by a family and stockholders and all this stuff,” he recalled. “And I’m thinking, ‘God. Look—all the money we’ve made them, and this is what we get?’ So it was depressing. . . . It just . . . it took me a while to adjust to that.”
Still, every day, Charles Koch drove himself into work. He parked his sensible sedan in the employee lot, and ascended the back stairwell and stationed himself at his desk very early. He left very late in the evening and he often took a briefcase home to review papers during his off hours. And during the long days of his workweek, as he sat at his desk, Charles Koch saw something that nobody else could see. He could see Koch Industries for what it really was. The company was intentionally opaque and secretive, and its complex network of divisions and subsidiaries was so diffuse that even some senior people at the company were not aware of the full organizational structure. But there was one focal point from which the whole machine could be observed—and that point was Charles Koch’s desk. He was the only one who could see the entire machine for what it was. And he believed in it.
Charles Koch was in a position to see the seeds of strength in Koch Industries; seeds that might have been overlooked by other people during the turmoil of the 1990s. He saw all the elements that would later make Koch Industries one of the largest, most powerful corporations in America. Market-Based Management might have fostered business failures, but it had achieved one thing: It gave all of Koch’s employees a common language. It gave them a common mission, and this is more important than it might sound. By the year 2000, Koch Industries was a sprawling confederation of divisions spread across different segments of the economy. As many companies have discovered, this can be a recipe for disaster: it can foster fragmentation, miscommunication, and managerial fiefdoms that compete against one another. But Charles Koch had drilled into each employee the value—the necessity—of MBM. Years of doing this created a unified workforce, a workforce where employees could shift from one division to the next and understand each other perfectly.
The fact that Koch employees thought with a long-term view was another strength. It was a strength that Charles Koch fought dearly to earn. He spent years battling to keep his company private, fighting his brother and dissident shareholders for years in court. He fought against conventional wisdom to make this happen, not just by remaining privately held, but by refusing to take large dividend payments out of his company. The reward for this struggle was the ability to think in terms of years and decades rather than in quarterly earnings or monthly reports.
Another strength was knowledge. Charles Koch had built an organization that learned, and learned constantly. Every transaction was a data point, every relationship was a conduit for information, every business unit a listening post. At Charles Koch’s direction, the company had filled whole rooms of its basement with computers and processing power, the ability to churn and analyze mountains of information. Koch built a company around learning.
Charles believed there were quantifiable laws that drove the world, unbreakable laws that were true whether a person believed in them or not. These laws were the principles by which he tried to live and run his business. He never doubted these principles, even in the darkest days of the late 1990s. The principles had been correct. He had simply made mistakes in carrying them out.
So he would do better. His solution was simple:
“I just work harder.”
PART 2
* * *
THE BLACK BOX ECONOMY
CHAPTER 11
* * *
Rise of the Texans
(2000)
Over the course of one short year, Charles Koch and a small team of trusted executives reinvented Koch Industries. The company was redrawn in a series of urgent and sometimes tense private meetings, an effort that was kept secret from the outside world and even employees. The Koch Industries that emerged on the other side of this transformation was radically different from the faltering machine that Charles Koch oversaw in 1999. The firm was reshaped from its boardroom all the way down to the refinery floor.
The revolution began with a purge. Charles Koch needed a new leadership team to take him where he wanted to go. Bill Hanna, the company’s long-serving president and chief operating officer, was replaced. F. Lynn Markel, the true-blue Koch employee who joined the company in 1975