Therefore, the Koch family not only became billionaires, but also extended its power to all aspects of American society. Under the guidance of Charlie Koch's liberal thoughts, Koch Industries Group has become one of the most powerful lobbying organizations in the United States, which is nicknamed "Koch Topsy" (a combination of Koch and Octopus).
Paradoxically, although Charlie calls himself a liberal, Koch Industries is a typical enterprise that thrives in a crony capitalist environment. By employing a large team of lawyers and lobbyists, they are in an absolute monarch position, which is a monopoly industry closely related to government subsidies and supervision.
"Koch Family Series Articles" will be launched according to three themes: family, politics and business. This article is mainly about the Koch family's business past.
(For other articles in the Koch family series, click here to see: family articles; Political articles)
1967, Fred Koch, one of the richest men in Kansas, died, leaving his wife and four sons with a lot of assets, including Rock Island Oil and Refining Co, Matador horse Company, Koch Engineering Co and so on.
Charles Koch, the second son in charge of business operations, was only 32 years old. In the next half century, he not only succeeded in his career, but also surpassed his parents in various fields.
A few months after Fred died, Charlie began to carry out his plan. He first integrated the scattered companies into a single entity-Koch Industries, then moved his office from downtown Wichita to a low-key suburb, and finally streamlined the core management team, leaving only people whom Charlie admired and trusted, such as Sterling Varner, whom he relied heavily on in his early days.
Sterling's business philosophy has a far-reaching impact on the development of Koch industry. He is keen to expand upstream and downstream areas on the basis of the company's existing business. He also encouraged all senior managers to explore new M&A opportunities in their daily work and hold regular investment meetings.
It didn't take long for Charlie to face the first major challenge in his career: the trade union.
Fred once owned a part of Pinebend Refinery, which was one of only four refineries in the United States that could import cheap oil from Canada at that time, so he enjoyed huge profits. After Charlie took over, he exchanged his holdings for Koch Industries, and became the sole owner of pemberton at the end of 1969.
But Charlie had no say in pemberton at first. In the late 1960s, American trade unions were very strong. Many trade union leaders have extremely high incomes and even corruption scandals, which have long been divorced from the original intention of establishing trade unions. According to Peng Ben, the working methods and wage standards of workers in this factory are formulated by trade unions.
Many business owners chose to obey the trade union, but Charlie decided to fight to the end. Bernard Paulson, who is experienced in dealing with trade union relations, was appointed as the head.
When Paulson arrived at the refinery at the beginning of 197 1, he understood why Charlie was so eager to weaken the union.
The trade union supported by Pemberton employees is called OCAW, and its head is Joseph Hammerschmidt. Employees sleep during working hours, are indifferent to the requirements of superiors, and the scope and time of work are extremely rigid, which leads to even some minor faults that require extremely high manpower and timeliness to complete. Many employees themselves feel that the work rules are incredibly loose.
Paulson thinks this state will bring down factories. 1April, 972, he took the first step: let Joseph work overtime on Easter. After Joseph refused, Paulson fired him immediately. At the end of the same year, Koch and OCAW renegotiated the labor contract and deleted many generous benefits, leaving no room for negotiation for the trade union.
1October 9,1973,65438+,the trade union began to strike. They set up a "cordon" outside the refinery to stop trucks from entering and leaving, and covered the road with spikes made of nails. In the months before the strike, Koch spent $100000 just to replace the truck tires.
Paulson is also ready to fight for a long time. He put a canvas bed in his office, where he slept for nearly a year and almost never left the refinery. There are only workers in the factory who have not joined the union. In order to solve the shortage of manpower, Paulson called in helicopters and seconded workers from factories in other states to help in pemberton.
As the strike lasted longer, the union workers became more and more anxious. Paulson caught hold of their use of violence and filed a lawsuit. The court issued a restraining order against the union workers. This makes the workers who have no income for a long time because of the strike become more angry and take more radical actions.
1on March 5, 973, the strikers drove empty cars to the refinery. Fortunately, the train derailed before it hit the factory equipment, otherwise everyone on duty in the factory would die. On April 17, the strikers shot through a huge transformer. Charlie and Paulson saw these crazy moves, but they were determined to never give in.
Seeing that the strike did not progress, OCAW changed its new head, John Kujawa, and the government labor department also intervened, but the situation remained the same. Paulson threatened OCAW that if the two sides still failed to reach an agreement, Koch would not hire any employees affiliated with the trade union in the future.
On September 23rd, OCAW, who had no choice but to leave, accepted a new contract from Koch, ending the strike that lasted for nearly nine months. Charlie regained his voice.
Paulson, who made great contributions, was promoted to vice president, in charge of all the refining business of Koch Company. He established a database of oil refining and introduced several very advanced IBM computers for data analysis. In order to improve the quality of oil refining, Koch spent a lot of money to buy related equipment, and tried to reduce the price to squeeze competitors.
With the efforts of many parties, Peng Ben became Koch's super cash cow in less than ten years, which provided funds for Charlie's future expansion in other fields and played a key role in Koch's growth and strength.
In this process, Koch gradually formed his own style. The company doesn't go public, so it doesn't need to make an external budget. It can be changed into real data such as profits as the stage goal. The company's shares are controlled by the Koch brothers and several close relatives. Unlike other companies, Charlie doesn't pay dividends to shareholders, but invests all the profits in the expansion of the company. Employees will get bonuses, but they will never get shares
With the expansion of the company and the influx of new employees, the ideological management of employees has been put on the agenda by Charlie. Charlie invited scholars to write a course for Koch's executives according to the characteristics of the company, and named it "market-oriented management". Charlie asked the top management to distribute the course content layer by layer to ensure that every employee can understand Koch's operation and culture.
Through the acquisition, Koch's transportation pipeline changed from 65438+6000 miles in 0969 to 1976 14000 miles, and Koch became the largest crude oil buyer in the United States in the 1980s. However, their mining process has a set of default rules, which also became the reason why Koch was deeply involved in litigation in the 1990 s.
There are many measures of Coriolis oil production, which will lead to the recorded oil production slightly lower than the actual oil production. Every little makes a mickle, and the total amount of oil stolen by Koch is quite high. The monthly assessment results of employees in charge of mineral exploration are also closely related to the mining volume, which also makes them have to carry out gray operation knowingly.
1in may, 989, the Senate special Committee on Indian affairs held a hearing on this issue, showing the evidence of Koch oil theft collected by investigator ken Barron and FBI agent James elroy. After the hearing, the evidence was submitted to the Ohio federal prosecutor's office, and then a criminal investigation was launched against Charlie.
Because Charlie's fourth brother, Bill Koch, was in conflict with him at that time, Koch ordered to seal up or destroy all documents related to oil measurement in the company as early as 1988 in order to guard against Bill. Therefore, when Nancy Jones, the prosecutor in charge of oil theft, was convinced that the company had committed a crime at 1990, it was difficult to find any evidence from Koch.
In order to get out of the lawsuit as soon as possible, Koch also strengthened his political input. In addition to donating money to senators such as Bob Dole, they also invited dozens of local judges to participate in skiing, seaside holidays, seminars and other activities to win over relations (Koch political network was established on 20 16, named Law&:the institution of economics center, catering to judges at all levels).
The case was dismissed on 1992, but Koch still paid the price, because Bill still collected a lot of evidence, which brought a fatal blow to Koch. Koch finally had to admit that they earned about $6,543,800 a year by stealing oil and forged 25,000 documents for it. In 2000, the oil theft case ended with Koch paying 25 million dollars in settlement (of which 7.4 million dollars was paid to Bill).
For an oilman like Koch, environmental pollution is inevitable. In order to meet the requirements of the Clean Air Act, Koch Company started a $220 million project in 1992 to install equipment for producing clean fuel.
The wastewater from the refinery is treated by the sewage treatment plant and then transported to the purification tank. After the sediment it carries sinks to the bottom of the tank, the water will flow directly into the Mississippi River through the pipeline. Therefore, it is the key to ensure that the data of purified pool water reaches the standard.
However, with the continuous improvement of the production capacity of Pengben Refinery, this kind of environmental protection equipment is also under pressure. 1996 an acid water stripper used to reduce ammonia emission in wastewater broke down, which was not discovered in time by employees, which directly led to a large number of substandard sewage discharged into the river.
When the fault was discovered, managers such as Brian Roos and Ruth Estes took reckless "remedial" measures: in order to cover up the problem, they first collected sewage into several large water collection tanks in the factory, and after the tanks were almost full, they directly discharged the water to the nearby land without telling anyone afterwards.
Every year in June 5438+065438+ 10, Koch Company needs to submit a routine pollution sampling report to the state government. In order to cope with this inspection, they did the same thing again and discharged 6 million gallons of polluted water overnight. 1997 in the first three months, Koch still did not regulate sewage discharge.
The incident finally broke out because an employee named Heather Faragher kept reporting to the State Environmental Protection Bureau under great pressure. After many investigations and evidence collection, 1998, pemberton's Minnesota Pollution Control Bureau issued a record-breaking fine of $6.9 million to Koch Company. 1999, Koch pleaded guilty in the federal court and paid a total fine of $65,438+010.5 million.
However, compared with Peng Ben's income, these fines are negligible. In addition, Ruth, who was initially involved in concealing pollution incidents, was promoted to strategic planning manager of Koch Oil Department in 20 10. This incident is not an isolated case. A similar incident occurred at an oil refinery in Corpus Christi, Texas. These lawsuits have not slowed down Koch's expansion at all.
Innocent residents paid the price of their lives for the extensive management of Koch Company. 1in the summer of 1996, a pipeline in Coriolis, Texas, broke due to aging, and butane gas leaked out continuously. Two unsuspecting teenagers drove a car and caused an explosion nearby, and were finally burned alive. The case was settled by Koch Company paying a fine of $35 million and an unknown settlement.
During the period of 1995, the annual sales of Koch Industries was about $24 billion, which was more than 135 times that when Charlie first took over the company. This achievement affirmed Charlie's business philosophy and gave him confidence in increasing the scale and scope of the acquisition.
In the late 1990s, Koch quietly established the corporate development group, which is a full-time department to acquire new companies. Although it was highly anticipated, it didn't take long for the department to be established, and it fell a big head.
Charlie has a very important subordinate, Dean Watson. 1998, at Watson's insistence, Koch Company, which has always been reluctant to borrow money, acquired Purina Mills, the largest animal feed production company in the United States at that time, with rare financing of 550 million dollars and its own funds of 1 100 million dollars.
Not long after the acquisition was completed, the American pig market collapsed and the price plummeted. Purina Mills, which has 6 million pigs, was greatly affected, and Koch estimated that it would lose at least $80 million. Charlie did not hesitate to fire Watson, nor did he use his own funds to save Purina Mills, who was heavily in debt. 1June, 998, the company went bankrupt.
Koch suffered heavy losses due to his own investment of $6,543.8 billion. Fortunately, Purina Mills used non-recourse debt in financing, so creditors have no recourse to the parent company Koch Company. However, in order to prevent the possibility of losing a lawsuit with creditors, Koch took out another $60 million to pay off debts.
The fiasco of the acquisition taught Koch an important lesson. Since then, Koch has created a more complex and opaque enterprise structure than before. The company also laid off employees for the first time in its history, laying off about 500 employees and 300 contractors. Looking back, Charlie said that the late 1990s was the most difficult period in his life.
Charlie has brought great changes to the company. He changed the leadership team and a large number of veterans were dismissed. Instead, they were "Kochs" who entered Koch shortly after graduation and were deeply influenced by Charlie's values, such as David Robertson, the new president of Koch Oil Company, Sam soliman, the new chief financial officer, and Joe Moeller, the new chief operating officer. The unprofitable subsidiaries were sold one by one.
Koch also adopted a brand-new corporate structure. Koch Industries has become a nominal investment company, and all business departments are completely independent of it in the legal sense, with their own internal systems such as human resources and information technology. This not only reduces the legal risk (especially the debt risk) of Koch industries, but also greatly avoids the sense of redundancy of traditional large enterprises.
However, Koch did not give up the acquisition strategy. The company set up a new team "Enterprise Development Committee" to find the acquirable targets and get the latest industry information from all the subsidiaries of Koch. Ultra-high value information flow allows the team to predict future trends and find the acquisition direction in advance.
In 2003, Koch revived the wave of acquisitions. Because the company is rich in cash, there are only two shareholders, Charlie and his brother David, so it has a great advantage in the competition and there is no stage fright when facing the biggest company on Wall Street. By 2006, Koch completed a series of acquisitions, which fundamentally changed the company. In 200 1 year, Koch's annual sales were $40.7 billion, and by 2006, it had reached $90 billion.
Koch's acquisition of fertilizer producer Farmland Industrial Company is an example. At that time, Agrium, a Canadian fertilizer company, was also interested in acquiring farmland industry. But Agrium is a listed company, and there are far more factors to worry about than Koch, so it was defeated in the competition. Koch finally completed the acquisition for $290 million and renamed the farmland industry Koch Fertilizer. In the next 10 year, Koch invested $500 million to upgrade technology and establish a global distribution network, and Koch Fertilizer became one of Koch's most profitable departments.
Another famous acquisition case of Koch is Invista and Georgia Pacific. In June 2003, Koch Company acquired Invista, a synthetic fiber factory of DuPont Company, for US$ 4.4 billion, which increased the number of employees of Koch Company from 65.438+0.5 million to 33,000.
Joe-Tai is one of the largest wood and paper products companies in the world, with about 55,000 employees in the United States and sales of $20.3 billion in 2003. However, due to years of unorganized acquisitions, the company is heavily in debt, stumbling and facing serious financial problems.
Koch Company first acquired two pulp mills in Qiaotai for US$ 6.65438+0 million and merged them into the newly established Koch Cellulose Co., Ltd.. One year after the acquisition, Charlie was very satisfied with his business situation and immediately began to push forward the plan of completely privatizing Qiaotai. In view of the company's debt of billions of dollars, Koch Company raised funds in the name of Koch Forest Products Company, and finally completed the acquisition at the price of 2 1 billion dollars. This transaction makes Koch the largest private company in the United States.
For the new employees who have greatly increased after the acquisition, Kochi will quickly carry out the process of "high knowledge": employees must be trained in Kochi's corporate culture, and their daily work standards must meet the standards of Kochi's "Labor Management System" (LMS). LMS can quantify all the actions of employees, accumulate data and measure the work efficiency of each employee.
The financial crisis in 2008 hit many enterprises, and Koch was not spared, with a total of about 2,000 layoffs. Then Obama was elected president, which became a big worry for Charlie. However, in the years following Obama's administration, Charlie's net worth doubled, growing faster than ever before.
On the one hand, this is due to the premature death of the cap-and-trade bill to control the emission of polluting gases, and on the other hand, it is due to the drilling technology called hydraulic fracturing. In order to prepare for the wide application of the latter, Coriolis has quietly carried out a series of strange and even unreasonable layouts since 20 10.
20 10 in March, Coriolis increased its pipeline transportation capacity by 25% in southern Texas, where the oil production capacity was stagnant. In February of the same year, Coriolis Company built a new oil pipeline in Texas, with a daily output of crude oil120,000 barrels. 20 1 1 In February, Koch Company purchased a wharf in Corpus Christi, Texas for exporting oil, and in April of the same year, Koch Company built a new oil export pipeline. In addition, Koch also built a highway to transport crude oil, which started from the yingtan shale in Texas, where oil production has not improved for a long time.
The output increase brought by new technology to Koch is quite eye-catching. In July of 20 10, yingtan shale area produced 82,000 barrels of oil per day. In 20 14, this figure became 6.5438+0.68 million barrels, accounting for about one-fifth of the total output of the United States at that time.
However, Koch's oil business is facing a growing threat, that is, the promotion and application of new energy technologies. Traditional industry tycoons represented by the Koch family have done a lot of actions for this:
From 2005 to 2008, Koch alone donated $25 million to dozens of organizations fighting climate change. Scholar Brewer made a survey on this. From 2003 to 20 10, 100, more than 500 million dollars were obtained for "manipulating and misleading the public's perception of the threat of climate change".
In addition to political means, Koch also entered new areas through acquisitions. From 20 13 to 20 14, Koch spent billions of dollars to acquire companies in the fields of chips, steel and glass.
With the growing scale of Koch Empire, conflicts with trade unions reappeared, but Koch was far stronger than in 1970s, as was the case with IBU, a trade union in Joe-Tai, Portland, Ohio. Steve Hammond, one of the union executives, spends 75% of his time dealing with employee complaints. Under the management of Coriolis LMS system, workers are forced to work overtime and are often punished for minor violations.
He Ya's working environment is full of danger. In 20 10, there were 579 serious industrial accidents in this factory alone. Koch invested in improving safety measures, but the situation did not improve much. 20 1 1 year, there are still 545 people with serious work-related injuries. The number of orders also increases in direct proportion to the number of work-related injuries. In 20 12, this number increased to 584, and in 20 14, it reached a record high of 644, and another 6 workers were killed at work.
20 15 years, it is time for IBU to negotiate a new contract with Koch. The contract negotiation between the two parties on 20 10 was not pleasant, and the tug-of-war in1August dealt a great blow to the trade union. They don't want to repeat the same mistakes. On the contrary, the trade unions have long been marginalized and have no chips in their hands.
Charlie, 85, has repeatedly said that he will work until the last moment, but his training of successors has already begun. He has a daughter Elizabeth Koch and a son Chase Koch in 1975 and 1977 respectively. Elizabeth has no interest in business and stays away from the family business. Zeiss, who once had high hopes from Charlie, has always shown an erratic attitude towards Koch.
Charlie copied his father Fred's parenting style and tried to create another himself, but Zeiss was not the second Charlie. Although he obeyed most of Charlie's requirements, such as taking part in sports competitions and going to the farm for internship, he did well, but he didn't have Charlie's ambition.
1993, Zeiss, who was only 16 years old, accidentally killed a passerby while driving, and was finally sentenced to 100 hours of community service, 18 months of probation, and 10 months of curfew. Zeiss, with a steady personality, has kept a low profile ever since. Almost all Koch employees who came into contact with him gave quiet, unobtrusive and well-meaning comments.
In 2003, after being persuaded, Zeiss officially joined Koch and began the transfer of senior positions. In 2006, he began to feel uneasy about this state and felt that he had only a half-knowledge of all business. So he started as a regional salesman of Koch Fertilizer Company, selling fertilizers in the north-central United States. He not only learned about the chemical fertilizer business in detail, but also achieved excellent results.
Zeiss was subsequently promoted and became the president of Koch Fertilizer on 20 13. But as time goes on, this high-pressure, complicated and busy job brings him less and less fun. In 20 15, he stepped down as president and invested in his favorite investment, which marked his formal withdrawal from the specific management of Koch's business empire.
Zeiss retired from the background, which intensified the competition among several most respected executives. Koch currently has two major departments: Koch Enterprise and Koch Resources. The former includes Joe-Tai, Molex, Invista, etc. , headed by Jim Hannan, which includes various businesses such as energy, fertilizer and trade, and its CEO is Razzouk. In addition, David Robertson, president of Koch Industries, is also a popular successor to Charlie's post.
The only thing that is certain is that no matter who takes over in the end, all three are just gatekeepers of the Koch Empire.