Did Wall Street Just End the Class War?

All workers can become capitalists, all workers can become rich!

That’s the future of the economy according to the infamous Wall Street buyout firm, KKR, (formerly Kohlberg Kravis Roberts & Co.)

Despite centuries of class struggle, KKR says that the iron laws of capitalism don’t have to pit workers against bosses. They claim to have built a new system in which workers become rich while also making even more profit for KKR. No more class struggle. Today it’s win-win for everyone!

It all sounds so nice, but it’s a far cry from the rough and tumble hostile takeovers that made KKR famous. (See Barbarians at the Gate.) Here's how KKR’s win-win new approach works.

CHI Overhead Doors is a great story for these particular workers at that particular company, but the truth is that most private equity firms are job destroyers.

KKR is a private equity firm, which means it raises money from investors, borrows a bunch more, and then buys up companies and sticks the money it has borrowed onto those companies’ books. For the next few years, KKR’s team works its managerial magic and then sells each company for a healthy profit.

In July 2015, for instance, KKR purchased CHI Overhead Doors, a maker of home and commercial garage doors, from Friedman, Fleischer, and Lowe, another private equity firm, for $685 million. Half the purchase price, about $342 million, came from KKR investors, while the other half was from loans that were assumed by CHI. Then, in 2022, KKR sold CHI for a whopping $3 billion, giving KKR a 10-to-1 return on its equity investment. That was one of the highest returns on any investment in KKR’s portfolio of investments since the 1980s.

KKR says that these profits were in large part a result of a new kind of capitalism. They gave the workers a piece of the action. Upon purchasing CHI, KKR promised each of the 800 CHI workers that they would share in the profits when the company was sold. KKR also put up a million dollars to make the workplace safer and more accommodating, including adding air conditioning and an on-site health clinic. The health and safety improvements reportedly led to a “50 percent decline in both the rate and severity of injuries.” Who doesn’t like that?

And productivity jumped further when the company put into place a worker-involvement system borrowed from Toyota. Combined with KKR’s know-how, “CHI began to see broad operational gains – in everything from procurement and scrap reduction to labor productivity and networking capital optimization,” reportsBuyouts Insider.

The bottom line: Revenue jumped by 120 percent!

What Did the Workers Get When KKR Sold the Business?

On average, approximately $75,000 each. A few of the high-seniority, better-paid truck drivers scored an amazing $800,000! And KKR claims it didn’t cost them a dime because the six percent or so of sale profits they shared with the workers was more than made up for by higher productivity because of increased worker input and effort.

Wall Street can work for workers. End of story.

Not quite.

• How much of the 120-percent jump in revenue was really due to KKR genius and worker effort? Or did KKR and the workers get lucky due to broader market conditions?
• How would the worker incentive system have played out if, for market reasons and the increased debt load, CHI had to file for bankruptcy? (Research shows that approximately 20 percent of leveraged buyouts go bankrupt within 10 years.)
• What if KKR decided that in order to enhance its bottom line, it needed to conduct a mass layoff? Would the workers who were let go also share in the eventual profits after the sale, assuming there were any?
• Perhaps most starkly, the workers’ six percent of profits amounted to about $144 million based on their work and sacrifice, while KKR walked away with more than $2.2 billion based on their financial and management skills. KKR gets more than $15 for every dollar shared with the workers, who everyone acknowledges worked harder (as well as smarter).

Still, CHI is a great story for these particular workers at that particular company, but the truth is that most private equity firms are job destroyers. Researchers writing for the Becker Friedman Institute for Economics at the University of Chicago have found that, on average, employment shrinks by 13 percent when a private equity firm buys a public firm. As Forbes notes:

All too often when private equity professionals tout their cost cutting strategies, they do not mention that cost cutting means firing people and taking away their livelihoods.

How would the KKR end-of-class struggle plan work at Toys 'R' Us?

Well, in that case, KKR drove the company into the ground. In 2005, KKR bought the toy seller for $6 billion, $5 billion of which was debt placed on the company. By 2013, it was a shell of itself, having gone through repeated layoffs and faulty business plans. Then, after taking substantial fees for many years, KKR picked over the carcass. Aliya Sabharwal, writing in the Los Angeles Times last August tells us:

KKR and its partners sold off Toys ‘R’ Us real estate, pocketed the money and forced the retailer to lease back its buildings. Along the way, KKR and the other firms paid themselves $250 million in “management fees” and big bonuses to hand-picked executives — right before Toys ‘R’ Us entered bankruptcy.

Oh, and along the way, 33,000 jobs were lost.

To be fair, it’s possible KKR has now gotten better at management since it’s swashbuckling days. Or maybe they have recently become more religious about how to treat workers fairly. It’s also possible that the end-of-class struggle approach at CHI was a lucky one-off situation that is now being used to buff up KKR’s historically cut-throat image. How can we know?

Putting the End of Class War to the Test

But we don’t have to speculate. The test is simple. If the new KKR system is really so adept at boosting profits and providing enormous payouts for the rank-and-file worker upon the sale of the company, how about asking private equity firms to guarantee up front that there will be no mass layoffs?

The research we’ve done for my book, Wall Street’s War on Workers, shows that since 1996 there have been at least 30 million jobs lost in mass layoffs, defined as 50 or more laid-off workers at one time for 30 days or more. Count the effect on their families and local communities and we’re looking at more than half of all working people who have suffered through mass layoffs. That’s often loss of income, health care, and financial security. Often this affects manufacturing jobs, but in 2023, more than 230,000 workers lost their jobs in high-tech companies—those very big tech firms that have been making tons of money. Since the start of 2024 another 34,250 workers in high tech firms have joined them.

Working people are hungry for job stability. If KKR is so good at buying up companies and making them more profitable, let them prove it by guaranteeing the jobs of all the workers in those bought-out firms, as well as giving workers a slice of the profit when those companies are sold. We can talk later about how big a piece of the pie is fair.

Then and only then might they have an argument for a new kind of humane capitalism. Meanwhile, laid-off workers continue to be ground up by endless job destruction in service to Wall Street’s insatiable greed.