a stronger position. This was a coup for the banks. A worst-case scenario for Koch was losing its entire investment in Purina of $100 million. By the end of its negotiations with the creditors, Koch lost all that money and paid an extra $60 million on top of it.
This failure would reshape Koch Industries going forward. The company fortified its corporate veil, creating a corporate structure that was even more complex and opaque than before. Koch called its divisions “companies” and treated them like independent entities to make sure the veil was strong. Koch might publicly claim that its various business units had so much autonomy only due to the tenets of Market-Based Management. But the real reason was to avoid liability.
After the banks were paid off, Charles Koch began to dismantle Koch Agriculture. It was a very public failure. For the first time in memory, Koch Industries made sweeping staff cuts in Wichita. Roughly five hundred employees and three hundred contractors lost their jobs. Many of those jobs were at the highest reaches of the company. Brad Hall gutted Koch’s development group, for example, firing most of its employees. The group had grown bloated, unwieldy, and ineffective. So had many other parts of the company.
“I told Charles, we ought to be in the Harvard Business Review as an example of piss-poor management,” Hall recalled.
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I. The investigators were hired by a firm called Decision Strategies International, which was under retainer, according to documents uncovered by the Times.
II. Dean Watson did not remember this encounter. He said it was rare for him to lose his temper at work, and if he did lose his temper, it would have run counter to the teachings of MBM, which does not seek to coerce or control employees.
CHAPTER 10
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The Failure
(2000)
Charles Koch drove himself to work every day. He was a billionaire, but he still drove a sensible sedan to the office. He arrived at the Tower early and often walked up the back stairwell to his office on the third floor. Charles was the most powerful person in the company. During the course of his day, he seldom encountered people who were not directly answerable to his authority. But as he climbed the stairs to work, and as he sat at his desk and looked out over the flat grasses north of Wichita, it could be said that Charles was, in many important ways, a failure.
The previous decade had been a public embarrassment. To the degree that Koch Industries was written about in the popular press, the stories tended to focus on Koch’s lawbreaking and litigation. To the degree that Charles Koch himself was written about, he was described as a character in a pathetic family feud that showed just how crazy billionaires could be. To the degree that Charles Koch’s tenure as CEO was written about, it was hard not to question how effective his leadership had been. He had spent years honing a management philosophy that had sown problems throughout the company. Oil gaugers interpreted Koch’s push for “continuous improvement” as a reason to steal from Koch’s customers. The refinery managers had interpreted Koch’s push for “profit centers” as a reason to dump pollution into wetlands and delay investments that would have reduced pollution. The common teachings of MBM had too often turned into a language of groupthink, prompting managers to persecute whistle-blowers rather than heed their important warnings. MBM’s focus on growth had encouraged irresponsible acquisitions that piled up losses and public failures like the collapse of Purina Mills. Koch Industries was flush with cash, thanks to the heavily subsidized and regulated oil markets that were its core business, but the failure of Koch Agriculture seemed to prove that MBM was not, in fact, a blueprint for running successful ventures in other business sectors.
This mattered to Charles Koch. He believed that the CEO was ultimately responsible for a company’s conduct. If a company was dysfunctional, the leadership was to blame. As he said when he was being deposed by Senate investigators, “Ninety percent of the problems in industry are caused by management, not by the worker. The main management is the one that should be fired” if there’s a problem. According to this logic, there was a reasonable argument to be made that Charles Koch should be fired. Charles Koch said that the late 1990s were one of the most difficult times of his life.
“The worst was when we had that, that trial, where we were being sued