In the late 1960s, most CEOs considered powerful unions to be a fact of life. The New Deal included pro-union laws, passed in the 1930s, that made unions almost indomitable. It was a losing game to take on unions; their power was too great to challenge. Most companies chose to accommodate organized labor.
Charles Koch faced this same choice, and he chose to fight. The battle against organized labor at Pine Bend was the first to test Charles Koch’s resolve. His first move was to find the right commander for the conflict. Charles Koch found his man in the spring of 1971, when he attended an industry conference in California and met an oil industry engineer named Bernard Paulson.
Paulson was living in Corpus Christi at the time and managing an oil refinery for Coastal Oil & Gas. Paulson was instantly impressed with Charles Koch. Like so many people who met him, Paulson was first struck by Koch’s intelligence. Paulson had met a lot of impressive people in the business—self-made millionaires and wildcatters—but even when compared against such characters, Charles Koch stood apart. There was nothing of the wildcatter about Charles Koch. He was not a flamboyant man who needed to impress strangers. He was an engineer by temperament, a man who questioned more than he talked. Charles Koch also seemed taken with Paulson—the two men quickly hit it off and Koch asked Paulson if he’d like to get dinner. Paulson agreed, and they talked a long time over dinner that night. Koch described his new investment at Pine Bend. The deal made perfect sense to Paulson. They talked about the oil refining business in-depth. Refining is the kind of hyper-complicated business that only two engineers could discuss in detail over dinner, and that’s what the two of them did.
After Paulson returned to Texas, Charles Koch called him. They talked more, and soon Koch offered him a job. It seemed to Paulson that he had one job qualification that was especially important: he knew how to handle unions. When Paulson was hired to run the Coastal Oil refinery in Texas, the company had narrowly avoided a vote to unionize its employees. Paulson took over the business, and a few years later there was another union vote. He worked hard to convince his employees that union membership only hurt them, and he bargained hard against unionized firms that tried to get contracting work at the refinery. When still another union vote occurred under his management, the union lost by a five-to-one margin. Paulson had proved that he was adept at keeping unions out of an oil refinery, no matter how hard they might fight to get in. During their conversations Charles Koch told Paulson how toxic the union was in Pine Bend. Koch Industries needed to regain control. Breaking the union would be a key part of Paulson’s job.
Paulson was, in many ways, the perfect man for this job. He came from tough circumstances—he was raised on a small farm in Michigan and educated in a one-room schoolhouse. He wasn’t sentimental about business, and he knew how to stick out a hard situation. One of Paulson’s heroes was General George S. Patton, the military hero who was best known for his rousing speeches that gave soldiers the courage they needed to head into battle. Patton had famously told his recruits: “Americans, traditionally, love to fight. All real Americans love the sting of battle. . . . Americans love a winner and will not tolerate a loser. Americans play to win all the time.” Paulson yearned to be a leader who had the kind of inner strength that Patton possessed.
In 1971, Paulson joined Koch Industries. He was transferred immediately to Pine Bend, where he took control as manager of the refinery.
He immediately began, in his words, “to straighten it out.”
CHAPTER 3
* * *
The War for Pine Bend
(1971–1973)
Public policy concerning labor unions has, in little more than a century, moved from one extreme to the other. . . . [Unions] have become the only important instance in which governments signally fail in their prime function: the prevention of coercion and violence.
—Friedrich A. Hayek, 1960
Married life ain’t hard when you got a union card,
A union man has a happy life when he’s got a union wife.
Oh, you can’t scare me, I’m sticking to the union,
I’m sticking to the union ’til the day I die.
—Lyrics of the folk song “Union Maid” by Woody Guthrie, 1940
Bernard Paulson arrived for his first day on the job at the Pine Bend refinery in 1971.
As he drove to work, Paulson traveled down two-lane country roads that passed through a sparsely populated landscape of rolling corn and soybean fields. The refinery is located near the tiny town of Rosemount, Minnesota, about twenty miles south of Minneapolis and Saint Paul. Good-paying jobs were scarce in this place. The local kids were raised on farms, and when they graduated from public high school—if they graduated from high school—they didn’t have many job options other than farming. There was a smattering of industrial plants throughout the area: an ammonia plant near Rosemount and a paper plant across the river in Wisconsin, for example. But these jobs didn’t pay a lot. The best source of jobs throughout the 1960s was at the Great Northern Oil Company, which had just recently been renamed the Koch Refining Company. Jobs at the refinery were sought after. They were union jobs, with union benefits. A guy could get hired at the refinery right out of high school and soon make the kind of steady wage that supported a mortgage and a family.
The refinery played a towering role in the local economy, and it dominated the landscape as well. As Paulson drove nearer to the refinery, he would have been able to see this for himself. The refinery became visible on the horizon many miles before Paulson arrived there, and it was an arresting sight. After passing many miles of rolling hills, small farmhouses, tractors, and grain silos, the refinery came into view and looked very much like the skyline of a small city. But there was something alien, even ominous about this skyline. The towers in the skyline didn’t have any windows. They spewed clouds of white steam and gas, and some of them, on the south end of the refinery, spewed columns of flame into the sky. The gargantuan torches burned so steadily that airline pilots used them as a landmark when they approached the local airport.
To reach the refinery gates, Paulson drove along a highway that ran roughly parallel to the Mississippi River, which was hidden behind a dense stand of pine and oak trees. Great Northern was smart to locate the refinery where it did, near a big, wide spot in the Mississippi called Pine Bend. In this part of Minnesota, rivers are not scenic waterways but industrial transit tools. The river afforded passage for giant barges toting mountains of grain or coal, or, when they were loaded at Koch Refining, crude oil and asphalt. The barges took these commodities down south at a much cheaper rate than either rail or road, at least when the river wasn’t frozen over during Minnesota’s brutal winters.
Paulson pulled off the highway onto an access road that led to the refinery’s front gate. At the base of the giant towers, there was a squat office building made of beige bricks, just north of a parking lot where Paulson steered his car. This was the refinery’s main office, where Paulson would work. As he drove into the lot, he noticed that the parking spots were marked by signs with employees’ names on them. The spots were apparently reserved for individuals, and he saw that the best parking spot, the one nearest the sidewalk to the office door, had his name on it. Paulson had arrived early, as he always did, and most of the parking spots were empty. He pulled in to the best spot—the one marked with his name—and turned off his car.