purchased the Pine Bend refinery than he learned that he could not control it. Charles Koch had almost total authority over Koch Industries, but his authority was hemmed in at the Pine Bend refinery. The union set the rules in Pine Bend, and the union set the wages. Over the years, the labor contracts in Pine Bend became so favorable to the employees that even some of the union members thought that it was a little excessive.
In the late 1960s, most CEOs considered powerful unions to be a fact of life. The New Deal included pro-union laws, passed in the 1930s, that made unions almost indomitable. It was a losing game to take on unions; their power was too great to challenge. Most companies chose to accommodate organized labor.
Charles Koch faced this same choice, and he chose to fight. The battle against organized labor at Pine Bend was the first to test Charles Koch’s resolve. His first move was to find the right commander for the conflict. Charles Koch found his man in the spring of 1971, when he attended an industry conference in California and met an oil industry engineer named Bernard Paulson.
Paulson was living in Corpus Christi at the time and managing an oil refinery for Coastal Oil & Gas. Paulson was instantly impressed with Charles Koch. Like so many people who met him, Paulson was first struck by Koch’s intelligence. Paulson had met a lot of impressive people in the business—self-made millionaires and wildcatters—but even when compared against such characters, Charles Koch stood apart. There was nothing of the wildcatter about Charles Koch. He was not a flamboyant man who needed to impress strangers. He was an engineer by temperament, a man who questioned more than he talked. Charles Koch also seemed taken with Paulson—the two men quickly hit it off and Koch asked Paulson if he’d like to get dinner. Paulson agreed, and they talked a long time over dinner that night. Koch described his new investment at Pine Bend. The deal made perfect sense to Paulson. They talked about the oil refining business in-depth. Refining is the kind of hyper-complicated business that only two engineers could discuss in detail over dinner, and that’s what the two of them did.
After Paulson returned to Texas, Charles Koch called him. They talked more, and soon Koch offered him a job. It seemed to Paulson that he had one job qualification that was especially important: he knew how to handle unions. When Paulson was hired to run the Coastal Oil refinery in Texas, the company had narrowly avoided a vote to unionize its employees. Paulson took over the business, and a few years later there was another union vote. He worked hard to convince his employees that union membership only hurt them, and he bargained hard against unionized firms that tried to get contracting work at the refinery. When still another union vote occurred under his management, the union lost by a five-to-one margin. Paulson had proved that he was adept at keeping unions out of an oil refinery, no matter how hard they might fight to get in. During their conversations Charles Koch told Paulson how toxic the union was in Pine Bend. Koch Industries needed to regain control. Breaking the union would be a key part of Paulson’s job.
Paulson was, in many ways, the perfect man for this job. He came from tough circumstances—he was raised on a small farm in Michigan and educated in a one-room schoolhouse. He wasn’t sentimental about business, and he knew how to stick out a hard situation. One of Paulson’s heroes was General George S. Patton, the military hero who was best known for his rousing speeches that gave soldiers the courage they needed to head into battle. Patton had famously told his recruits: “Americans, traditionally, love to fight. All real Americans love the sting of battle. . . . Americans love a winner and will not tolerate a loser. Americans play to win all the time.” Paulson yearned to be a leader who had the kind of inner strength that Patton possessed.
In 1971, Paulson joined Koch Industries. He was transferred immediately to Pine Bend, where he took control as manager of the refinery.
He immediately began, in his words, “to straighten it out.”
CHAPTER 3
* * *
The War for Pine Bend
(1971–1973)
Public policy concerning labor unions has, in little more than a century, moved from one extreme to the other. . . . [Unions] have become the only important instance in which governments