Managers at Koch Industries had reason to be satisfied with these results. They marked a significant improvement over Georgia-Pacific’s performance before Koch purchased the company. Throughout the 1960s and 1980s, worker safety standards were abysmal. “It was like ‘Welcome to [Georgia-Pacific]. Watch your ass,’ ” one employee recalled.
Even by the early 1990s, Georgia-Pacific was reporting six worker deaths a year across the country. Things improved that decade but worsened during the early 2000s. This was the period when Wesley Jones, the Georgia-Pacific executive in Georgia, said the company dramatically cut back investment in its factories because it was loaded with debt. In 2000, seven workers were killed at the company. Six were killed each year in both 2001 and 2002. Things improved once again, and in 2004 no employees were killed.
Koch Industries was delivered something of a reprieve beginning in 2008, when the housing market crashed. Orders for building materials slowed dramatically, and during the recession that followed, orders for paper and tissue plummeted as well. During this down cycle, Koch Industries did what it does best: it invested against the economic cycle, pouring billions of dollars into Georgia-Pacific. A lot of this investment went toward improving safety measures.
This was no simple matter. Workplace safety is an engineering problem from hell. It involves an almost limitless number of factors that interact with one another in impossibly complex ways. A plant manager must consider the dangers of each giant machine, and the multiple ways that each machine might take someone’s life. Then they must consider how each machine interacts with one another in a complex production cycle that, in many cases, runs twenty-four hours a day.
Finally, there is the human element. People are maddeningly unpredictable. They improvise on the job, they break rules, they put themselves in unexpected places and create unforeseen hazards. Koch fought against these factors in two ways: by updating the equipment and updating the thinking and behavior of its workforce. At a large gypsum factory outside Savannah, Georgia, for example, Koch installed new fencing around dangerous machines and changed long-standing practices that put employees in harm’s way. Bright yellow barriers were erected throughout the factory to keep workers away from spinning parts and other barriers.
Koch’s largest transformational efforts to improve safety were cultural. Across the company, employees learned about Market-Based Management and how it could be used to prevent accidents. They learned about the Ten Guiding Principles and the five dimensions of MBM, and were told that this belief system would help them simultaneously ramp up production while remaining safer. Maybe more importantly, workers were bombarded with the message of 10,000 percent compliance and repeatedly encouraged to shut down machines if they considered conditions to be unsafe.
During the lull in production after the housing crash, worker injuries declined. An internal Koch report showed that there were 730 reportable injuries at Georgia-Pacific in 2005, before the acquisition. Koch had cut that number by 20 percent. Still, one worker was killed every year at Georgia-Pacific, except for 2007, when four workers were killed on the job.
By 2010, Koch Industries managers believed that they had put systems and practices in place that would lock in these safety gains. Between 2010 and 2011, the number of recordable injuries fell from 579 to 545.
In 2011, the housing market and the economy began to recover. The number of new homes being built rose about 21 percent over the year, until there were 697,000 new home starts in December. This upward march in home construction would continue for years, and it increased demand for plywood, gypsum board, insulation, and other building materials. Orders started pouring in to Georgia-Pacific.
Koch’s newly renovated operations at Georgia-Pacific were put to the test. The system was an unmitigated success in one respect: the factories and mills were more efficient and more productive. Profit margins increased, revenue increased, and Koch Industries began aggressively paying down Georgia-Pacific’s debt. Before Koch bought the company, Georgia-Pacific’s debt was rated as being junk bonds, meaning there was a high risk it would not be repaid. But the debt ratings increased steadily as Georgia-Pacific’s factory hummed with new precision. In 2016, Georgia-Pacific’s debt was rated A+ by Standard & Poor’s, meaning that it was high-investment grade. Profits roughly doubled. The year before Koch bought Georgia-Pacific, the company earned $623 million in net profit. By 2016, Koch had increased that to an average of more than $1 billion.
This improvement made Georgia-Pacific’s CEO, Jim Hannan, a rising star within the company. Hannan had been on the scouting team that first inspected Georgia-Pacific in the early 2000s. After taking the helm of the company, he behaved as the quintessential Koch man. He was relentless, focused, projected humility, and delivered positive results. He spoke fluent MBM, and attributed the company’s success to its operating philosophy rather than to his personal attributes.
But one stubborn problem emerged in the shadow of the rising profits. Between 2011 and 2012, workplace injuries jumped from 545 to 584. This would have been displeasing to Charles Koch, who prided himself on running clean operations that were both safe and profitable. But the small gain could have been easily dismissed as a fluke. The number of injuries fell slightly from 2012 to 2013.
Then, after 2012, housing starts rose more sharply, and working conditions became more unsafe year after year at Georgia-Pacific. Deaths began to rise, and the number of injuries rose in almost perfect tandem with the numbers of orders that came through the door between 2012 and 2014.
Injuries jumped sharply between 2013 and 2014, from 527 to 644. Nine employees that year lost limbs or body parts. One hundred and fifty-four employees suffered heat burns, up from 134 the year before and 126 the year before that. The number of electrical shocks jumped to nineteen in 2014 from one the year before. In 2013, two workers were killed on the job.
In many ways, the increasing harm to workers made no sense. Koch was continuing to reinvest in the factories. Managers were told to hammer home the message of 10,000 percent compliance and “safety first.” The rhetoric was unambiguous. But more people were hurt all the time.
Most alarmingly, it wasn’t just the number of injuries that rose. The rate of injuries also increased. This destroyed the argument that perhaps more people were getting hurt just because more people were working more hours, increasing the odds of an accident. The accident rate, as measured by OSHA, climbed steadily each year from 2013 to 2017, rising 44 percent during that period. It was increasingly dangerous for employees to show up for work.
Between March 17 and 18, 2014, Hannan joined a group of senior executives for a team meeting in Atlanta to discuss the safety concerns.
“The last six months is unacceptable,” Hannan said, according to notes of the meeting that were taken by someone who observed it. Hannan referred to accidents and deaths at Georgia-Pacific as “learning events,” the idea being that each accident taught the company better ways to be safe. But the company was failing to learn. Hannan emphasized that the corporate culture would play a critical role in solving the problem. “We need to have a culture of values and not tolerate individual or organizational risk. We must learn from one another. Work on the items with the most risk.”
“Build on an MBM®-basedI culture,” the notes read. Hannan suggested that the future of the company was on the line. “If we can’t keep safe, why invest?” Hannan asked. Market-Based Management should be solving this problem. But it was not.