In this excerpt from a chapter from The New Financial Capitalists, by George P. Baker and George David Smith, the authors explore the way KKR created corporate value by setting up KKR-controlled boards and empowering company executives under high-pressure conditions.
The principles to governance suggest ways active boards and corporate managers might ideally function in any business environment.
The New Financial Capitalists is an interpretive history of the firm Kohlberg Kravis Roberts & Co. during the entrepreneurial phase of the leveraged-buyout movement, from the 1970s into the early 1990s, of which KKR was the leading pioneer.
The book explores the historical and intellectual background to modern uses of leverage in the market for corporate control; how KKR developed debt financing as a tool for acquisitions and managerial incentives; the downside risks of leveraged transactions and how KKR responded to them; and on KKR as a new institutional form.
George P. Baker teaches and studies finance at the Harvard Business School. George David Smith is a business and economic historian at the New York University Stern School of Business.
Posted with permission of Cambridge University Press. Copyright George P. Baker and George David Smith 1998. The full book can be purchased at this site: www.cambridge.org/us or at http://www.cambridge.org/us/catalogue/catalogue.asp?isbn=9780521642606