How much does Henry Kravis get?

Talk about a complex story reported completely different ways. What's a poor blogger to do?

The Wall Street Journal (WSJ) has buried their original Money and Investing cover piece, "KKR Stock is Coming, via Europe" on http://www.wsj.com/ -- to the point where it appears they're intentionally trying to de-emphasize the original story even if that's not true. Here's their version (requires subscription to access: Check that. The story link is GONE, as in off the list.) Strange days in new vs. old media land. It must be a really busy business news day.

The New York Times, meanwhile, has a more "so what" take -- http://www.nytimes.com/2009/06/25/business/25kkr.html?ref=business.

Getting to the point...The Times reports that KKR execs. will get "40 percent of carried interest" after a merger between a European-based subsidiary that they already own an interest in along with investors. Then, according to the WSJ, they're going to seek another listing on the New York Stock Exchange (NYSE) after abandoning a previous attempt to list on the NYSE last year. Bottom line: They're doing a Euro end around to access much needed public capital. For exactly what remains a bit unclear.

The only detail that really matters here is what KKR's Founding Partner, Henry Kravis, expects to take home and why? While the latter may be obvious these days, the road to this complex deal is anything but simple.

It continues to amaze how little details such as how much individuals receive don't factor into the equation. Sometimes it's obviously not clear until a public filing, which in this case might help shed light. But in the larger picture, it's almost as if they're all so larger than life, when in reality, they're less mortal now than ever before. Even Henry Kravis, the self appointed king of private equity.

# # #

In the nick of time

It's about time someone at a local leadership level woke up and did something in the public's interest.

DeKalb County CEO Burrell Ellis has asked the county's development authority to delay a decision that would have rewarded $52 million in tax abatement to an out-of-town developer trying to finish the next great mixed used park in northeast Atlanta. See the AJC's coverage by Ty Tagami at http://www.ajc.com/metro/content/metro/dekalb/stories/2009/06/18/sembler_0619_web1.html

While the final outcome remains up in the air, Ellis' leadership is a refreshing attempt even though it came late in the game. The system remains highly out of step. It's also a classic case study in how metro Atlanta's politico-business complex has been slow adapting to change in the new economic environment. Here's a run-down:

1.) Effective governance remains locked in a time machine with no sign of reform whatsoever. Members of DeKalb's development authority are appointed by the governor. In this situation, that means the authority could have voted to reward millions of dollars in tax abatement without a single locally elected official being held to a vote. What's the significance? The system gets gamed with personal preference, and without responsible watchdogs, it's impossible to hold anyone accountable.

2.) DeKalb's Development Authority (DDA) comprises a board of political appointees, not a robust slate of directors pushing for change. See for yourself at http://www.decidedekalb.com/site/authority/authorityLanding.html. The board chairman and vice chair have zero development experience in their background -- what makes them qualified to serve on a development authority?

3.) Old economic impact projection models no longer apply, or at least not in the current climate. When the economy is in tank, new expansive projects simply sap money from existing businesses. Standard projections about jobs and what the businesses will generate in economic impact don't take into account what is sucked away from other local companies feeding the tax base. Granted in some cases, properly managed projects can revitalize and strengthen local communities, assuming an open market. But what's unfolded doesn't qualify.

Don't misinterpret the message. We all want robust businesses willing to relocate and hire local workers -- especially when the state's unemployment rate is at a record high. But that doesn't mean those businesses should get handouts or 100 percent tax relief for doing so. Particularly not now when so much public money is being allocated that it's difficult to tell where it's going and what it's actually paying for.

Here's an idea to help reach compromise on the Sembler project. Why not ask for a revenue matching program? For every dollar generated by the project's development, $.25 or $.50 would go to specific teaching materials or after school programs for K-12 children in the DeKalb County schools.

The politicians will explain that away as impossible or not workable in the current system, to which someone needs to say, why not? If there ever was a time to demonstrate public leadership with money, then the time is now.

# # #

Au contraire, Mr. Rattner

Tuesday's selection of Edward E. Whitacre, Jr. to be Chairman of the "new GM" is starting to make a little more sense after reading today's story http://www.nytimes.com/2009/06/11/business/11auto.html?_r=1&hp=&adxnnl=1&adxnnlx=1244728921-+2dCjpiPUSmxex6n6dmDWQ by Michelle Maynard at The New York Times.

Auto Czar Steve Rattner was behind the decision to appoint Whitacre, according to the Times. Which still begs the question: Why do you need a search firm to find him? But that's beside the point.

In reference to changing GM's insular culture, Mr. Rattner says, “It’s not uncomplicated...We hope and believe that it can take place.”

If 'not uncomplicated' means lacking complexity, then this guy is all wrong. Changing GM's culture will require changing behavior, which can be complex and extremely difficult to do. Especially when the old guard remains in place calling the shots with a Chairman of the Board who has no real turnaround or expertise dealing with contemporary change.

This situation is shaping up to be a real albatross from every conceivable point of view. Sooner everyone wakes up and snaps to, the better.

Oh, and while that hopefully happens, someone please put a temporary halt to those slick ads, which should not run until re-emergence from bankruptcy. The last part of the TV spot even references "going back to Chapter One." What a bad choice of words. Guys, you're in Chapter 11 right now in case no one noticed. It's now impossible now to go back to first base.

# # #

Incredibly good take -- wish it were ours

http://www.businessweek.com/print/managing/content/jun2009/ca2009065_772331.htm

I don't normally fully endorse other POVs, but this fellow consultant is really on to something here. Those holding senior-level management and leadership positions would be well versed to read AND apply these points.

Big search firms live on -- for now

Love 'em or hate 'em, the large retained executive recruiting firms remain standing. Two in particular, Spencer Stuart and Heidrick & Struggles, are active at the highest levels, making daily headlines with General Motors (GM), AIG and Freddie Mac.

Spencer Stuart is remaking the GM board after the company named Edward J. Whitacre, Jr. chairman. See yesterday's post for our POV on this latest installment. http://povblogger.blogspot.com/2009/06/stuck-in-time-machine.html Summary: The more things change, the more they stay the same. Not to mention: Why do they need a search firm to find Ed Whitacre? Guess the answer is because the government told them to.

The latest flurry of high profile activity doesn't mean search firms are immune from change -- or that everything will remain in current form. Far from it. Every major search firm active in North America, with the exception of Egon Zehnder, has been forced to cut staff to the bone. Even the top privately held firms, which love to talk about the advantages of not being public, have whacked away forcibly within their ranks. Russell Reynolds reportedly has experienced four cutbacks during the past 18 months, while Spencer Stuart has cut staff for the second time since 2001.

What's leading the contraction? Well, for starters, the loss of good paying jobs at every level. Unlike the previous two recessions, this one has spared few levels except for CEOs, which (shock!) are the buyers who along with their boards generally hire search firms. Regrettably losses have not ratcheted down all the blah-blah about "talent war" and "shortage of qualified workers."

What the downward spiral has brought to the surface are a couple realities, which will either be dealt with or held in contempt at the firms' peril. First, the most sacred cow: How big firms are paid by clients. Pricing is getting whacked like a pinata. Anecdotal evidence suggests the traditional payment structure -- retained fees/expenses or one third of placement's first year salary -- will be revised as a result of the current recession. Some industries, such as private equity, have already forced their own variation. Other client buyers are asking that the final payment be paid upon delivery of a hired hand. At least one middle market search firm, CTPartners, is doing executive-level work for a flat fee and then asking for more business when the market turns.

The second reality is search as a traditional practice has grown dated by not innovating quickly enough to keep up with what's going on in the marketplace. Companies can't afford to get the leadership vs. management question wrong so they're turning more inward to more controllable practices, such as succession planning and development. Effective succession, such as what unfolded at P&G this week, doesn't require putting out a search. Then there's the simple reality that many inside companies don't have enough to do so they're handling recruiting themselves. Or the chosen few, such as GM, that require political cover.

The large publicly held search firms are currently caught in these crosswinds and have invested in two models, search and advisory. They'll tell you the businesses are complementary. But that's like saying you're a dentist and doctor, too. Talk to some big firm consultants and they'll tell you they don't even know what advisory services are offered by their own firm. Until the marketplace embraces one more than the other, then the muddle will remain.

Final thought: Only about 10 percent of the wider business public knows what executive search is. Even fewer fully understand "advisory," present company included. That leaves at least 90 percent left to offer up conjecture on something that they don't know anything about. What others do get are high profile brand names working in tumultuous situations. It's difficult to see that dynamic changing as long as Fortune 100 companies and their executives remain in existence. Unfortunately, or fortunately depending on market position, equally difficult to tell is what the major search firms will look like when the recession is over.

# # #

Addendum: If you haven't seen the following gem on dealings between Whitney Group LLC and Hunt Scanlon, then you may want to: http://www.recruitingentrepreneur.com/2009-FEB.pdf. Not sure about the source, but at the very least, issue begs for an industry re-examination.

Stuck in a time machine

Is is it just us, or do Fortune 50 board-level matters feel stuck in a time machine?

Pick your exhibit: The so called Chairman of change at the new General Motors (GM), Bank of America (BofA) recently hired slate of directors or the proverbial AIG mix and match. Each has their own set of challenges. Yet all are united in one common governmental vision. It's time to cover our eyes and ears 'cause the governance horror flick is starting to make "Friday the 13th" look like a G-rated movie.

GM takes the cake with the hiring of former AT&T/SBC/Southwestern Bell CEO Edward E. Whitacre, Jr., a 67-year-old telecom cowboy of the tallest order. A person familiar with Whitacre used to regale us with first-hand stories dealing with 'ole Ed. Fear, intimidation and control were his management tools of choice -- no need to go there on evaluating his leadership style. This is the same man who didn't use email or a computer until his final years at the helm of the nation's largest telecom company. Whitacre evidently called called weekly executive meetings near his ranch in San Antonio every Monday morning. Executives had to show in person instead of calling in like they do in every other 21st century company. "Better to get everyone together, all in one place so I can tell them what to do," was the mantra; doing things his way or finding the highway was the other. To say Whitacre represents a different way to lead in a newly reorganized environment would be like saying former Vice President Dick Cheney personifies peace and love in a post-Islamic state.

But that's all water under the bridge. Now Chairman Cowboy can take on the New GM vision and everything else that comes with that bankrupt house of cards. Amazing. Just when you thought the page could be turned, it gets torn out of the book under the auspices of gray hair, experience and stability. Which, by the way, is what did in GM. But that's another story. Whitacre gets high marks in at least one required area: Dealing with government regulators, which he did so deftly there were often questions of who was regulating whom.

Here's a new suggested slogan for the Obama administration, which obviously signed off on this latest cutting edge decision. "Change We Can Believe In" should be renamed, "Change: It never happens in North America." At least not in the board rooms.

Where's Jon Stewart and Stephen Colbert to provide parody when we need them?

# # #