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If you like Henry Kravis's story, you might also like:
Ray Dalio,
Michael Eisner,
Rudolph Giuliani,
Stephen Schwarzman,
Carlos Slim,
Dennis Washington
and Sanford Weill

Henry Kravis's recommended reading: Escape From Freedom

Related Links:
KKR & Co.
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Henry Kravis
Henry Kravis
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Henry Kravis Interview (page: 2 / 5)

Financier and Investor

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  Henry Kravis

And make sure that capital structure we have in place is the right capital structure.

I think that's the reason that we've been successful. It's not just buying the company. Sure, we picked the right companies, we picked the right management and we've given them the right incentive to perform. But most importantly, we've had the management have the right incentives. Management has been an owner, management has had their own equity on the line. They have something at risk. I always like to refer to many managers in corporate America as the renters of the corporate assets, not the owners. "Where have the Carnegies, and the Mellons and the Rockefellers gone?" A lot of them are gone. Our concept is to bring that back. To bring back that ownership. If you have something at risk, you think differently. If you go out and rent an Avis rental car, and you put a scratch on it, you are not going to be that happy, but it's not going to really upset you that much. What you really want to do is get back to the Avis counter before they see the scratch. Whereas if you own your own car, and you put a scratch in that car, you are going to be out there polishing it, and making sure that scratch is gone. You are going to take extra special care. Exactly the same concept if you own the company, if you have your own money at risk.

You start to say, "Do we really need all those people that we have in the company? Do we need as many airplanes?"

RJR Nabisco, for example. We had 81 people in the flight department when we bought the company, and they had eleven corporate jets. Today we have 24 people in the flight department, and we have four planes. We've got one airport, versus four airports that the company had. You think differently.

I'm giving you a very long answer to what appears to be a simple question, but everything was done in steps, and everything becomes a building block. As my mother said to me on many, many occasions, "You've got to build the foundation first." If you build that foundation, both the moral and the ethical foundation, as well as the business foundation, and the experience foundation, then the building won't crumble. But if you don't build that foundation, its not a solid foundation. The building will crumble.

Let me ask the eternal question first. Sitting in Tulsa, trying to make decisions about what to do with your life, you could have gone in a lot of different directions. Why high finance? Why the world of Wall Street and corporate America?

Henry Kravis: Good question. My father wanted me to go into the oil business. He was in the oil and gas business as a consulting petroleum engineer up in Tulsa. He had an incredibly good reputation, which I learned more and more about as I was living in New York.

Everybody would come to me and say, "Are you Ray Kravis's son?" And I would just beam and say, "I didn't know you knew my dad." "Oh, yes, you know, I worked with your dad on this transaction, or on this company in the oil business." And I thought about it, but I said, "Look, as proud as I am of my father, I don't want to be known as Ray Kravis's son. I want to do something myself." And I hope my children will do something on their own. My dad helped me, was there, is a very loving and supportive father. But I said, "I've got to do it myself." As a kid, my mother says to me, "You know, you were always 'me, myself' as a kid. You wanted to tie your shoes when you didn't even know how to tie your shoes. But you had to do it yourself."

[ Key to Success ] Integrity

So I picked a field where I had a little exposure. Where I thought I could have an enormous challenge, and have a chance to really do some good, to be a pioneer in an area, and not just be like everyone else. That became the field of finance and, in particular, the leveraged buyout field. In hindsight, I wouldn't trade it for anything. It's been just a phenomenal career for me so far, and I don't see any reason why I should change.

What is the challenge in a leveraged buyout?

Henry Kravis: The challenges are several fold.

One, I love the creativity. I love the ability to create a capital structure that is appropriate for a company, no matter what field it happens to be in. I love the ability to make a company more efficient. I love the ability to work with very good managers, and to provide the right incentives for them, and truly become a partner with that management, and make that management take a long view. The trouble, in my opinion, with corporate America today, is that everything is thought of in quarters. Analysts push them. "What are you going to earn this quarter?" We say to the management of companies, "You are here today. Where do you want to be five years from now, and how are you going to get there?" It may very well mean taking a step backwards. But believe me, in five years, we are going to have a company that is much more productive, efficient, and competitive. That's a challenge. One of the problems with corporate America is we're, in many respects, losing our corporate competitiveness in this global environment.

If we can just take a few companies, and use those as models, as examples, to show the rest of corporate America how they can become more competitive, that's what I'd like to do and that's what I hope to do. I'm very proud of that aspect. It's not just "make a lot of money."

Yes, we've been fortunate, we've made a lot of money. Some people say maybe we've made too much money, but its a way to keep score, that is all. What's more important is not coming in to work and counting the money. What's more important is coming in and saying I've got a challenge today. And I want to overcome that challenge. And I want to conquer whatever we set out. And we all set goals for ourselves.

[ Key to Success ] Integrity

Henry Kravis Interview Photo
I've been in a hurry all my life. I've been in a hurry to succeed, and in a hurry to prove myself. Maybe its because my father was so successful in a totally different field, but I found working in a small environment just a great joy. I have, in my partner George Roberts, a person who is the most wonderful man in the world to me. He's like a brother to me. Creating with him, being side by side with him, in whatever we try to do, is a real pleasure to me. And he's family. He's my first cousin also. You might say that both of us got lucky, because it really has worked. It makes it a real joy to come in. We have 16 professionals at this firm, and we've hand picked every one of them. We don't pick them off of a resume. Almost everyone that works here has been on the other side of a deal for us. Either a lawyer, an accountant, or an investment banker, or a banker. So we've seen them under pressure. Believe me, its totally different picking a person who you've seen in the firing line, as opposed to picking him off a piece of paper.

What do you look for in the people you hire?

Henry Kravis: I'm looking for people who are bright, have the highest ethical standards, will not compromise one iota for that. I'm for people who are creative. I want people who will stand up to me. People who are not afraid to say exactly what's on their minds, even though that's probably not what I want to hear. That's what I want.

Henry Kravis Interview Photo
I'll give you an example. It really came to light when we were buying RJR. We were deciding to bid or not to bid, and what price we wanted to bid. We'd have sessions. There was George Roberts and myself, Paul Raether, one of my other partners, and four or five associates. We'd sit in my office and, after we'd run all the numbers, we'd talk the thing through. I'd always start with Scott Stuart and Cliff Roberts, they were the two youngest members of the team. I'd say, "What do you think?" I wanted to hear what they thought as opposed to them hearing what we thought. Everything comes from the bottom up. I have a very good interchange. We'd always be the last, George and I, to say what we thought. So, its not a directive saying, "We will buy this company. Run the numbers and prove that we are doing the right thing." It's "Should we buy it? What do you think?" And letting them say what's on their minds.

We want the members of this firm, whether they are associates, or whether they are a partner, to put their own money up in every transaction, just like we ask the management to have their money at risk. We do the same thing here. Everyone at KKR, from the receptionist up front, to all the secretaries. They own stock in every one of our companies. Now, granted, they have it on options, but our people here who work on the transactions put their own money up. You think differently. We want people who are not afraid to take risks, who are not afraid of a challenge. And I want people who are going to be diligent. They are going to ask the tough questions, and they are going to keep probing and keep probing until they are satisfied. Not just "Well, he told me this so it must be right." A little bit like a reporter sometimes, asking questions all the time.

You talk about luck, you talk about principles, and you talk about risk. These are all important areas, I think, for young people to understand something about. I don't think they necessarily think of a Henry Kravis in terms of risk, and in terms of creativity. How important is risk, and do you ever have any self-doubts, and worries about failure or seeing a risk go wrong?

Henry Kravis: Oh, all the time.

We have a fear all the time. But that's what keeps us going, that's what keeps us focused. You have to have a fear. People who say, "I have no fear. I'm not afraid of ever failing," are kidding themselves. Sometimes it's the fear of failure, of not wanting to fail, that makes people as great as they are. I know that's what pushes me, a lot. I've always said -- I say it to my children, "I'm the kind of person who could fall out of a window, land on my head, I might bounce a couple times, and I'm going to come up on my feet. Because I'm going to make myself come up on my feet."

[ Key to Success ] Courage

You have to be a little bit of an optimist too, but a realist. And risk is important to take. Not foolishly, not blind risk. But I love the word entrepreneur. I ask students up at Columbia -- I'm on that board, "How many of you want to be an entrepreneur?" A lot of hands go up. I say, "OK, you explain to me, what does that mean?" "Well, I'd like to go to work at IBM." And I say, "You just failed, that doesn't count. How about you?" "Well, I'd like to work at Procter and Gamble," and I say, "You failed." A real entrepreneur is somebody who has no safety net underneath them. That really truly has an idea and has a vision, and sticks to his/her convictions. You've got to have the courage of your convictions. If you did everything by consensus you wouldn't do anything at all. Look at the people that started Kodak. Certainly Mr. Land at the Polaroid company. They all thought he was nuts. The Kodak people went door to door to raise money. And most people slammed the door in this man's face. But he stuck to it.

It would have been very easy for us to shut up shop here at KKR and just say, "Look, it's just too difficult and it's not going to work." But no. We've had some failures of course. Not everything works. I'm in a high risk business. But thank God we've had a lot more successes than we've had failures, and we've only had a couple that haven't worked out. And the jury is still out on those.

Henry Kravis Interview Photo
One day, my wife said, "Tell me the three words, that are how you would describe your life. Things that are very important to you." I thought about it for a minute, and I said to her, "Courage, integrity, and commitment." Those are three things that I basically live my life by. She had a seal made, and a box made, engraved in silver, which had those three things written on it. And those three words have worked for me. They don't work for everybody.

But you talk about courage, having the courage of your convictions, the ability to face failure. As I said there is nothing wrong with failing. Pick yourself up and try it again. You never are going to know how good you really are until you go out and face failure.

Integrity, that's a gift. If you don't have integrity, you have nothing. You can't buy it. You can have all the money in the world, but if you are not a moral and ethical person, you really have nothing. You only have one thing to sell in life, and that's yourself.

Commitment, to me, is the ability to stick to something. You make up your mind. I hate people that always say they are going to do this, they are going to do that, and they never do it. I say, "Quit talking about it, just go do it. I don't want to hear about it. When you've done it or you've made an attempt to do it, that's fine."

You know, kids always say "I can't do it." They don't know whether they can do it or they can't do it, until they try it. But its easy to say. "I can't do it? I can't ski? I can't ride a bike?" I tell my kids, "Let's just take the word out of your vocabulary," until you've really made an attempt to try it. If you've really tried something, and you've given it your best effort, that's all I ever ask of you.

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