Chemical trading wasn’t a simple matter of buying low and selling high. One of Bill Koch’s more successful trades shows just how complicated the business could be. Roskind and Bill Koch heard from clients that there was very strong demand in East Asia for a chemical called acetic acid, which was in tight supply. The companies that made acetic acid were aware of the supply crunch, and they were not about to let go of their product easily. This made it almost impossible to buy acetic acid at a price that would make it profitable to turn around and sell it in Asia. But a good trader knows what is happening simultaneously in different markets. Bill Koch knew that the companies that made acetic acid often used corn as a feedstock for the product. Bill Koch also knew how to get corn at a cheap price on the futures market in Chicago. So Koch Trading bought corn on the futures market and bartered it with acetic acid manufacturers for large quantities of their product. Then they sold the acetic acid at a much higher price in Asia.
Roskind said he made $1 million off that single trade. Charles Koch called him personally to express surprise that a single deal could be worth so much.
“I said. ‘I’m sorry we couldn’t make more,’ ” Roskind told him.
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Like all senior executives at Koch Industries, Bill Koch and Herbert Roskind often traveled to Wichita to provide updates on their business division to Charles Koch. These quarterly meetings were also attended by a small coterie of executives like Sterling Varner and Bernard Paulson. Roskind enjoyed being around Charles Koch—it was impressive to see this tremendously wealthy man eating in the company cafeteria with the rest of the employees.
Yet Roskind noticed that his traveling companion wasn’t enjoying himself nearly so much. Bill Koch resisted going to Wichita.
When Bill was at company headquarters, he was tense. And it was easy to spot the source of his irritation: there was something about Charles that put Bill Koch on edge. Just being in the same room with Charles seemed to darken his mood. Roskind didn’t understand why Charles Koch irritated his little brother so much. Charles wasn’t domineering. His demeanor was placid; his tone was always cordial. Charles Koch didn’t insult people and didn’t pound his fist on the desk. But even Charles’s smallest comments caused an oversized reaction in Bill.
“I didn’t fully understand what the tensions were,” Roskind said. “It never was over money, I don’t believe.”
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After his successes in the chemical trading division, Bill Koch got a promotion. Or, because of how things worked at Koch Industries, it’s more appropriate to say that Bill Koch was promoted by his older brother, Charles.
Bill Koch was made vice president of a new division called Koch Carbon, which was typical of the kinds of businesses that Charles Koch and Sterling Varner liked to pursue: it pushed the company into new territory and new markets by building on what Koch already knew. Koch Carbon was branching out into the coal mining and processing industries, which built on Koch’s knowledge of the fossil fuel business. As head of the division, Bill Koch would have been encouraged to act like Bernard Paulson or Roger Williams: as an entrepreneur in charge of his own business.
Bill Koch did this, but in his own way. He built a staff in Wichita, many of them originally hired by Charles. One of Bill’s staffers was a young finance guy named Brad Hall, who was a prototypical Koch man, cut from the same mold as Lynn Markel. Brad Hall had been an athlete in college, played baseball at Wichita State University, and knew how to be part of a team. He had the kind of humility that was so deeply baked into his character that he didn’t even know he was humble. He was one of those middle-class kids from Wichita who intuitively knew that the world didn’t owe them a thing. Hall was also startlingly intelligent—he had the neural processing ability of a skilled engineer and a methodical approach to problem solving. He was a natural acolyte of Charles Koch’s, in other words. But shortly after he was hired, Hall was informed he would not be working for Charles. He would report directly to Bill and would help him build up the carbon division.
Bill Koch became enamored of the kind of data-driven analysis that Bernard Paulson relied on to run the Pine Bend refinery. But Bill’s version of data analysis borrowed more from the erudite traditions of MIT and the Ivy League than it did from the oil fields of the Midwest. Shortly after they started working together, Bill Koch sent Brad Hall an article that he’d read in the Harvard Business Review. The article outlined a computer technique that ran a probability analysis on the internal rate of return for potential deals. The model used something called a Monte Carlo simulation to figure out what the rate of return might be in light of a number of variable factors, like different overhead costs. Bill Koch asked Hall to do a Monte Carlo simulation on a major coal industry deal they were exploring.
Brad Hall’s task was overwhelming. He borrowed time on the mainframe computer that took up a large room in the basement of Koch Industries headquarters. The computer used punch cards that had to be individually tailored to each specific model run in each simulation. Initially, Koch’s computer engineers punched the cards, but the simulation required so many cards that they just let Hall start punching the cards himself. His small office became overcrowded with punch cards. Hall pushed himself hard to meet Bill Koch’s deadline, running simulation after simulation. He came into the office one Sunday morning, skipping church and leaving his family at home so he could work away at the punch cards. Hall knew it wasn’t unusual for Charles Koch to work on Sundays and call in other employees to join him. But Bill Koch wasn’t at the office when Hall arrived and Bill Koch didn’t show up while Hall worked through the day, punching cards and running simulations.
Early in the afternoon, Bill Koch called the office to check in on Hall’s progress. Hall began explaining to him how the simulations were going, but Bill kept interrupting him, shouting, “Ah! . . . Ah!” Hall couldn’t figure out what was going on, and he asked Bill if something was wrong.
Bill replied, “I’m watching this Patriots football game,” Hall recalled. After they hung up, Hall returned to the basement to keep running simulations while Bill Koch enjoyed the game.
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Hall finished the Monte Carlo simulations and prepared a presentation on the findings for Charles Koch and Sterling Varner. Bill Koch made it clear that he wanted to impress Sterling and Charles, so Hall rushed to a special store in downtown Wichita that rendered his findings onto color slides that could be shown from an overhead projector during the presentation. In the 1970s, this was high technology.
Hall meticulously arranged the presentation and the overhead projector in the boardroom at Koch headquarters. He was still a new hire, and it was thrilling for him to be in the same room as Charles Koch. He was proud of the work he’d done. The computer simulations were extremely complex, and he’d spent hours memorizing his findings so he’d be ready for any questions.
When the meeting started, Sterling Varner and Charles Koch sat down and Bill Koch began the presentation with a brief overview. Then Brad Hall went through the slides, laying out the extensive analysis he’d done on Koch’s mainframe computers.
Hall was only a few minutes into the presentation when Sterling Varner interrupted him.