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When he was in Wichita, Roger Williams met with Charles Koch and Sterling Varner in their new corporate suite. And that’s where he learned about the strategy at the heart of Charles Koch’s corporate reorganization.
Fred Koch’s fragmented holdings would be fused into one organization, but they would be combined in a loose way that made the new Koch Industries nimble. The new company would be divided up into a set of divisions that could be more easily managed than the stand-alone companies had been. As a single entity, these divisions would be bound together with one simple goal: to grow.
Koch Industries would grow in a way that reflected Sterling Varner’s approach to business. Varner was “opportunistic,” in a way that Koch employees used the word, meaning that he was always looking for new deals that were connected to businesses in which he already operated. When Koch was shipping natural gas, for example, Varner pushed the company to build a specialized natural gas refinery in Medford, Oklahoma, to process the gas into liquid by-products. In this way, Koch could expand while building on the skills it already possessed. The gas refinery, or “fractionator” as they called it, became a huge moneymaker.
Varner encouraged his senior managers, like Williams, to think the same way. Williams was told that his job wasn’t just to keep his head down and run his division—his job was to keep his eyes on the horizon, to scan the environment of his business for new opportunities. Even more important, Varner told Williams to pass this mentality on to everyone who worked for him. The pipeline employees, the engineers, the oil gaugers—all of them needed to look for new deals as they went about their daily work. Everybody was supposed to act like an entrepreneur who worked in the mergers and acquisitions department.
“When you get that idea spread among your people, then you’ve got gaugers out there with their eyes open. The ideas come in. If you’ve got a couple of thousand [employees] looking for things, you’re going to get some stuff that comes in that’ll be all right.” Williams said.
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.
This message would soon be felt in the farthest corners of Koch Industries, such as the bayou country in southern Louisiana, where Koch Industries was running some of its largest pipeline and oil gathering operations. The oil gathering business was still the company’s foundation, handed down from Fred Koch. In Louisiana, Koch was reaping a fortune from the oil-rich land. And the ways in which Koch was reaping this fortune would soon be discovered by one of the company’s newest hires: a young oil gauger named Phil Dubose.
The company directives that came out of Wichita would become a daily part of Dubose’s life. And it would change him in ways that he would never be proud of. The directives also set Koch on a path that drew the attention of Kenneth Ballen and the US Senate Committee investigating oil theft on Indian land.
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In 1968, Phil Dubose was working in a grocery store in rural Louisiana. His future didn’t look especially bright: he was in his late twenties, had no college education, and was married with three kids. He was raised in a part of Louisiana with chronically high unemployment, where many people worked intermittently and made most of their money in cash under the table. It might seem unlikely, then, that over the next twenty years Dubose would be promoted up through the ranks of Koch Industries, into the realm of senior management, where he would find himself in charge of a surprisingly large chunk of America’s energy infrastructure.
Dubose loved hard work. His mom was a hardworking farm girl who instilled in him the religion of an honest day’s pay for a hard day’s work. His dad was an oil company manager who considered weekends to simply be a time when he could get work done outside the office. Dubose didn’t finish college because he was inspired to join the army in 1962 when he was newly married and just a year out of high school. President John F. Kennedy’s call for public service, combined with the Cuban Missile Crisis, convinced Dubose that he needed to enlist. He served in Vietnam, and then came back home in need of work. That’s when he landed a job as manager of a local grocery chain.
Dubose’s life changed one day when a teenager asked if Dubose could give him more shifts at the store. Dubose told the boy that he’d allow it, but only if the kid brought his report cards to work so that Dubose could make sure his grades weren’t falling. This small decision changed the path of Dubose’s life. The kid’s father was named Don Cummings, and he was impressed to hear that a grocery store manager would care so much about his son’s grades. Cummings thanked Dubose, and then he offered him a job. Cummings said Dubose could work for him at a local oil company called Rock Island Oil. Cummings made a convincing pitch. Rock Island might sound like a tiny company, but it was owned by a conglomerate out of Wichita that was owned by the wealthy Koch family.
Oil companies garnered a lot of respect in the Gulf Coast. The economy in most bayou towns was tied to the rice harvest, which ran in boom and bust cycles. But the oil business was different. The money was steady, and the pay was good. Dubose knew this because his father was an engineer with Superior Oil Company, which people in the area referred to, even in casual conversation, as the Superior Oil Company. In the fifties and sixties, the swamplands around Lafayette, Louisiana, were like a microcosm of the entire US oil industry. It was a place full of gushers, in other words. There were tremendous oil deposits located beneath the marshy wetlands and out in the bayous, and the landscape was covered with oil wells. Across the country, oil drilling was increasing, and the price of oil was falling slowly each year through the 1960s.
Koch Industries hired Dubose as an oil gauger. His job would be to measure the oil in each tank before Koch collected it, and then he would pump it onto a barge and take it to one of Koch’s pipelines, where it would be shipped to a refinery. Dubose spent many of his days on the water, out on the bayou and river channels. He piloted a small barge that could navigate through just a few feet of water, an ideal craft for negotiating the marshy lands. He steered expertly through the fingerlike lanes, avoiding cypress stumps and rocks and muddy shallows. He went from oil well to oil well, collecting the crude that was held there in large tanks. After running a circuit of several tanks, he took the oil to one of Koch’s terminals, where it was fed into a pipeline or moved onto a larger barge for shipment.
But before he could drain the tanks, Dubose had to measure just how much oil was in there. There was a regimented series of steps to taking the measurements, a kind of standardized ritual that oil gaugers around the country followed. This ritual was codified in an industry standard published by the American Petroleum Institute. These standards were voluntary, however, and Koch Industries did not follow them. Dubose said he was given a playbook for taking oil without paying for it.