The Role of Empathy in Leadership

Support for NPR and the following message come from Edward Jones. What does it mean to live a rich life? Maybe it's full of brave first leaps, tearful goodbyes, and everything in between. And with over a hundred years of experience, your Edward Jones financial advisor can help you. Edward Jones, member SIPC. This message is brought to you by the Planet Money Book Tour. Join Planet Money for a night of dry wit, sober discussions of economic policy with intelligent guests, and Q<unk>As that go on just a bit too long. I'm so sorry. Can I I do feel like we're maybe underselling this like a bit. Do you mind if I just do a little bit of a. Okay, thank you. The Planet Money Book Tour really is unlike any other book tour. Each stop is totally designed just for your city. There will be game shows, inter-audience competitions, tests of humanity itself, and we will be joined at various stops by influencers, celebrity chefs, a co-founder of Anthropic. and Planet Money's very own Jack Corbett of TikTok. And absolutely zero questions that are like a little this is more of a comment than a question situation. We're gonna we're gonna ban those. You can get tickets at planetmoneybook.com. This is Planet Money from NPR. Cindy Cortes loved her job. She worked at a company called Capital Safety. It made safety equipment, like harnesses people wear, washing windows, on skyscrapers, or working on oil rigs. And her team made the part that attaches to the harnesses. I was in the shocks. Which the shocks was the part that would tie off from the harness to your point of say on a building or a scaffolding or whatever. What was your favorite part of the job? sending out quality um equipment and Knowing that it's gonna save people lives. She'd been at the company since the early nineties, worked her way up, and by twenty eleven, Cindy was the manufacturing lead on the production floor. She oversaw a team of like forty people. And I had to make sure that they had Their job orders for the day. They had all their material so that they could make their equipment for the day. And If there was any issues, they would come to me. And I would try to solve 'em. And one day that year She hears that her company is getting sold. It was like, okay, now what are we gonna be getting into? That's buying her company? KKR, a private equity firm, one of the big ones, which is not always good news. When you heard that you were getting bought by private equity, were you like, Oh, great. Um Mixed feelings. You know, one big fear is you're like, oh, are they gonna take it, you know, and take it overseas, close the company here? You know, you had all those worries. you know, when you have a bigger um company by you. Because private equity's whole thing is they buy companies, try to figure out how to make those companies more profitable, and then sell them for more money than they bought them for. And very often the way they make those companies more profitable is by cutting jobs. But Cindy was in for a more interesting ride than that because she was actually part of a brand new experiment. A large scale experiment conducted by this guy at KKR who had a new idea about how to grow companies. Hello and welcome to Planet Money. I'm Mary Childs, and I'm Wayland Wan. Private equity. It's ruined so many things, from nursing homes to toy stores to vet clinics. But today on the show, someone is trying to do private equity a different way. Will it save all of private equity? No. But maybe this one experiment in private equity will lead to more equity. And maybe Cindy has more coming than she thought. This message comes from Schwab. 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The experiment that Cindy Cortis was inadvertently part of began back in 2011. It's the personal project of this guy, Pete Stavros, whose job at KKR is to buy companies, make them more profitable. And then tell them. The inspiration for his big experiment comes from his childhood. Growing up in Chicago, sitting around the dinner table, hearing stories about his dad's job at a construction company, making roads smooth and flat. for over forty years and he was often specified in municipal contracts. Like Harry Stavros must do the road rating. Um because if you don't grade a road properly, it won't it won't drain appropriately and it'll freeze and then crack in the winter. His dad was in the union, eventually became influential, representing the interests of the workers. And Pete says there was this structural tension between the union and the company. Workers wanted to work more hours because they were paid by the hour. And employers wanted the work done in fewer hours. Over the years, the company was kind of winning. It was whittling away paid time, like the time spent driving to a far away construction site. Or the time people were grabbing lunch during work. So as Pete remembers it, the company told workers they weren't gonna pay for lunchtime anymore. Employees should take an hour unpaid. On that one, the workers decided finally to fight back. Pete's dad took the lead. He organized all of the workers and, in fact, also the truck drivers who delivered the raw material to pave the road. And so he had that material delivered uh directly at 12 noon. Right at at the time uh the lunch would normally be. And instead of doing the most expedient thing and unloading the truck when it arrived, he would look at his watch and say, What a shame. We don't work the lunch hour anymore. And he would send the truck away and he and his colleagues intentionally ran the job out of material. So the work site would have to shut down, which would mean the company had to pay late fees to its client, and it would have to pay the workers overtime to try to catch up. Pete says, his dad hated the absurdity. My dad would come home and say, Can you believe this is what we're doing? You know, we're we're all adults and this is how we're behaving as opposed to having The same incentives and all wanting to work together. We have all these fights over hours. Pete remembers his dad being like, There's got to be a better way. Some way to align the workers' incentives and the companies. Why don't we have profit sharing or ownership or some way to get workers on the same side as management. Give workers a chance to get ahead financially. and you know give the company a reason to start listening to workers. That was where the original inspiration came from was from my dad. The original inspiration for what Pete is now doing from his seat at KKR. in the big bad world of private equity. sharing ownership with workers, which is not normal. The normal private equity move is to buy companies, often borrowing a lot to do it, and then try to make the companies more profitable so they can sell them at a profit. As the private equity industry has grown. Time the effects of the industry have become more apparent. Like academic research has shown that when private equity buys a company, it can bring in better management practices or save costs. And it does increase productivity. But private equity ownership can lead to a degradation in the quality of the product. Which becomes especially salient when the product is like health care or nursing homes, and it does result in fewer jobs overall. People who lose those jobs often make less money in their next job or never find another one. Which of course becomes very expensive for society. And as private equity has grown over the last couple decades and bought more and more companies that touch everyday people's lives, scrutiny of it and a mainstream cultural distaste has grown too. By the time Pete had found his way to private equity, he was still thinking about his dad's ideas of giving workers equity. He'd even done a little research on it in business school. So now he's in charge of this team at KKR. They give partners plenty of freedom, and he's like, We kind of get to pick what companies to buy and what to do with them. So I kind of have an opportunity here. I should try to see if I can do my dad's thing, making workers part owners in their own companies. It's such an opportunity to try new approaches. Because we can it's almost like a laboratory. So his big experiment is about trying different ways to get the workers at those companies more bought in, more involved. And he suspects to some degree there's a business case for this too. Like if workers have ownership in their company, they might feel ownership as well. They might work a little harder, get more training, stay more engaged. So he decides to give it a go. And Cindy Cordis's company, Capital Safety, where they made harnesses, that is Pete's first try. The first in this experiment. So Cindy remembers when KKR bought the company, the company's management told her and all the other workers that the plants in Red Wing, Minnesota would stay open. And no jaws will get cut. Cindy was like, Okay, but for how long? A year? Ten years? If these jobs had gone away, would you have had a hard time finding another job or an easy time? I live. There is a few other companies that right in town manufacturing companies that I think people You know, some people would have found jobs right in town. But I don't think there would have been enough for everybody. So the workers are nervous. And meanwhile, KKR is quietly working on their test case for this worker ownership thing. And they ran into a few problems. Pete says the first was that the workers in the company didn't really trust the company's management. Immediately after they buy the company, Pete says KKR starts getting a lot of complaints about worker safety, unscheduled overtime, and people feeling like they weren't being listened to. KKR was like, if we give the workers equity now, they're not going to believe us. Their company had already been bought and sold by three other private equity firms. So Pete was worried they would not trust this move. They would think it was some kind of trick. So we thought let's work on improving safety and culture first. Just some basic things. And then we can talk about employee ownership and hopefully then it will be received. in good faith. But the other problem was, since was literally his first rodeo, they had to figure out how to do it. This is way more complicated than it sounds. And even just structuring it and implementing it and administering it's really challenging. This was a multinational company, so it spann different jurisdictions, each with their own problems. Like in Western Europe, if you gave a worker ownership A lot of times they get taxed on the grant. And have something call dry income. So even though they don't have any cash. From the share grant that you made, they have to pay taxes. So we had to work around that. And here at home, there were other obstacles at the time. In the United States, there was a real limit on how many Shareholders you could even have in a private company? So simply figuring out the how was a big challenge, but eventually they did it. They rolled out an ownership program. But Pizza's this first time it was kinda sloppy. We In a very haphazard and and and and not in a a way that I would characterize as being well done, we rolled out employee ownership for for everyone. weird telling the employees at that company that they were now part owners. Like what if they say everyone's getting equity, but then they bungle the role out and can't fulfill their promise somehow? So they just Did it. Quietly. They structured some equity, gave it to the employees, and basically didn't say a peep. corpor equivalent of sliding an envelope across the table. An invisible envelope. So Cindy, an employee at that company, getting ownership at that moment, had no idea. We did not know that there was gonna be like this incentive. Um, none of that was um brought to our attention. Until they sold. to three M. So when KKR sold the company to 3M in twenty fifteen, all that surprise equity suddenly paid out for Cindy and all her co-workers. They found out one day Cindy was in a big meeting with more than a hundred of her co workers. So we were in the cafeteria, which is nice size. And We were like sardines in there. And then they announced that, you know, there was gonna be this big incentive. Um, what bonus that we would all be getting because of the sale and we're like Okay. You know, so We all were thinking, you know, it was gonna be a few hundred dollars, maybe a thousand dollars, you know, and stuff. The check was bigger than she'd expected. She wouldn't tell me how much. It was like, oh my gosh. I've never had anything like this before. She says it was five digits. ten thousand dollars or more. And it came at a good time, especially for me, and I know for a few other people. I use that money to pay off a couple of my credit cards. Then I I still had couple of my kids still lived at home and You know. So that I could go and I could um be a little more debt free. And Sny remembers that feeling of getting the money. It wasn't life changing, but it was a nice surprise. Were they basically like By the way, you've had equity this whole time and we just never mentioned it. No. That's so funny to me. Is it funny to you? It is. You know, there is a lot of communication that does not get brought down to the people that are working on the floor. She thinks this was kind of a missed opportunity. If y'all had told us we the workers might have acted differently. I think if we would have known it when they would have bought our company. I think people would have probably stuck a little more effort into it and making the company grow maybe a little bit more? We had no idea. this was going to be what was going to be happening when they sold the company. KKR did sell her company. This wasn't a failure, but on the worker ownership part. Kinda was. Cause maybe if the Cindy's of the world had known that they had equity and had been that much more engaged and felt that much more ownership, their productivity might have been higher and profitability might have been higher. KKR could have sold the company for even more. And Cindy's check might have had another zero on it. Pete agrees with Cindy. The first test of how to give workers equity was not its best possible execution. I would say the communication was Like it. F you know, we were worried about over promising and under delivering. So we kind of weren't real clear on what it could mean to people. Um And on and on and on. It was just not well done. So Pete has learned an important lesson you gotta tell people when they become owners. And now he has also learned how to structure this. So he takes those lessons to the next company his group buys. And the next. And it was one of the greatest things ever happened to me in my life, you know? That's after the break. This message comes from Schwab. At Schwab, you can get everything from self-directed investing to full service wealth management all in one place. No matter your investing goal, life stage, amount to invest, or know-how, you can invest your way with Schwab. This message comes from Granger. For the ones who get it done, Granger offers the professional grade products you need to get the job done. With fast delivery and access to technical product experts ready to help you meet any challenge. Call clickgranger.com Or just stop by. This message comes from LinkedIn ads. Ever invest in something that seemed incredible at first, but didn't live up to the hype? For marketers, that's impressions. When ads don't create revenue, that's a tough conversation with the CFO. Instead, invest in results your CFO will love. LinkedIn generates the highest ROAS of all major ad networks. So advertise on LinkedIn. Spend $250 and get a $250 credit. Just go to LinkedIn.com slash NPRPod. Terms and Conditions apply. After the haphazard not success of worker ownership a capital safety, Pete Stavros does not give up. He continues testing out his theory that giving workers equity can be good for business. And so we tried it again and again and again and we did it with about A half dozen manufacturing companies? Each time he tries this, it's another experiment. He sets up the program using the structures he's learned so far, and watches to see what will go wrong or right this time. And then he'll write down in his mental research folder what he thinks the lesson is from this iteration, and tweak his approach for the next one. And in 2018, he landed on a version that seemed to really work. He and his team bought GSI, Geostabilization International. It does things like emergency landslide repairs and rockfall mitigation. And I talked to one guy who works there, Mike Pavelco. He told me he started at GSI in 2018, and his first job was to show up to a work site where some emergency needed fixing, like undo the mess from a landslide. Does that mean you have a shovel and you dig? Yeah, but you know, even as a senior superintendent, I have a shovel and I dig. That's just the way that GSI is here. As a kid, Mike was big into Legos and Tonka trucks, but this work can be intense. Like a couple years ago, he got sent out on I forty to help clean up from Hurricane Helene in North Carolina, so that first responders could get through the mountain. The mountain was still moving while we were there. We just drilled from a safe area. And we were able to And grout that up. And it held One like perfectly. That's c that's crazy. You put nails and glue into a m falling mountain and it stopped it. Yeah, it's just uh Portland cement is the grout and that's That's what we use when we drill nails. Yep. You're like, it's not glue. Okay. Mike joined the company right before Pete's group at KKR bought it. The acquisition was the first time he'd ever heard of KKR. He had no impression of the company or Pete or private equity at all before that. And from the beginning KKR gave all the GSI workers equity. And remember to tell the workers about it. Mike definitely got the memo. It's ownership. And how does that feel? It feels awesome. I think it gives everybody here when they go to work every day. It gives them a little edge and it gives them something that they know that they're working hard for. It's not just going to a nine to five. This is a This is a job that you just really truly feel a part of. And it changes how you show up. Absolutely, it does. I think that's just what makes us want to hit our numbers because as long as we're hitting our numbers and and excelling more than what's expected, then we know, you know, we're bringing that share up. Now the equity doesn't come with any like vote in how the company is managed, and it doesn't necessarily go with you if you leave. But for Mike, the equity changed his relationship with his work. It made him feel and act like an owner It definitely brings a lot of pride factor too here, right? Like uh we know what things could could damage the sharehold, you know, all our shares. We all know and keep that in our mind, you know, we we need to hit make uh margins on projects and uh you know there's just a lot of pride. So you like oil your machines a little bit more carefully. You like Don't steal office supplies like you might otherwise. Not that anyone would do that. Yes, correct. Correct. Over the years, Mike started attending owners' calls about every three months, where he and his co-workers would hear about the company's growth and what their shares were worth. He got promoted to management. Then in October 2024, KKR announced it was selling GSI. Management had a big internal meeting in Denver to tell the employees and they flew Mike out for it. I just remember standing in the room and you know, they were going through the numbers and I was just like kinda like no way, you know. Then they reveal how much money everyone's getting. thirty minutes, like people are cheering and I'm just I was in shock. Like I just It's just something that's just impossible to believe, right? Because for this portfolio company, for this worker. The payout has been life changing. When I started here at GSI I remember getting on the plane and and I had a hundred dollars in my pocket. And uh kinda just didn't look back and I mean it I bought my first home. I mean it it changed my life. Can I sorry, Tacky, can I ask how much it was? Um Yeah, the origin the initial was a hundred and ninety five thousand, and then uh for the next two additional years I got twenty five thousand dollars for each year that I stay. Kind of like two hundred and fifty thousand dollars? Yes. Quarter of a million dollars. Yes. Okay. Yeah. Mike's new home is in Tennessee. Three bed, two and a half bath, a garage. I'll be honest, I never thought that would be a situation I'd ever come upon in my life to um purchase a brand new home, you know, that it was just built, you know? So it was it was pretty amazing. Is it in a very stable Land area. Yes, it is. Yeah. Instead of doing the standard private equity thing of firing a percentage of the workforce, Pete's model has those workers bought in. When we asked Pete about why he's doing all this, whether he's trying to fix private equity or rehab its image. He was like No. Yeah, I really hope I'm not seen as someone trying to right the reputation of private equity. That's certainly not. My Focus and why I'm doing this? He does it because he's seen the results. Workers who are more engaged, less likely to quit. To date, Pete's implemented his ownership model at 85 companies. They're not like distressed companies in dire straits. They're generally growing. healthy companies. But his project has caused more than 190,000 workers to have a stake in their companies where they probably wouldn't have otherwise. In the case of Mike's company, they definitely saw a change in the business's metrics. Like Pete says when KKR bought Half of the workforce was quitting every year. So that meant we're hiring like hundreds and hundreds of people every year and losing them. J you know, almost as uh that whole amount every two years. What a waste for the company of having to re-recruit and retrain and re-onboard all of these folks. And then of course the newest folks are the least productive, least efficient, and most likely to get hurt. So just awful that setup. That was before. And the after? Over five years, the quit rate dropped to fift around 15%. But this kind of clear results isn't always the case. By now, Pete and KKR, they have all these different test cases. The companies are pretty similar. KKR gives the workers equity and all the same tools and tries to make the companies more profitable in their little laboratory. And in one case, you'll see engagement scores go up a lot and the quit rate plummet. And in the other case, nothing will happen. And so as you can imagine, we're spending a lot of time trying to understand why is that. Sometimes employees don't become more engaged. Their productivity does not go up. They keep quitting. Pete and KKR are like, okay, what gives? Pete's given it a lot of thought. And the answer we keep coming back to. Is it's leadership. You know, if you have the wrong leader at the top. They're not going to get the most out of this program.