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Founders keepers

11 Oct 2021 By John Foley

Henry Kravis and George Roberts built their private-equity empire over more than four decades. They’re not letting go of it in a hurry. KKR on Monday unveiled a slew of governance changes that, while they’ll make the firm more democratic, will do so pretty slowly. Nonetheless, Kravis and Roberts’ decision to cede some control leaves Steve Schwarzman of rival Blackstone in a governance minority of one.

KKR’s founders gave up their chief executive roles at the $56 billion buyout group, handing them to long-term lieutenants Joe Bae and Scott Nuttall. It’s a slow-motion transformation. Kravis and Roberts will remain “actively involved” as executive chairs. That’s a less definitive transition than what happened at rival Carlyle, where founders Bill Conway and David Rubenstein became non-executive chairs as part of a move to a more shareholder-friendly structure. KKR will also dispense with the lopsided voting structure that gives Kravis and Roberts power to nominate all board directors – though not until 2026.

The upshot is that Bae and Nuttall won’t get to play with quite the same set of governance toys as their predecessors. But they do get a consolation prize: a slug of stock, some new and some made up of existing awards that will vest early. That could be worth around $175 million each, not a bad windfall especially as President Joe Biden attempts to raise the level at which investment gains are taxed. The stock itself could get a small valuation boost if benchmarks that eschew companies with multiple classes of shares, like the S&P 500 Index, give KKR another look.

All this leaves Schwarzman in splendid isolation. He wields similar powers to those Kravis and Roberts had, he doesn’t have to share them with a co-founder, and they last indefinitely. Then again, Blackstone’s returns knock those of its rivals into a cocked hat. Over the past three years, Blackstone shareholders have made a total return, including dividends, of more than 280%, compared with a still-market-beating sub-200% at KKR and Carlyle. An end to cheap debt and tax perks might knock the Blackstone boss off his perch, but the grumbling of corporate governance advocates certainly won’t.


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