Looking back on KKR’s future plans

In the week the private equity giant announced its heirs in waiting, pfm revisits co-founder George Roberts’ comments on handing over the reins, and looks at what makes an effective succession plan.

This week KKR implemented its succession plan, naming Joe Bae and Scott Nuttall as co-presidents and co-chief operating officers.

Bae will focus on private equity along with the firm’s real asset strategies, which comprise energy, infrastructure and private equity real estate, while Nuttall will look after both private and real estate debt, as well as capital markets, capital raising, hedge funds and corporate development.

Henry Kravis and George Roberts continue in their roles as co-chairmen and co-chief executive officers.

In a 2011 interview with pfm’s sister title Private Equity International, George Roberts shared his views on the importance of a well thought out succession plan for the firm, and how it was preparing for the future.

“Traditionally around here, when we have an investment idea, we ask the younger people what they think first. You know, we were both in that position at one point in time, and we didn’t have any Solomon up here telling us what to do, or sprinkling holy water,” he said. 

“We basically just went out and did it. And I would hope that we will always be able to keep that culture around here – that we’re not risk-averse, and that [the next generation will] speak up and be able to take the firm even further than we’ve gone…

“We all have pretty thorough evaluations every year, in terms of what our strengths and weaknesses are, and I know you’ll be shocked to realize that we all have some weaknesses around here and areas to work on.

“We try to address those, and everybody tries to get better. So I think when the right time comes, if we’ve done our job right, we’ve groomed the next succession, next group of leaders.” 

The best laid plans

Succession planning is occupying an increasing amount of a chief financial officer’s time, delegates at this year’s PEI CFOs & CCOs Forum in New York agreed. One panelist said around 50 percent of her work now involves human resources tasks and succession planning.

As well as ensuring business continuity, a good succession plan should convince LPs that their money is being looked after and staff that they feel valued. There are a few things to consider when formulating a plan, sources say.

LPs want to know that the team they invest with, will be available over much of the fund’s life, and that well-performing mid-level staff, have a path to promotion, incentivising them to remain with the firm.

“A lot of the firms underestimate how much of their brand equity rests with the founders,” Rob Berick, of the strategic communications firm Fall Communications, told pfm in May. “So they need to take the time to let younger partners build up their own credibility as leaders and dealmakers, because that brand equity isn’t so easily transferred.”

The next generation also needs to be mentored in how to run the firm, not just make deals. “I’ve seen some firms struggle when they lose a leader and no one else knows how to manage the firm,” said April Evans of Monitor Clipper Partners.

Some positions are harder to fill than others. A chief financial officer often has a lot of specialist knowledge which isn’t shared with a wider team on a regular basis. “There needs to be some effort to groom a successor to allow for a smooth transition,” said Evans.