employees. Every year, Charles Koch held an award ceremony in Wichita to recognize employees who had done an outstanding job. One year, he singled out Bernard Paulson.
Standing before the gathering of his brain trust, Charles Koch recited a long list of Paulson’s accomplishments: the expansions, the market analysis, the new investments that steadily won Koch more market share. Paulson later said that it was embarrassing to be lauded before his peers, but there was clearly some part of him that enjoyed it.
Charles Koch seemed to be praising Paulson to convey one lesson: Paulson had treated the Pine Bend refinery like it was his own company. Paulson didn’t act like an employee; he acted like a small-business owner. Paulson thought for himself, and he treated Koch Industries’ money as if it were his own. And Paulson shared in the glory once it was realized.
“He pointed out, ‘This is entrepreneurial,’ ” Paulson recalled. “He said that’s what he wanted the entire company to do. To be entrepreneurs.”
To a remarkable extent, this lesson was successfully pushed out into the furthest branches of a rapidly expanding Koch Industries, from senior managers like Lynn Markel in finance, to Bernard Paulson, to the lower-level employees like oil gaugers and refinery workers. Employees at all levels of Koch were made to feel like small-business owners. They never owned actual shares of stock in Koch Industries—ownership was reserved for the Koch family and a few small shareholders. But employees felt like they owned a piece of Koch Industries. Charles Koch gave them performance-based bonuses and issued them “shadow stock” contracts that paid out as the company’s value increased, but that didn’t confer actual ownership. The real shares of Koch Industires were tighly held by Charles and David Koch, and a small group of relatives and associates.
The vast majority of employees embraced this culture. They were inspired by Charles Koch’s vision.
But there was one exception. And that exception was arguably the most consequential employee that was ever hired under Charles Koch.
The exception was Charles’s younger brother, Bill.
* * *
I. “Stripper” oil is drawn from a well nearing the end of its productive life.
CHAPTER 5
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The War for Koch Industries
(1980–1983)
Bill Koch became a full-time Koch Industries employee in 1975, at the age of thirty-five. He spent his early years in one of the company’s murkiest but most important divisions: Bill Koch came up through the trading business.
Koch’s trading division was enmeshed in an industry that managed to touch virtually every American while managing to remain almost entirely invisible. The operations had their roots in Koch’s shipping and oil gathering business, where the company became a broker and middleman for crude oil and gasoline products. During the 1970s, Koch expanded its operations, buying and selling oil as a go-between for companies like Exxon and Chevron. These were specialized markets where only a few companies could operate; a trader needed lots of cash, expertise, and access to oil tankers and pipelines. As Koch’s traders developed expertise, they branched out and traded commodities that were never priced on an open exchange. A single transaction might yield $1 million or more in profits without ever being recorded with a paper contract. One of these markets was for industrial chemicals that most people couldn’t pronounce but that they used every day. Polyvinyl chloride, for example, is used in food packaging and bottles. But the markets to buy PVC were just as confusing and opaque as its chemical formula. The deals were too specialized for open exchanges, and they were often done one-on-one, confidentially, over the phone. Bill Koch was largely responsible for getting Koch Industries into the chemical trading business. It was a business that would become an integral part of the company.
Bill came across chemical trading shortly after he graduated from MIT. He was living in Boston and looking for new companies that Koch Industries could buy with the massive amounts of cash the company was generating. In his search for new investments, Bill Koch stumbled across a chemical trader named Herbert Roskind, who ran what was basically a one-man chemical trading firm called Monocel.
As a trader, Roskind was one of the few middlemen in the global market for industrial chemicals. He sold barges full of sulfur made in Louisiana to factories in Asia that needed it as an ingredient in their manufacturing plants. Roskind spent much of his day in an office in suburban Boston, working the phones to call contacts in Europe or Singapore or Houston, finding people who wanted to buy