Risk and reward

Propped against the wall of Jeremy Kroll’s Lexington Avenue office in midtown Manhattan is a large portrait of Bernie Madoff, the disgraced financier, looking sullen and shifty in a black baseball cap and sunglasses. The picture, upon closer inspection, is a digital mosaic made up of tiny, rectangular company logos, each one representing a corporate scandal of the past decade: Enron, WorldCom, Tyco, and Rite Aid, among others. At the bottom a tongue-in-cheek admonishment reads: “Enjoy your day. It could have been a lot worse.”

Kroll, the chief executive of K2 Global Consulting, a risk consultancy, says the picture “is a good reminder of why we are here: to try to solve problems, and to help people avoid getting in with the wrong partners”.

Kroll, 39, co-founded K2 in 2009 with his father, Jules Kroll, who is considered the pioneer of the modern corporate investigations industry. In 1972, after an unsuccessful bid to become a New York City councilman, Jules started his eponymous company, Kroll, with $500. He soon became legendary: he is, after all, the man who uncovered the oil wealth of Saddam Hussein, the former president of Iraq, and tracked down the assets of Ferdinand and Imelda Marcos, the former presidential couple of the Philippines. He sold Kroll to Marsh & McLennan, the insurance giant, for nearly $2bn in 2004.

Their new company, which today has 40 employees and offices in London, Madrid, New York, and Bahrain, provides anticorruption, due diligence and forensic accounting services. Their aim is to become a premium one-stop shop to help businesses identify and manage risk using both the gumshoe investigative techniques that made the old company famous, and new digital information technologies.

“Volatility is the new norm,” says Kroll. “We are helping companies mine information and understand the threats they face as a result of the changing environment.”

K2 also does the due diligence for Kroll Bond Ratings, a fresh venture from the father-son team. Launched earlier this year, the company is a new entrant to the world of credit ratings – an industry that has faced a blaze of criticism about whether its overly rosy ratings helped create the economic meltdown by causing billions of dollars in losses to investors.

The seed of the idea for Kroll Bond Ratings came to Jeremy while he was an executive MBA student in the Trium Programme, a global alliance of New York University’s Stern School of Business, London School of Economics, and HEC School of Management, Paris. The programme gave him the opportunity to “pay close attention to what was going on in the world” and mull potential business opportunities.

Kroll recalls surveying the wreckage of the credit crisis in a class taught by Ingo Walter, professor of finance and corporate governance at Stern. “One thing that struck me was the lack of integrity of the ratings process. There was so much obfuscation in terms of investment products, specifically mortgage-backed securities, and there was a lack of due diligence,” he says. “[I thought:] what can we do to bring something new to the market that would offer a private-sector solution to a public-policy question?”

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Kroll has a lanky build, tousled movie-star hair and a ready smile. He wears the standard Wall Street uniform – a white shirt with a tailored dark suit – but minus the tie. A tie, he says, is not as “relevant” as it used to be.

Business school was not necessarily part of his master plan. He spent a gap year in Florence learning to cook, paint, and speak Italian. He graduated from Georgetown University with a degree in Romance languages and fine arts. To this day he claims “nothing can replace the smell of linseed oil on a canvas”.

After dabbling in other jobs, he went to work for his father’s company, but never reported directly to Jules. “There were many layers by design,” says Kroll. “I never hid from being his son, but I never used it to my advantage either. I wanted to learn from other people. I made sure I was the first one in the office, and the last one to leave.” (For the record, Kroll appears genuinely in awe of his father, who is 70. “Being his partner has been an incredible opportunity,” he says. “He’s always been my mentor in business.”)

Eventually, Jeremy headed Kroll’s marketing and sales division, helping reposition the business into a global risk management and technology company. He took the unprecedented step of recruiting people from other industries, such as law-enforcement officers, attorneys, and journalists. “Kroll was kind of like an artists’ colony – it was an incredibly creative environment,” he says.

He also pressed for the company to embrace information technology more fully, for example computer forensics. It was the dawn of electronic investigations, and Kroll saw great promise for new technologies to help clients figure out who was behind a smear campaign, prove someone was stealing from a company or find evidence of collusion.

During his years at Kroll, the company grew from $65m to $1bn in annual sales.

By 2006, he felt restless. The company had been sold, and while both he and his father stayed on, Kroll found that working for a bigger, more bureaucratic organisation had its shortcomings. “Embracing and holding on to a mission in a big company is a challenge,” he says. “I was looking for new energy. I wanted to spread my wings.”

Up to that point, Kroll had been his classroom. He knew that to start a new business he would need not only technical expertise in areas such as finance and accounting, but also a deeper understanding of operations and marketing, and exposure to other industries, sectors and business models.

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Kroll was initially reluctant to pursue the Trium EMBA because of the time commitment. The 16-month programme involves several international rotations, including modules at the three schools’ campuses, as well as stints in countries such as China and India. At the time, he had three children. (He now has a fourth.)

But his wife, Nicole, persuaded him that the degree would be an “investment” in his future and a “sacrifice” worth making. “She said: ‘Go for it.’ It was the last boost of confidence I needed,” he says.

The experience was “mind-expanding”. He recalls late-night study sessions with his classmates, whose average age was 41 and who came from very different professional backgrounds and cultural perspectives. Personalities often clashed. “We had to figure out how to work together,” he says. “You’re there to learn. You’re not there to play politics, or to one-up your competitors. We could have all been doing other things, but we chose to be there.”

Inspiration came from unlikely sources. Kroll says that a guest lecture by an executive from Louis Vuitton, the French fashion house, made him more aware of how important a high-end, personalised experience is for customers – even in the corporate investigations business. “In this economic climate, no one is paying premium rates for commodity services,” he says.

In 2008, the senior Kroll launched an unsuccessful attempt to buy back his old company. (Marsh & McLennan sold it to Altegrity, the security group, instead.) Jeremy says the failed bid was a “necessary step in the creative process, because it forced us to figure out what we wanted to do next”.

One project he is working on now is a service that uses pattern recognition and forensic analysis to understand the “social graph” of a given person: who they know, the quality of those relationships, and what is being said about them online. Consider it a detailed background check for the digital world.

“It’s an iterative process,” he says. “It uses digital technologies, but it also requires going back to gumshoe work and liaising with actual human beings, and not taking for granted what’s on the web. It’s like Reagan [the former US president] said, ‘Trust, but verify’. It gets to the premium part of what we do: good, old-fashioned detective work.”