As Charles Koch reached the third floor and walked down the hallway, he passed the boardroom and executive suites that were the command center for a corporate empire. Tens of thousands of employees. Billions of dollars in revenue and profit. Offices and trading desks that spanned the globe. The company’s operations touched the daily lives of virtually everyone who used gasoline, wore spandex, lived in a home with gypsum-paneled walls, swaddled their children in diapers, and counted on the heat to come on when they adjusted their thermostat. Koch Industries had a hand in all of it. The company had just survived the greatest economic shock since the Great Depression; it had adapted, trimmed back, and even found ways to profit during the chaos. And now, as it emerged, it was in a stronger position than ever before.
Charles Koch entered his spacious office, walked past the sitting area with its tasteful couch and reading table, past the walls lined with bookcases. He sat down at his desk, where just to his left he could look out the windows at the expanse of green prairie grass. In quiet moments, he could turn and gaze out at this horizon when he needed a quiet moment to think. But this bucolic view is not what Charles Koch faced, most of the time.
On the wall opposite Charles Koch’s desk, he had hung a painting that was quite unpleasant. His daughter, Elizabeth, had painted it. It was a picture of dark hues, heavy on the red, showing the face of what appeared to be a Chinese peasant. The man’s face was bruised and beaten. His expression was one of suffering. The painting seemed to be a reminder, and a warning. It was a totem of life under repressive regimes; the face of Communism, Socialism, and state control. It seems telling that Charles Koch gave it a place of such prominent display, hanging it where it was never far from his view. Charles Koch seemed to believe that the United States was slipping toward tyranny. When he looked out on the horizon, he saw a threat. The power of the state was rising, and Koch Industries was directly in its crosshairs.
But Charles Koch, in all his years, had never backed down from a fight. And the world was about to learn this fact for itself.
* * *
I. One reason for this is that people selling oil in the futures markets are willing to take a somewhat lower price, just to lock in the sale. And people buying oil today are willing to pay a higher price because oil tends to be scarce. When oil prices in the future are lower, the market is in “backwardation,” as the traders call it.
PART 3
* * *
GOLIATH
CHAPTER 18
* * *
Solidarity
(2010–2011)
In the early morning hours, small traffic jams appeared around Koch Industries headquarters campus, as thousands of employees made their way to the company parking lot. The lines of cars edged slowly into the parking lot, nose to tail, as early as seven thirty. Everyone knew that Charles Koch was probably already at the office, his modest station wagon parked just a few spots down the sidewalk from an entrance into the Tower.
Most employees parked in a large lot just north of the headquarters complex. After getting out of their cars, they flashed their company-issued ID badges to a security guard and then walked down a staircase to the subterranean tunnel that led into the headquarters building. The tunnel walls were decorated with photomontages of Koch Industries’ history, black-and-white pictures of the first trading desks, the Pine Bend refinery, and a smiling Fred Koch. The history of the place, and its story, was reinforced to every employee by the time they arrived at the elevator bank to take them to their offices.
It was impossible, now, for Charles Koch to meet all of his employees. It was even impossible for him to teach his management techniques through the Koch University model of the 1980s, when he taught his managers in large seminar settings and had them, in turn, teach their own employees. The company was too large and too sprawling. Just between 2004 and 2007, the company had grown roughly six times larger, adding seventy-three thousand men and women to the payroll. Charles Koch believed, however, that every new employee needed to subscribe to Koch Industries’ philosophy, to learn its vocabulary and embrace its mission. This was most important for the employees who worked in the Tower, and who walked through the pedestrian tunnel each morning. These employees were the elite corps of the workforce, the overseers of Koch’s holdings around the world. They were like the managing partners at a large holding company, overseeing Koch Industries’ far-flung investments. While the job was more difficult than before, Charles Koch found new ways to integrate each employee into the fabric of his company, to teach them the philosophy that he called Market-Based Management.
The training began with a stringent hiring process that selected only a certain kind of employee. Koch Industries developed a four-part interview process that revolved around Charles Koch’s Ten Guiding Principles. Job candidates, many of them fresh out of college, were led through lengthy lists of questions that sought to determine if they would adhere to Koch’s principles. Only the select few were chosen.
“You need diversity in certain ways,” explained Randy Pohlman, who directed Koch’s human resources division until the mid-1990s. “But if you’re Koch Industries, you don’t want people who don’t believe in free markets. They’re not going to be successful there. That’s not the kind of diversity you want. . . . If you’re going to start hiring every other person as a Socialist to have nice diversity—it’s not going to work,” Pohlman said.
Once the free-market adherents were hired, Koch began training them immediately. The new hires were collected in groups and led down a long hallway in the basement of the Tower, to a large conference room where round tables were set up to accommodate them. Their training session began with a video address from Charles Koch, projected on a large screen. He laid out the central tenants of MBM, and emphasized the importance of learning the code. And after the video was finished, employees learned the specific codes and rules of this new way of thinking. They broke into small groups and ran through simulations where they put the principles into practice. The training sessions lasted roughly two days. Once employees were on the job, the culture and the vocabulary were reinforced daily in every meeting and conversation, to create a kind of deep muscle memory of the culture.
The unity among Koch Industries’ employees was hard to overstate, or even articulate, to outsiders. This was a cadre of people who worked for a secretive company that made the world work. They operated the mind-numbingly complex machinery that lay just beneath the surface of modern society: the pipelines, refineries, fertilizer plants, clothing factories, and trading desks. The stupendous profits that they realized from doing so only seemed to reinforce their sense of superiority over the outside world. When it came time to fight the outside world, it wasn’t done with malice or disregard. It was done with a sense of pity. People outside the Koch campus seemed misguided, uneducated, somewhat oblivious to what it took to keep the lights on. Koch Industries would patiently work to correct these problems and make the world a better place.
One of the true believers inside Koch Industries was a young academic named Abel Winn. He had finished his graduate studies at George Mason University, home to the Mercatus Center that Charles Koch founded, and was fluent in the work of Hayek and von Mises. Winn didn’t know it at the time, but when he was invited for a job interview in Wichita, he was given a remarkable privilege. He got to interview with Charles Koch himself.