will share $75 million of the proceeds with about 900 staff, mainly construction workers, at the geohazard mitigation and road safety services provider.”
And Stavros’s innovative approach to value creation is very much part of a wider PE trend.
In recent years, the sector has moved away from a reliance on financial engineering and debt – towards operational improvement, sector expertise, and specialist leadership. Specific Head of Value Creation roles are now much more common.
‘PE firms increasingly need people who understand how value is actually created inside a business, particularly in unfamiliar or technical sectors. They ask themselves a simple question – how do you create value when you don’t truly know what value means in this new area?’ says Drayton’s Rob Seery. ‘Stavros’s strategy adds a human-capital angle. It demonstrates how employee ownership can be used as a performance lever that cleverly aligns workers, management, and investors. Harnessing the knowledge of the staff already there so, on exit, everybody wins.’
As Stavros, himself, told CBS, he wants employees to feel: "These are my products. So, if I'm sending out poor quality, that's a problem for me. If our productivity's down or if our customers are unhappy, these are my customers."
The customer is always king, then. The oldest of business adages. One, I suspect, both Buffett and Stavros might agree on.