2003, and to $197 billion in 2004. Thousands of companies were taken private each year. Dozens of new private equity funds sprang up in New York, Chicago, and San Francisco. Some of these private equity firms were run by nameplate financial firms like Lehman Brothers and Barclays Capital. Others were little-known start-ups with names like Oaktree Capital Management. One of the better-known private equity firms, Cerberus Capital Management, named itself after the mythical three-headed dog that guarded the gates of hell, for reasons that were not entirely clear.
Koch Industries, although it had almost zero name recognition, put itself aggressively into the hunt, competing directly with the largest firms on Wall Street. Koch had an edge over the competition. The company was flush with cash, had only two shareholders to answer to, and was willing to close deals that scared away other companies. In a matter of just a few years, Koch Industries would execute some of the largest private equity deals in America, with acquisitions worth nearly $30 billion.
Charles Koch made it abundantly clear to his team that they would work toward one goal: to maximize Koch’s long-term return on investment. The firm wasn’t looking for quick returns. Koch would press the advantage of Charles Koch’s patience, looking for deals that other investors might avoid because the payouts wouldn’t come for years. Charles Koch institutionalized the company’s “trading mentality” by embedding it in a new, secretive group that was formed on the third floor of the Tower, near Charles Koch’s office. This group rivaled any private equity firm in the nation. It was called the Corporate Development Board.
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Charles Koch sat on the Corporate Development Board, and directed it. He was joined by a small cadre of his top leaders. This small group of men would direct a series of acquisitions between 2002 and 2006 that would fundamentally transform Koch Industries, while also more than doubling its size. In 2001, Koch’s annual sales were about $40.7 billion. By 2006, they would be $90 billion.
The Corporate Development Board was essentially a reincarnation of the development group that Brad Hall had led in the late 1990s. Hall was replaced as head of the group in 2002 by Ron Vaupel, who had been president of the Koch Hydrocarbon Division. But Vaupel was not working alone. In its new incarnation, the Corporate Development Board was closely controlled by the company’s most senior executives. The board included Joe Moeller, the president of Koch Industries, and Steven Feilmeier, who had recently been named as Koch’s chief financial officer. Sam Soliman, the previous CFO, who now led a massive trading operation at Koch’s Houston office, also sat on the development board. The final board member was John Pittenger, the Harvard MBA graduate who helped drive Koch’s Value Creation Strategies back in the 1990s.
The board didn’t tend to meet in a formal manner. It didn’t gather every month in Koch’s boardroom and hold a meeting where minutes were kept, as did Koch’s formal board of directors. Sometimes the board met in a smaller conference room on the third floor, near Charles Koch’s office, with some members calling in and participating over speakerphone. The timing was improvisational and reactive to conditions in the market. There was a time sensitivity to the meetings; the board often considered acquisition deals that were the subject of intense competitive bidding. There wasn’t time to pay heed to formality and scheduling.
By 2002, the board had access to multiple, ultra-high-value flows of information that fed into it from every arm of the company. The board sat at the center of Koch’s black box. Charles Koch, for example, was privy to detailed updates from every major division in Koch Industries because the division leaders came to Wichita quarterly to report their results. He had the chance, at those meetings, to quiz them on whatever topic he wished. The board could also draw on the vast pools of data and analysis being generated every minute on the company’s trading floors in Houston.
The development board drew on other important sources of information. It was constructed as the center hub that had spokes reaching out to smaller development groups that were embedded in Koch’s various divisions. For example, divisions like Koch Minerals and Flint Hills Resources had development groups analyzing potential deals in their respective industries at a ground level. They fed important information and bid ideas back to the Corporate Development Board.
When employees in one of Koch’s various development groups saw a potential acquisition that was large