Charles Koch Quotes

The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble. —RALPH WALDO EMERSON

Those who favor a “grand plan” over experimentation fail to understand the role that failed experiments play in creating progress in society. Failures quickly and efficiently signal what doesn’t work, minimizing waste and redirecting scarce resources to what does work. A market economy is an experimental discovery process, in which business failures are inevitable and any attempt to eliminate them only ensures even greater failures.

My lessons weren’t specific to business, but they were fundamental values—integrity, humility, responsibility, work ethic, entrepreneurship, a thirst for knowledge, the desire to make a contribution, and concern for others—that profoundly influenced the way I do business and live my life to this day.

Charles and David were the sons of Freddy Koch, who had tried to have Chief Justice Earl Warren impeached after the unanimous Brown decision, which declared “separate but equal” schools unlawful in America. Right

Koch's youthful idealism about libertarianism had largely devolved into a rationale for corporate self-interest.

By this point in history—after the 2008 collapse of Wall Street and in the midst of layers of ecological crises—free market fundamentalists should, by all rights, be exiled to a similarly irrelevant status, left to fondle their copies of Milton Friedman’s Free to Choose and Ayn Rand’s Atlas Shrugged in obscurity. They are saved from this ignominious fate only because their ideas about corporate liberation, no matter how demonstrably at war with reality, remain so profitable to the world’s billionaires that they are kept fed and clothed in think tanks by the likes of Charles and David Koch, owners of the diversified dirty energy giant Koch Industries, and ExxonMobil.

Allowing people the freedom to pursue their own interests (within the limits of just conduct) is the best and only sustainable way to achieve societal progress. For individuals to develop and have a chance at happiness, they must be free to make their own choices and mistakes, rather than be forced to accept choices made for them by others.

Polanyi argued that we only truly know something—that is, have personal knowledge of it—when we can apply it to get results.

The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble. —RALPH WALDO EMERSON (ATTRIBUTED)1

Principled Entrepreneurship™—creating superior value for our customers while consuming fewer resources and always acting lawfully and with integrity. Good profit comes from making a contribution in society—not from corporate welfare or other ways of taking advantage of people.

The capitalist achievement does not typically consist in providing more silk stockings for queens, but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort. —JOSEPH SCHUMPETER1

The possibility of men living together in peace and to their mutual advantage, without having to agree on common concrete aims, and bound only by abstract rules of conduct, was perhaps the greatest discovery mankind ever made.

The whole ideological assembly line that Richard Fink and Charles Koch had envisioned decades earlier, including the entire conservative media sphere, was enlisted in the fight. Fox Television and conservative talk radio hosts gave saturation coverage to the issue, portraying climate scientists as swindlers pushing a radical, partisan, and anti-American agenda. Allied think tanks pumped out books and position papers, whose authors testified in Congress and appeared on a whirlwind tour of talk shows. “Climate denial got disseminated deliberately and rapidly from think tank tomes to the daily media fare of about thirty to forty percent of the U.S. populace,” Skocpol estimates.

Koch believed that what the famed economist Joseph Schumpeter called "creative destruction" was so critical to the health of the capitalist system that empathy was an obstacle to acceptance of the world that must be brought into being.

Charles Koch’s mentor, the quasi-anarchist Robert LeFevre, had taught the Kochs that “government is a disease masquerading as its own cure.” Their extreme opposition to the expansions of the federal government that had taken place during the Progressive Era, the New Deal era, the Great Society, and Obama’s presidency had helped to convince voters that Washington was corrupt and broken and that, when it came to governing, knowing nothing was preferable to expertise. Charles Koch had referred to himself as a “radical,” and in Trump he got the radical solution he had helped to spawn. —

The process of discovery begins when we observe, often vaguely, a gap between what is and what could be. Our intuition tells us something better is just beyond the range of our mind’s eye. To build a culture of discovery, we must encourage, not discourage, the passionate pursuit of hunches (no matter their origin).

One of the key lessons that Charles Koch took from the Austrian economists von Mises and Hayek was that markets never stood still. The status quo never survived. Markets always build up and then tear down. It was an evolutionary process that never ended, and companies that tried to fight the process would only be devoured by the forces of change in the end.

relentlessly strive to come up with new and better products and produce them more efficiently than the alternatives.

In 2010, the brilliant investigative journalist Jane Mayer alerted Americans to the fact that two billionaire brothers, Charles and David Koch, had poured more than a hundred million dollars into a “war against Obama.

The Kochs were also directing millions of dollars into online education, and into teaching high school students, through a nonprofit that Charles devised called the Young Entrepreneurs Academy. The financially pressed Topeka school system, for instance, signed an agreement with the organization which taught students that, among other things, Franklin Roosevelt didn’t alleviate the Depression, minimum wage laws and public assistance hurt the poor, lower pay for women was not discriminatory, and the government, rather than business, caused the 2008 recession. The program, which was aimed at low-income areas, also paid students to take additional courses online.

Rowley said what others never dared to admit: “Far too many libertarians have been seduced by Koch money into providing intellectual ammunition for an autocratic businessman.” It had reached the point, he came to believe by 2012, that there was no hope that any of those who participated in the “free market think tanks” would “speak out.” He was blunt about the reason why: “Too many of them benefit financially from the pocket money doled out by Charles and David Koch.

To succeed, a business must not only develop profit and loss measures, but also determine their underlying drivers, in order to understand what is adding value, what is not, and why. This knowledge informs its vision and strategies, leads to innovations, creates opportunities to eliminate waste, and guides continuous improvement.

But, although the future is unknowable, it is not unimaginable. As Ludwig von Mises put it: “The entrepreneurial idea that carries on and brings profit is precisely that idea which did not occur to the majority. It is not correct foresight as such that yields profits, but foresight better than that of the rest. The prize goes only to the dissenters, who do not let themselves be misled by the errors accepted by the multitude.”6

By “good profit,” I don’t mean high margins or high return on capital, or lots of profit by just any means. What I consider to be good profit comes from Principled Entrepreneurship™—creating superior value for our customers while consuming fewer resources and always acting lawfully and with integrity. Good profit comes from making a contribution in society—not from corporate welfare or other ways of taking advantage of people.

CAN WE TRUST ANYTHING THE NEW YORK TIMES SAYS ABOUT IMMIGRATION? In 2008, the world’s richest man, Carlos Slim Helu, saved the Times from bankruptcy. When that guy saves your company, you dance to his tune. So it’s worth mentioning that Slim’s fortune depends on tens of millions of Mexicans living in the United States, preferably illegally. That is, unless the Times is some bizarre exception to the normal pattern of corruption—which you can read about at this very minute in the Times. If a tobacco company owned Fox News, would we believe their reports on the dangers of smoking? (Guess what else Slim owns? A tobacco company!) The Times impugns David and Charles Koch for funneling “secret cash” into a “right-wing political zeppelin.”1 The Kochs’ funding of Americans for Prosperity is hardly “secret.” What most people think of as “secret cash” is more like Carlos Slim’s purchase of favorable editorial opinion in the Newspaper of Record. It would be fun to have a “Sugar Daddy–Off” with the New York Times: Whose Sugar Daddy Is More Loathsome? The Koch Brothers? The Olin Foundation? Monsanto? Halliburton? Every time, Carlos Slim would win by a landslide. Normally, Slim is the kind of businessman the Times—along with every other sentient human being—would find repugnant. Frequently listed as the richest man in the world, Slim acquired his fortune through a corrupt inside deal giving him a monopoly on telecommunications services in Mexico. But in order to make money from his monopoly, Slim needs lots of Mexicans living in the United States, sending money to their relatives back in Oaxaca. Otherwise, Mexicans couldn’t pay him—and they wouldn’t have much need for phone service, either—other than to call in ransom demands. Back in 2004—before the Times became Slim’s pimp—a Times article stated: “Clearly . . . the nation’s southern border is under siege.”2 But that was before Carlos Slim saved the Times from bankruptcy. Ten years later, with a border crisis even worse than in 2004, and Latin Americans pouring across the border, the Times indignantly demanded that Obama “go big” on immigration and give “millions of immigrants permission to stay.”3

beneficial rules of exchange” are “the right of possession, its transference by consent, and the performance of promises.”12 This

Life for the overwhelming majority of people who haven’t been blessed to live in a free society has been, as Hobbes put it, “poor, nasty, brutish, and short.”8

The size of the experiment should have been limited in proportion to the risk-adjusted potential of the opportunity.

Rather than squandering our scarcest resource (talent) trying to save a marginal business, we’ve learned to focus that resource on opportunities with real potential.

that this was a lesson my father impressed on me at an early age: “Often adversity is a blessing in disguise and is certainly the greatest character builder.” Fred Koch’s

At West Virginia University, the Charles Koch Foundation’s donation of $965,000 to create the Center for Free Enterprise came with some strings attached. The foundation required the school to give it a say over the professors it funded, in violation of traditional standards of academic independence. The Kochs’ investment had an outsized impact in the small, poor state where coal, in which the Kochs had a financial interest, ruled.

The next morning, readers of The New York Times and The Wall Street Journal opened their papers to see a full-page ad paid for by the Cato Institute, the think tank that Charles Koch had founded and on whose board David Koch sat. The ad directly challenged Obama’s credibility.

As Charles Lewis, the founder of the Center for Public Integrity, a nonpartisan watchdog group, put it, “The Kochs are on a whole different level. There’s no one else who has spent this much money. The sheer dimension of it is what sets them apart. They have a pattern of lawbreaking, political manipulation, and obfuscation. I’ve been in Washington since Watergate, and I’ve never seen anything like it. They are the Standard Oil of our times.

Ironically, the organization modeled itself on the Communist Party. Stealth and subterfuge were endemic. Membership was kept secret. Fighting “dirty” was justified internally, as necessary to combat the imputed treacherousness of the enemy. Welch “explicitly sought to use the same methods” he attributed to the Communists, “manipulation, deceit, and even dishonesty,” recalled diZerega, who attended Birch Society meetings in Wichita in his youth. One ploy the group used, he said, was to set up phony front groups “pretending to be other than what they were.” An alphabet soup of secretly connected organizations sprang up, with acronyms like TRAIN (To Restore American Independence Now) and TACT (Truth About Civil Turmoil). Another tactic was to wrap the group’s radical vision in mundane and unthreatening slogans that sound familiar today, such as “less government, more responsibility.” One of Welch’s favorite tropes, decrying “collectivism,” would cause some head-scratching more than fifty years later when it was echoed by Charles Koch in a 2014 diatribe in The Wall Street Journal denouncing his Democratic critics as “collectivists.

the Koch brothers—owned virtually all of what had become under their leadership the second-largest private company in America. They owned four thousand miles of pipelines, oil refineries in Alaska, Texas, and Minnesota, the Georgia-Pacific lumber and paper company, coal, and chemicals, and they were huge traders in commodity futures, among other businesses. The company’s consistent profitability had made the two brothers the sixth- and seventh-wealthiest men in the world. Each was worth an estimated $14 billion in 2009. Charles, the elder brother, was a man of unusual drive, accustomed to getting his way. What he wanted that weekend was to enlist his fellow conservatives in a daunting task: stopping the Obama administration from implementing Democratic policies that the American public had voted for but that he regarded as catastrophic.

Cato was devoted to espousing Charles Koch’s vision: that government’s only legitimate role was to “serve as a night watchman, to protect individuals and property from outside threat, including fraud. That is the maximum,” as he told the Wichita Rotary Club in the 1970s.

the Kochs presented themselves as champions of criminal justice reform, but while they were active in ALEC, it was instrumental in pushing for the kinds of draconian prison sentences that helped spawn America’s mass incarceration crisis. For years among ALEC’s most active members was the for-profit prison industry. In 1995, for instance, ALEC began promoting mandatory-minimum sentences for drug offenses. Two years later, Charles Koch bailed ALEC out financially with a $430,000 loan.

In 1976, with a contribution of some $65,000 from Charles Koch, the Center for Libertarian Studies in New York City was launched and soon held a conference featuring several leading lights of the libertarian movement. Among those delivering papers on how the fringe movement could obtain genuine power was Charles Koch. The papers are striking in their radicalism, their disdain for the public, and their belief in the necessity of political subterfuge.

The Kochs were also directing millions of dollars into online education, and into teaching high school students, through a nonprofit that Charles devised called the Young Entrepreneurs Academy.

One former insider in the Kochs’ realm, who declined to be named because he feared retribution, described the early donor summits as a clever means devised by Charles Koch to enlist others to pay for political fights that helped his company’s bottom line. The seminars were, in essence, an extension of the company’s corporate lobbying. They were staffed and organized by Koch employees and largely treated as a corporate project. Of particular importance to the Kochs, he said, was drumming up support from other business leaders for their environmental fights. The Kochs vehemently opposed the government taking any action on climate change that would hurt their fossil fuel profits.

It is unclear what Fred Koch’s views of Hitler were during the 1930s, beyond his preference for the country’s work ethic in comparison with the nascent welfare state in America. But he was enamored enough of the German way of life and thinking that he employed a German governess for his first two sons, Freddie and Charles.

As Koch put it, “My brother Charles collects money. David used to collect girls, but not anymore. Fred collects castles. And I collect everything.

The entire food system appeared to be one immense machine that laundered energy from fossil fuels into food calorie energy that humans could eat. At the beginning of the supply chain was the fossil fuel—gasoline used by tractors and natural gas used to make nitrogen fertilizer. The next link of the chain were farmers raising crops and animals, using the fossil fuels as they went. After that came the food processing industry, like the grain mills and slaughterhouses. Finally, there were the grocery stores and restaurants that distributed the final food products. Koch Industries planned to insert itself into every link of this chain. Charles Koch had made his company the single largest purchaser of American crude oil in the span of a decade. Now his company might be able to do the same thing with food.

strength was knowledge. Charles Koch had built an organization that learned, and learned constantly. Every transaction was a data point, every relationship was a conduit for information, every business unit a listening post. At Charles Koch’s direction, the company had filled whole rooms of its basement with computers and processing power, the ability to churn and analyze mountains of information. Koch built a company around learning.

The company created a new team of top executives called the business development board, whose sole job was to look for other companies to buy. This group was essentially a reincarnation of the central development group that Brad Hall had overseen in the late 1990s, but it was restructured in a way that made it larger, more influential, and capable of closing deals that were larger by an order of magnitude than anything Koch had done before. The new development group rivaled any deal-making entity on Wall Street. The team had a steady river of cash to work with thanks to the steady flow of money generated at Pine Bend and other assets. The team also made use of Koch Industries’ nearly pristine credit rating,I which made it cheap and easy to get big loans. Even this new strategy—to push for growth and limit risk with a corporate veil—rested on a deeper, more important idea. This idea was the centerpiece of Koch’s new game plan, which relied on one competitive advantage more than any other: Koch’s superior information. Koch was seen by outsiders as an energy company, but, within the firm, it was seen quite differently. Charles Koch and his lieutenants considered Koch to be an information-gathering machine that built up stores of knowledge that were deeper and sharper than its competitors’. This strategy traced back to Koch Industries’ earliest days, but with the new business development board in place, it reached the level of a fine art. Koch’s newly designed companies, like Koch Minerals, each had their own mini development teams that became like searchlights, trained on the various industries in which they operated. Whatever they saw and learned was transmitted to the central development board, which synthesized the information with knowledge that was flowing in from Koch’s other companies. The development board also undertook studies of its own, looking for new opportunities beyond the existing Koch universe.

After their trip to the Pink Palace, Hannan and his team agreed to buy Georgia-Pacific’s two major pulp mills. Koch Industries formed a new shell company, called Koch Cellulose LLC, which took possession of the two major pulp mills for $610 million.I This acquisition would have been among Koch’s biggest in the 1990s, but in 2003 it was just a down payment. Charles Koch favored a trading strategy that he called “experimental discovery.” It entailed making a small bet in a new market and seeing if the bet paid off. Even if a Koch trader lost money on the trade, they gained insight. If they made a profit, the bet could be expanded.

Charles Koch gained confidence from the pulp mill experiment. He was so confident that just a year after buying the pulp mills, Charles Koch was considering a plan to buy all of Georgia-Pacific outright and take the company private. Koch Industries could apply the same techniques to the entire company: 10,000 percent compliance, targeted investment, and flexible management that didn’t focus on quarterly results. But Georgia-Pacific wouldn’t come cheap. The company would cost at least three times the $4 billion Koch paid for Invista, and it would require multiple billions of dollars in debt. Charles Koch hated debt.

In typical Koch fashion, the company developed a specific strategy to grow, one that came complete with its own vocabulary. The framework was called the Value Creation Strategy, or VCS. Every Koch business leader was expected to create their own Value Creation Strategy. They needed to look for new companies to buy, new plants to build, and expansion projects for existing plants. This wasn’t exactly new—growth was ingrained in Koch’s DNA from the beginning, when Sterling Varner encouraged his employees to keep their eyes peeled for investment opportunities. But the VCS regimen was different. Business leaders knew that Charles Koch would cut or increase their bonus pay based on the Value Creation Strategies they delivered. Expansion was once applauded; now it would be required. This change rippled out through the ranks.

The development group that Brad Hall oversaw resembled these private equity firms in some ways. But there was a fundamental difference. Koch’s development group had patience. It thought on a timeline of ten or twenty years, not twelve to eighteen months. And, unlike virtually any other private equity firm, Koch’s group had only two shareholders to answer to: Charles and David Koch. For these reasons, Koch made acquisitions like nobody else. It tended to rush into markets when others were leaving. It tended to buy companies only when they were distressed and no one else wanted them. Koch was accustomed to the wild volatility of energy markets, so the company knew that most downturns were temporary.

True knowledge results in effective action,” as Charles Koch liked to say. Pouring money into a failing business venture like Purina Mills would not change the market’s verdict. Doing so would only steer that money away from other ventures where it could be more profitably invested. It was better to let the thing die, no matter the short-term pain that might be inflicted. This was one of the principles of Market-Based Management. What good were principles if you abandoned them when tested? In late August of 1999, Koch Industries informed Purina that it would get no extra money from Wichita. Koch owed Purina nothing. Soon after, Purina failed to pay $15.75 million in interest expenses that were due. Two weeks later, it failed to pay $2.1 million in principal payments. When Purina blew through its payment dates and became delinquent, it set off a cataclysmic chain of events. The banks accelerated their payment demands rather than giving Purina more breathing room. The lenders were desperate to get whatever money they could while the firm was still solvent. The frenzy only ended on October 28, when Purina filed for bankruptcy.

It kept him on edge, and this was the key to thriving in the private equity economy. The heavy debt required ever-better performance and leaner operations. The pressure to achieve this never stopped. It was transmitted from Charles Koch, to Jim Hannan, to the cadre of executives who worked around him. Then, perhaps most importantly, it was transmitted down the chains of command to the ground level of Georgia-Pacific.

Charles Koch did, this new effort carried its own slogan: “10,000 percent compliance,” meaning that employees obeyed 100 percent of all laws 100 percent of the time.II This slogan might have seemed banal, even empty, to Koch Industries employees in the beginning. There isn’t a company in America that doesn’t profess to obey the law. But the glib nature of the slogan was deceiving: it represented an entirely new way of operating. Koch Industries expanded its legal team and embedded them into the firm’s far-flung operations. Now if process owners like the managers at Pine Bend decided to release ammonia-laden water into nearby waterways, they often had to first consult with teams of Koch’s lawyers. Koch’s commodity traders consulted the legal team when devising new trading strategies. Teams of inspectors from the legal department descended on factories and threatened to shut them down if managers couldn’t prove that a valve had been properly inspected. The mandate to comply with the law was very real, and it served a strategic purpose. Koch would keep state and federal regulators off its property.

While traders might have seen what was coming, it appeared that the general public did not. O’Neill saw a gap in the market in early 2000. A giant gap. The price of gas options was cheap—too cheap to account for what was apparently coming down the road. In other words, the insurance policies against a sudden price spike were not as expensive as they ought to have been. So O’Neill started snapping up the options and holding on to them, knowing that they would become more valuable. As usual, he wasn’t just making a bet that prices were going to go up. He was primarily betting that markets were about to become more volatile. He built up a large position with his natural gas options and underliers that was “long volatility,” meaning that he bet volatility would increase. He assumed that the positions would provide a good return for Koch Industries. He was wrong. He grossly underestimated the riches that the coming volatility was about to deliver. Senior executives in Koch Supply & Trading realized that they could no longer pay their traders like engineers. There was a competition for talent, and too many well-trained people were bleeding off the Koch trading floor. There was one person who seemed to resist big paydays for the traders: Charles Koch. The business failures of the 1990s impressed on Charles Koch the need for humility among his workforce. The thinking went that it was the high-flying ambition and loose planning that led to many of the business losses at Purina Mills.

Charles Koch understood now that he needed a political operation in Washington. Up until that point, he operated as if he could stay out of the miasma of the nation’s capital, staying true to his libertarian beliefs and focusing his efforts on the business in Wichita. This left Koch vulnerable. When Ken Ballen was conducting his investigation, he was contacted frequently by high-paid attorneys and experts who worked for companies like Exxon and Chevron. They defended their clients and even helped focus attention on Koch Industries. Koch had no such presence. This would change in the early 1990s.

To acquire Georgia-Pacific, we took it deep into debt—to the point where unless performance improved, Georgia-Pacific would be in violation of its loan covenants,” Charles Koch later wrote. Now debt became a virtue rather than a burden, a force that established motivation and self-sacrifice among those who carried it. Koch Industries announced its plan to take Georgia-Pacific private in mid-November of 2005. The deal made Koch the largest privately held company in the nation.III Koch would be adding fifty-five thousand new employees to its workforce of thirty-three thousand, more than doubling the company in size once again. Jim Hannan was quickly informed that his services were no longer needed at Invista. He would move to Atlanta and help Koch absorb the largest acquisition in its history.

Its efforts are coupled with a nationwide army of activists and volunteers called Americans for Prosperity, along with a constellation of Koch-funded think tanks and university-based programs. Charles Koch’s political vision represents one extreme pole in the ongoing debate about the role of government in markets; a view that government should essentially protect private property and do little else.

Charles Koch and Sterling Varner held quarterly meetings to evaluate how managers like Williams were doing in this regard. Williams was expected to report on his pipeline business and also to bring up new “high-quality investments” that he had spotted in the field.

A ritual was formed at these meetings. A manager like Williams would propose the idea for some new investment. And then the questions would begin. Charles Koch’s questions were relentless, seemingly never ending, and the managers understood that they must be prepared to answer all of them. If a manager didn’t have the answers, the topic was dropped until he could return with them. The rhythm of corporate life at Koch Industries began to revolve around these quarterly meetings. And the rhythm beat a steady message into every manager and every employee below them down the chain: grow.

Koch’s oil gathering division delivered a steady flow of cash and profits into the company. This money gave Charles Koch a chance to put his management theories to the test. He encouraged his employees to look for new growth opportunities and to act like entrepreneurs. He wanted to lead by example. In his first years as head of Koch Industries, Charles Koch put together one of the most brilliant and profitable deals in the history of Koch Industries. The deal involved an oil refinery. Since the late 1950s, Fred Koch had owned a minority share in the Great Northern oil refinery outside of Minneapolis, near the Pine Bend Bluffs natural reserve. The other shareholders in the refinery were an oil tycoon named J. Howard Marshall II and the Great Northern Oil Company. In 1969, the refinery didn’t look like a gold mine. Competition in the sector was fierce, with new refineries being put into production monthly. But the Pine Bend refinery, as everyone called it, had a secret source of profits. And this source of profits could be traced to exactly the kind of government intervention that Hayek hated most. In the 1950s, President Dwight Eisenhower capped the amount of oil that could be imported into the United States, in one of the federal government’s many ploys to protect domestic oil drillers. (Imported oil was often cheaper than domestic oil, so US drillers wanted it kept out.) But there was a loophole in that law that allowed unlimited imports from Canada. As it happened, Canada was the primary source of oil processed at the Pine Bend refinery. Pine Bend was one of only four refineries in the nation that was able to buy cheaper imported oil in unlimited quantities, giving it a huge advantage over firms that were forced to buy mostly domestic oil.

In 1969, Charles Koch executed a secret plan that would increase those profits beyond anything Fred Koch could imagine. Charles approached J. Howard Marshall and convinced Marshall to sell his share in the refinery in exchange for shares in Charles Koch’s newly created firm, Koch Industries. When that secret deal closed, Charles Koch was a majority shareholder in the Pine Bend refinery. He then approached Great Northern, now a minority shareholder, and convinced that company to sell its ownership stake. By the end of the year, Koch Industries was the sole owner of the Pine Bend refinery. Charles Koch saw something in the refinery that others didn’t see.

Bernard Paulson and Charles Koch seemed to understand something intuitively. They understood that solidarity had its limits. The OCAW’s cohesion was unbreakable. But the OCAW would be weaker if it stood alone. In fact, it was doubtful if the OCAW would be able to stand at all if it was alone. Isolating the union would prove to be the only way to beat it. During the summer and fall of 1973, that’s exactly what happened.

Charles Koch aimed to build a corporation that would not only survive the brutal swings of the marketplace, but profit from them. He built a company that learned constantly from the world around it and prized information discovery above almost everything. It was a company that embraced change and hated permanence, one where every division would be up for sale all the time.

Varner must have recognized quickly that Markel was exactly the kind of person that Charles Koch was searching for to fill the corporate ranks. If there is a single example of the prototypical Koch employee, it was Lynn Markel. He was born and raised on a farm outside of Dodge City, Kansas, so he was accustomed to a seven-day workweek. He attended Kansas State University and had no illusions that a college degree conferred on him anything more than the right to work hard for a living. After graduating, he became an officer in the US Air Force, where he served for four years, so he learned to think of himself as part of a larger organization and put the needs of his teammates before his own. Markel had moved to Wichita right after his stint in the air force to work as a financial controller with the Cessna Aircraft Company. Working for a large, publicly traded firm hadn’t agreed with Markel. There was a lot of bureaucracy to contend with; he wanted to be more entrepreneurial. He left Cessna and joined a large real estate firm that was expanding rapidly. But that firm went bust, and Markel landed in his current job as chief financial officer for the chain of television stations.

Charles Koch loved the idea, and so did Markel. Getting rid of budgets would instantly dispose of hours’ worth of drudgery that defined a financial controller’s life. Koch invented a new set of metrics to replace budgets. And the numbers that the company focused upon were telling. Charles Koch didn’t care much about sales or costs—he cared about profits. He wanted to know how profitable any line of business was and how profitable it could be under the right management. He steered all of his managers to think this way. The key thing they needed to focus on was the return on investment, or ROI—what was the best use of Koch Industries’ money? Soon each division was writing a profit goal for the quarter, rather than a budget.

To keep things moving up and to the right, Charles Koch had an unwavering philosophy about debt. He was rigid in his belief that debt should be kept as low as possible so that interest payments didn’t eat up Koch’s cash. The reasons for this were strategic. Every downturn brought opportunities for companies that were prepared. Downturns weakened competitors and made them ripe for takeover. Downturns made assets cheaper to buy. For this reason, Markel and his team were discouraged from borrowing large sums even if banks were more than willing to lend it. “It was really based upon kind of looking forward to opportunities,” Markel recalled. “The reason you like to build up cash and not have a lot of debt is so that you can capture opportunities that you couldn’t capture if you were fully loaded in debt and had no cash.

Koch made full use of this strategy. It began to profit from market downturns by snapping up its competitors. This was most evident in Koch’s giant oil gathering and pipelines division. Roger Williams, the vice president over pipelines, oversaw an expansion funded by the cash that Charles Koch was pouring back into the company.

employees felt like they owned a piece of Koch Industries. Charles Koch gave them performance-based bonuses and issued them “shadow stock” contracts that paid out as the company’s value increased, but that didn’t confer actual ownership. The real shares of Koch Industires were tighly held by Charles and David Koch, and a small group of relatives and associates. The vast majority of employees embraced this culture.

It didn’t take long for Koch to grasp a truth that was well known to Farmland executives, which was that nitrogen fertilizer sales were pivotal to the company’s business model in 1995. Koch also detected a weakness in Farmland’s business model. Farmland was a co-op, meaning that it was owned by thousands of members who also sold their products through the firm. It was a uniquely midwestern form of capitalism that blended community control with industrial scale. In this way, Farmland was the opposite of Koch Industries, which was tightly held by Charles and David Koch. Farmland was owned by thousands of farm families and small business owners who shared in Farmland’s annual profits and voted on its actions. But it also hindered Farmland—decisions were influenced by its member-owners, who considered factors beyond the simple return on investment. “It was Socialism,” as Koch Agriculture president Dean Watson put it. And Koch’s traders believed that Socialism was always destined to fail.

If Koch bought the Corpus Christi plant, Paulson realized, the acquisition would open up an entirely new market for the company: the market for paraxylene and other petrochemicals. And, true to Koch’s philosophy, the market would be new but not entirely foreign. Koch knew the petrochemical business already. It could apply the expertise developed at Pine Bend to manufacturing paraxylene in Texas. On top of all of this, it appeared to Paulson and others that Sun Oil wasn’t aware of the opportunity it was missing in Corpus Christi. Sun was making and selling paraxylene but not at nearly the levels that it could. In September of 1981 Koch Industries paid $265 million in cash for the refinery, and Paulson immediately started expanding it. He more than doubled its paraxylene output. He bought a used hydrocracking tower from a refinery in Europe and had it shipped to Texas, bragging to Charles Koch that he bought the tower for 40 percent of what it would cost “off the shelf.” Koch Industries became one of the largest paraxylene producers in the United States.

She personified a principled regard for the community, which to me reflects Adam Smith’s vision: And hence it is, that to feel much for others, and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety.3

The Kochs were also directing millions of dollars into online education, and into teaching high school students, through a nonprofit that Charles devised called the Young Entrepreneurs Academy. The financially pressed Topeka school system, for instance, signed an agreement with the organization which taught students that, among other things, Franklin Roosevelt didn’t alleviate the Depression, minimum wage laws and public assistance hurt the poor, lower pay for women was not discriminatory, and the government, rather than business, caused the 2008 recession.

Societies that don’t embrace freedom wind up with the least prosperity. Venezuela is a country rich in natural resources, yet after just fourteen years under a socialist government, it now rations food, electricity, water, and other staples.

Companies are always lobbying for special treatment, but during that recession a large number of them stepped up their pressure on the government for favors. They did so quite effectively—but at the expense of taxpayers and consumers, and to the rigged disadvantage of their competitors.

Charles and David brought their political resources to bear as never before during the 2012 election, which Charles called “the mother of all wars.” Yet they emerged from the crucible of the campaign having gained little more than a reputation as cartoonish robber barons, all-powerful political puppeteers who with one hand choreographed the moves of Republican politicians and with the other commanded the Tea Party army. As with all caricatures, this one bore only a faint resemblance to reality.

According to Charles, Fred’s advice to his sons, after prevailing over Universal, was, “Never sue. The lawyers get a third, the government gets a third, and you get your business destroyed.” Bill Koch took away a different lesson: He would grow up to see litigation as a weapon of righteous retribution.

The role of business in society is to help people improve their lives by providing products and services they value more highly than their alternatives, and to do so while consuming fewer resources.

I vividly recall the first two life-changing books I came across: F. A. Harper’s Why Wages Rise and Ludwig von Mises’s Human Action.

Thomas Sowell eloquently counters this assumption when he writes, “To the economically illiterate, if some company makes a million dollars in profit, this means that their products cost a million dollars more than they would have without profits. It never occurs to such people that these products might cost several million dollars more…without the incentives to be efficient created by the prospect of profits.”3

This was Good Profit 101: providing the best hassle-free service to our clients at the lowest cost to them and attracting the best employees based on the opportunities we offered. Our goal was—and still is—to be the counterparty of choice to our customers, vendors, communities, and employees.

interview process typically consists of a series of separate interviews, with each interviewer assessing a candidate’s alignment with a unique set of personal traits. These traits are arranged as focus areas based on our Guiding Principles and are as follows: (1) Integrity and Compliance; (2) Value Creation, Principled Entrepreneurship, and Customer Focus; (3) Knowledge and Change; (4) Humility and Respect; and (5) Skills and Knowledge required in the role.

Clayton Coppin, who taught history at George Mason and compiled the confidential study of Charles’s political activities for Bill Koch, describes Mercatus outright in his report as “a lobbying group disguised as a disinterested academic program.” The arrangement, he points out, had financial advantages for the Kochs, because it enabled Charles “to have a tax deduction for financing a group, which for all practical purposes is a lobbying group for his corporate interest.

Charles Koch himself committed $1.5 million on the spot, but with strings attached, keeping him in control. As Mellor recalled, “He said, ‘Here’s what I’m going to do. I’ll give you up to $500,000 a year for three years, each year, but you have to come back each year and demonstrate that you’ve met these milestones that you’ve set out to accomplish and I will evaluate it on a yearly basis, and there’s no guarantees.’ ” The legal group, the Institute for Justice, went on to bring numerous successful cases against government regulations, including campaign-finance laws, several of which reached the Supreme Court.

In 1990 alone, the article noted, the three main private foundations controlled by Charles and David Koch disbursed $4 million to such ostensibly nonpartisan but politically motivated groups.

By 2015, according to an internal list, the Charles Koch Foundation was subsidizing pro-business, antiregulatory, and antitax programs in 307 different institutions of higher education in America and had plans to expand into 18 more. The schools ranged from cash-hungry West Virginia University to Brown University, where the Kochs, in the tradition of the Olin Foundation, established an Ivy League “beachhead.

At West Virginia University, the Charles Koch Foundation’s donation of $965,000 to create the Center for Free Enterprise came with some strings attached. The foundation required the school to give it a say over the professors it funded, in violation of traditional standards of academic independence.

If producers knew not only what consumers want now, but what they will want in the future, their job would be pretty easy.

George Mason was the Kochs’ largest libertarian academic project but far from the only one. By 2015, according to an internal list, the Charles Koch Foundation was subsidizing pro-business, antiregulatory, and antitax programs in 307 different institutions of higher education in America and had plans to expand into 18 more. The schools ranged from cash-hungry West Virginia University to Brown University, where the Kochs, in the tradition of the Olin Foundation, established an Ivy League “beachhead.” At

Charles Koch himself described Obama’s election in almost apocalyptic terms, sending an impassioned newsletter to his company’s seventy thousand employees earlier that January declaring that America faced “the greatest loss of liberty and prosperity since the 1930s.

I should regret very much to have you miss the glorious feeling of accomplishment and I know you are not going to let me down. Remember that often adversity is a blessing in disguise and is certainly the greatest character builder.

It would be necessary to use ambiguous and misleading names, obscure the true agenda, and conceal the means of control. This is the method that Charles Koch would soon practice in his charitable giving, and later in his political actions.

Americans for Prosperity annoyed some of the Tea Partiers,” recalls the libertarian blogger Ralph Benko. “These people drove up, opened the door, put T-shirts on them, then took pictures and sent them to Charles [Koch] saying, ‘See? We’re doing great things with your money.

When powerful ideologies are challenged by hard evidence from the real world, they rarely die off completely. Rather, they become cult-like and marginal. A few true believers always remain to tell one another that the problem wasn't with the ideology; it was the weakness of leaders who did not apply the rules with sufficient rigor. By this point in history free-market fundamentalists should be exiled to a similarly marginal status...They are saved from this fate only because their ideas...remain so profitable to the worlds billionaires that they are kept fed and clothed in think tanks by the likes of Charles and David Koch and ExxonMobil.

I was especially fascinated by the second law of thermodynamics, which holds that entropy virtually always increases in a closed system. Entropy is a measure of disorder or uselessness. In lay terms, this means that progress stalls or declines when something is walled off from the outside world. Usually

Charles Koch insists on reinvesting at least 90 percent of the company’s profits, fueling its constant expansion. This strategy laid the foundation for decades of continuous growth. Koch Industries expanded continuously by purchasing other companies and branching out into new industries. It specialized in the kind of businesses that are indispensable to modern civilization but which most consumers never directly encounter.

The first pillar of the plan to fall into place was organizational. Almost immediately, Charles Koch set about restructuring the interlocking group of companies that Fred Koch had left behind. The confusing amalgam of corporate entities—the engineering company, the oil gathering business, the pipelines, the ranches—would soon be welded into a single entity. The second pillar of Charles Koch’s plan was physical: the company would be based in a new office complex. Before Fred Koch died, the company had offices in a downtown building that was named after him. But by a stroke of coincidence, that building was scheduled to be demolished just when Fred died, torn down in order to make way for an urban renewal project. In its place, Charles Koch oversaw the construction of new headquarters, this one on the far-northeast corner of town.

Right there, on page 89, Charles Koch explains the ABC process of employee retention at Koch Industries. The A performers are a company’s competitive advantage, he explained, while the B performers are the necessary workers who keep the enterprise running. The C performers, on the other hand, do not meet expectations, and can drag the business enterprise down with them. “Focused strategies should be put in place for C-level employees to improve performance through training, development, mentoring, or role change,” Charles Koch wrote. “Employees who do not quickly respond to these efforts and continue to perform at a C level should not be retained.

Charles Koch had finally built a machine that was poised to thrive, even profit, in the midst of violent market corrections. This capability derived, in part, from something that Charles Koch called “the trading mentality.” This mentality held that it didn’t matter so much if markets were going up or down; what mattered was that the traders could see ways to exploit large shifts in the markets. During volatile times, companies and governments and competing traders were thrown off balance. Prices diverged. Supplies were interrupted. Gaps emerged between market prices and underlying values. Koch became nimble, even expert, at exploiting those gaps for its gain.

When process owners like Roos read Introduction to Market-Based Management, they were warned against using the nonprofit support services too much. Because services like accounting and environmental engineering were essentially “free” to people like Roos, there was a danger that those services would be overused. The pamphlet likened the nonprofit groups to government agencies that handed out free services: there was a danger that the nonprofit groups might become bloated and overly expensive. The nonprofits might therefore drag down the performance of the very profit centers that they were supposed to serve. As they grew in size and cost, the nonprofit service centers would suck resources away from the parts of the company that actually made money. “The predictable result was often a corporate overhead cost spiral,” the pamphlet said. To counter this cost spiral, Charles Koch created an internal market system: divisions such as Roos’s had to essentially pay to use the nonprofit groups.

Charles Koch seemed to make that shift effortlessly. “He goes back to his core thinking of: What’s our point of view around what’s going to happen? How long is this downturn going to take? How is that going to affect people’s buying patterns?” Jones recalled. “And how long is it going to take—given this housing crisis—to get through this deleveraging?” If Charles Koch was more confident in his company’s future, he had reason to be. The company he oversaw in 2008 was larger, more diverse, and more adaptable than it had ever been before. It was built to withstand market shocks. Some divisions were hit hard, such as Koch’s building products divisions and its carpet fiber factories. But other divisions fared much better, such as its oil refineries and trading desks. The financial pain was very real, but there never seemed to be any doubt that Koch Industries would come out the other side as a healthy and profitable enterprise.

Brady did find one trusted source for news and education that was recommended to her by many friends and fellow patriots. She began to watch the television show of a commentator named Glenn Beck. “I kind of got an education. My start of my education was Glenn Beck, I guess. Because that’s the only person that was talking about the issues that I agreed with.” Glenn Beck was the most prominent voice in the American Tea Party movement, and understanding Beck’s political philosophy was critical to understanding the Tea Party and the relationship of the Tea Party to Charles Koch’s political efforts. Glenn Beck’s television show on Fox News drew close to three million viewers in 2009, beating the combined ratings of all his competitors’ shows. Beck spent many years honing his skills as a political entertainer on talk radio, where provocation was the currency of the realm. Debate was better than discussion. Suspense was better than satisfaction. Outrage was better than understanding. Glenn Beck elevated this genre to the level of high art. The narratives he spun on his show were terrifying and purported to reveal the broad contours of chilling global conspiracies. He affected the persona of a high school teacher, wearing a cheap, ill-fitting coat and tie. He stood in front of a chalkboard. During one show, the chalkboard displayed three logos: The United Nations symbol, the Islamic crescent, and the iconic Communist hammer and sickle. Beck explained that these three logos represented the three global movements that were currently hard at work to enslave and control his viewers.