KKR's Quest to Change the Face of Private Equity
Private equity doesn’t have the best reputation among those concerned with the well-being of ordinary workers.
The industry is often associated with aggressive tactics, short-term thinking, heavy leverage, and an unflattering image of greed, willing to jeopardize workers’ livelihoods in pursuit of profit. It is that final point, the cost to employees of private equity ownership, that continues to draw some of the fiercest criticism, and this is nothing new.
Yet KKR, which was named the world’s largest private equity firm earlier this year, is trying to change that perception. Private equity co-head Peter Stavros even said that PE needs a new "head of PR." The irony is hard to miss, since this is one of the first firms that showcased what people hate most about the industry.
The Story of Safeway
Going back to the 1980s, one of the most notorious deals in the industry was KKR's acquisition of Safeway in 1986. The deal was funded primarily through debt, with only 3% of the $4.8 billion purchase price coming as equity, and after the acquisition Safeway cut 63,000 jobs from its workforce.
A feature article in the Wall Street Journal the following year documented the human consequences in stark terms. A survey of former Safeway employees in Dallas found that nearly 60% of laid-off workers still had not found full-time employment a year after losing their jobs. One tragic case involved James White, a truck driver who marked the one-year anniversary of his final Safeway shift by committing suicide. The article won the Pulitzer Prize in 1991.
Stories like these have shaped private equity's reputation for decades. Even in recent years, a 2023 book called "These Are the Plunderers: How Private Equity Runs and Wrecks America" by Gretchen Morgenson continue to draw attention, with renowned author Brad Stone describing it as "a meticulous and devastating takedown of a powerful force in Western capitalism."
Flipping the Script: CHI Overhead Doors and Employee Ownership
Fast forward to today, and KKR is arguably the leading force behind broad-based employee ownership, with Mr. Stavros leading the charge. Nowhere was this more visible than at CHI Overhead Doors, an Illinois garage door manufacturer acquired by KKR in 2011. Rather than just optimize operations from the top down, KKR rolled out company-wide ownership and made concrete investments based on employee feedback.
The results were transformative, as CHI substantially boosted worker satisfaction, safety, and profitability. When the business was sold in 2022, workers received an average payout of $175,000. Some pocketed as much as $800,000. The day of the announcement, there were tears on the shop floor and stories of kids who could now go to college.
Building on CHI’s success, KKR has now implemented broad-based employee ownership across its private equity portfolio. To push this model even further, Mr. Stavros launched Ownership Works, a nonprofit bringing the lessons of employee ownership to more businesses, with the goal of empowering workers and reducing income inequality. Just last week, the sale of aerospace parts maker Novaria Group resulted in a cash payout to all 1,600 employees (along with substantial improvements to worker safety and retention).
