that an “act of conversion” is necessary for MBM to be effective. It cannot be adopted in bits and pieces. The Ten Guiding Principles of MBM are printed and hung above cubicles throughout company headquarters. When employees get free coffee in the break room, the Guiding Principles are printed on their disposable cups. The employees learn MBM’s vocabulary and speak a language among themselves that only they truly understand. They drop phrases like “mental models,” “experimental discovery,” and “decision rights,” that instantly convey deep meaning to insiders. The employees become more than employees; they become citizens of an institution with its own vocabulary, its own incentives, and its own goals in the world. The financial success of Koch Industries only reinforces the idea that what they are doing is right and that the tenets of MBM are indeed the key to proper living.
Because this book is the biography of an institution, not an individual, many people will come and go through its pages. Readers will meet Heather Faragher, a Koch employee who blew the whistle on systematic wrongdoing inside Koch, only to face the harshest consequences. Readers will meet Bernard Paulson, a hard-driving executive who helped Koch Industries break the back of a militant labor union. They will meet Dean Watson, a rising star at Koch Industries, who embraced the teachings of Market-Based Management but whose career collapsed under the weight of his own ambition. They will meet Philip Dubose, a Koch employee who stole oil to make his bosses happy. They will meet Steve Hammond, a warehouse worker who negotiated for workers’ rights against his bosses at Koch. And they will meet Brenden O’Neill, a striving middle-class man from Wichita who became a millionaire on Koch’s commodity trading floors. Unfortunately, many of these people will arrive and then fall away as Koch Industries moves forward and changes with the times. This is the nature of large institutions. The people in them come and go. If it is difficult to keep track of so many individuals, readers can turn to an alphabetical directory of characters at the end of the book.
There is one person, however, who is present for the entire fifty-plus-year span of this story. He resides, almost the entire time, at the pinnacle of power at Koch Industries, driving it forward, shaping it to his vision, and reaping its great rewards. Charles Koch is the author, more than anybody, of Koch Industries’ story.
Even though his influence is felt throughout Koch Industries, and throughout America’s political system, Charles Koch remains a remarkably opaque figure. He prizes his privacy and cherishes secrecy. Countless people have tried to understand Charles Koch by looking at him from outside the tall walls and dark glass windows of Koch Industries headquarters. One of those people is an FBI special agent named James Elroy. He dedicated many years of his life to investigating the leadership organization of Koch Industries. Elroy was convinced, in 1988, that Charles Koch and his lieutenants were engaged in a massive criminal conspiracy.
That is why Elroy positioned himself, one day, in the middle of an Oklahoma cow pasture, holding a camera with a wide-angle lens, trying to surveil Charles Koch’s employees. That is the moment where this book begins.
PART 1
* * *
THE KOCH METHOD
CHAPTER 1
* * *
Under Surveillance
(1987–1989)
FBI special agent James Elroy stood on a remote expanse of pastureland and waited for the man from Koch Oil to arrive. Elroy had a 600-millimeter camera, a telephoto lens, and plenty of film. Perhaps most importantly, he also had a bag of feed cubes for the cattle. Elroy had arrived early at this carefully chosen spot to stake out his position. He stood at a place with a commanding view of a large, cylindrical oil tank. The tank was one of hundreds just like it that were scattered throughout the Oklahoma countryside, sitting on land that was desolate on its surface but which covered rich deposits of underground crude-oil lakes. The oil was slowly drained by unmanned pumps that bobbed up and down day and night, drawing out the crude and sending it into the big metal tanks. When those tanks were finally full, an employee from Koch Oil would arrive in a big truck, siphon out the fuel, and take it to market. Elroy planned to be ready for him.
Elroy opened the feed bag, grabbed handfuls of cubes, and scattered them on the ground. Soon enough, the cattle began to congregate around him, lowering their heads to sniff through the grass and