Ballen’s line of questioning then sought to establish that Charles Koch knew what long really meant. That way, there would be no ambiguity about the case. Charles Koch didn’t seem interested, however, in helping Ballen establish that fact. Charles Koch parsed the definition of long and seemed to indicate that Ballen didn’t understand it. The two men went back and forth over the definition until Ballen finally asked, “So, in other words, if you purchase oil and then sell oil, if there is more oil in the inventory than sold, then you are long. Is that correct?”
“I am not sure—”
“Is that correct?”
“I am not sure I understood that.”
“All right. Why don’t you explain it again? What do you mean by being ‘over,’ or ‘long,’ on oil?”
“I am not sure I can do any better than I just did,” Koch replied.
Around they went.
Ballen tried a different route: “If Koch purchases crude oil, purchases a hundred barrels, the actual inventory shows a hundred ten barrels, would Koch be over in that example by ten barrels?” Ballen asked.
“Did we sell any?”
“Well, why don’t you try the question first,” Ballen said. “Is that an accurate—”
“Well, it is an incomplete equation. I mean it is—there is no answer. You got two unknowns.”
“Suppose you sold a hundred ten,” Ballen pressed.
“Okay. You bought—”
“One hundred.”
“And you sold a hundred ten?”
“Right.”
“I am going to need my slide rule in a minute,” Koch joked.
It went on like this for a long time, with the two men discussing barrels of oil, inventory levels, and even hypothetical inventory levels. The other attorneys in the room begin to interject and add their own observations and questions about hypothetical inventories.
Finally, Ballen’s assistant, Wick Sollers, dove in and started asking questions. Eventually, he pushed Charles Koch into a corner, eliciting a very elegant description of just what it means to be long.
“I don’t think there is such a thing as an exactly accurate measurement,” Charles Koch said. “But if you just look in dollar terms, yes, we got more money than we paid for oil.”
There it was: “We got more money than we paid for oil,” Koch had said.
But there was something else in his statement; the idea that there was no such thing as a perfectly accurate measurement. Earlier in the interview, Charles Koch had interrupted Ballen to press this point and to make it sound as if unsophisticated oil gaugers were making mistakes out in the field that might account for the company’s annual overages.
“I mean, in the oil field, as I understand it, it is—you got a lot of small tanks, you got a lot of changing conditions, and it is a very uncertain art,” Charles Koch had said. “And you have people who aren’t rocket scientists, necessarily,” he continued. “I mean, good people. I don’t mean to imply—good people, trying to do a good job, and they are always not fully trained, either.”
This defense contradicted everything that Agent Elroy had been hearing in his field interviews with the Koch gaugers. Those gaugers told him that they faced constant pressure from above to be “long.” They knew that if they were not long, then the consequences would be dire. They weren’t making mistakes, the gaugers said; they were following orders. And these orders were apparently conveyed in meetings where Koch managers discussed the company’s policy of continuous improvement. It was on this point that Ballen began to press.
Just what was continuous improvement, exactly? Ballen asked.
“How much time do you have?” Koch replied.
“How much time do you have?” Ballen replied.
“Continuous improvement philosophy is a philosophy developed by a man called J. Edward Deming, who is a statistician,” Koch said.II “So he set up a philosophy based on statistics, how companies can improve their competitive position by improving the quality for the customer and your own productivity.”
Koch went on for a long time, talking about this guy named Deming, whom Koch seemed to truly admire. Deming’s ideas seemed to revolve around coming up with mathematical models for how to improve a business, and then continually driving workers to make those improvements and hold true to the plan.
“This is a long-term program,” Koch said. “As [Deming] puts it: ‘You never get out of this hospital.’ You are going to be working at this forever.”
The digressions about Deming and statistics didn’t matter much to the case that Ballen was building. Charles Koch had already laid out what continuous improvement might mean for gaugers.
“What our policy is, is to be as accurate as possible and not have a loss; try to avoid losses within that,” Koch had said. He denied that the company had a stated policy of stealing oil, but he supported the notion that gaugers would face pressure to be long.
When the interview was over, Charles Koch stood up and left the room, walking down the corridor. He eventually went back to the company’s executive suite and his office, a large room with a wide-open view of the Kansas prairie.
Ballen kept working through the day in the building’s interior. He and Sollers interviewed nearly a dozen more Koch Industries executives, slowly building a case that the investigators would soon present before the Senate, slowly gathering evidence that they would hand over to the US Department of Justice.
At the end of the long day, Ballen and Sollers packed up their papers and left. They caught a flight back to Washington and continued their work up on the ninth floor of the Hart Senate Office Building.
But even after all the time they’d spent at Koch headquarters, even after all the time they’d spent digging through boxes of Koch Industries’ confidential documents, and even after all the time they’d spent interviewing Charles Koch himself, Ken Ballen and Wick Sollers were no closer to answering one of the most perplexing questions at the center of their case. It was a question that would be asked later, by Senator DeConcini himself, as the Senate panel held public hearings on Koch’s alleged oil theft.
At one point during the hearings, DeConcini was questioning Agent Elroy. DeConcini stopped, as if perplexed, and asked the FBI man the most important question of them all:
“Who is Charles Koch? Can you explain that?”
* * *
I. Some gaugers and Koch managers used an interchangeable set of terms, saying “under” rather than “short,” and “over” rather than “long.”
II. Charles Koch appears to have misspoken here. The statistician’s name is W. Edwards Deming, and his influence on Koch Industries is discussed at length in Chapter 6.
CHAPTER 2
* * *
The Age of Volatility Begins
(1967–1972)
It was a Friday in mid-November, just one week before Thanksgiving 1967. A multimillionaire named Fred Koch sat in a duck blind watching the sky, his gun at the ready.
Fred Koch was a large man, and he had a forceful personality to match his physical presence. He was one of those people whom midwesterners call “larger than life,” meaning that he filled a room when he entered it; one of those very rare breed of people who are unquestionably the masters of their own realm. He was an engineer, an entrepreneur, and a self-described patriot. At the age of sixty-seven, Fred Koch had built a small business empire, and as the master of this empire, Koch was the hub of so many spinning wheels: He was chairman of the board for his growing company. He was a cofounder of a right-wing political group called the John Birch Society. He was a self-published author who sold anti-Communist pamphlets through the mail for 25 cents a copy. He was also the father of four rowdy and brilliant boys, boys in whom he’d worked to instill the values that mattered most to him: intelligence, a hard work ethic, integrity, and drive.