a new set of “Standards of Corporate Conduct” to employees throughout the company. The standards also included a provision that would likely conceal evidence of oil theft that would have occurred through mismeasurement.
The standards of conduct said that no Koch employee should defraud anyone by making false entries into Koch’s books. This would effectively ban the Koch Method of oil measurement, which required oil gaugers to record fraudulent numbers on run tickets and receipts they left behind at oil wells.
The standards imposed a sweeping blanket of secrecy over Koch’s operations, stating that “all financial data, business records, technology and information on corporate strategy, objectives or on modeling and other analytical and/or management techniques” were to be considered secret and proprietary information that belonged to the company. In other words, virtually every piece of information at Koch Industries was confidential. This would include any training documents for oil gaugers or any tally sheets that showed overages or shortages in the oil gathering division. The standards barred any employee from sharing any of this information with an outside party without prior approval from a Koch Industries manager. The flow of information about Koch’s measurement practices was being bottled up.
On July 11, 1988, Koch’s president, Bill Hanna, sent a companywide memo informing employees how to handle company records. He reminded employees about the code of secrecy for Koch’s records that had been distributed before. Then he ordered that “written materials which would be useful to our competitors should be destroyed by shredding, burning, or some equally effective method.”
Hanna’s memo was a license to destroy evidence. And it was issued at a time when top executives at Koch were aware that the US Senate was investigating Koch’s oil measurement practices. Under such circumstances, corporate lawyers and executives often order their employees to take special care to retain records that might be relevant to a lawsuit or investigation. Koch Industries did the opposite. It is unknown how many documents were destroyed because of that memo.
Don Cordes eventually reversed course and told Koch employees to retain evidence that might pertain to oil theft, but he didn’t do so until November of 1988, months after Hanna’s memo went out. The only reason that Cordes changed the policy was because a Koch employee in Texas complained to Cordes that he had been told to destroy all written evaluations he had made of Koch’s truck drivers and oil gaugers.
Bill Koch only fed into the company’s sense of embattlement. He launched a privately funded investigation into Koch’s measurement practices. He paid private investigators to interview Koch gaugers, and he paid Koch gaugers to speak with his investigators. He submitted some of this evidence to the Senate, even as the Senate was doing interviews of its own. An internal FBI report, which wasn’t made public until 2018, indicates that Bill Koch helped submit fifty statements from former Koch employees to US Senate investigators, claiming that the gaugers were stealing oil. The Senate ignored the statements because Bill Koch’s involvement made them “suspect,” according to an FBI memo. Rather than rely on Bill Koch’s help, the Senate and the FBI relied on Agent Jim Elroy’s investigation.
Charles Koch did more than circle the wagons. He helped coordinate a broad counterattack aimed not just at his brother but also at the US Attorney’s office. This marked a turning point in Koch’s history and in its efforts to influence US politics and public policy. His intentions were reflected in a lengthy written response that the company submitted to the Senate after Charles Koch refused to testify at the hearing. The most revealing part of the response was the headline of its first section: “The fact that the hearings were devoted almost exclusively to Koch Industries, Inc., is the result of the activities of William I. Koch and his vendetta against Koch Industries, Inc.”
“Koch presented an easy target,” the statement said. “It was politically unimportant, and because it would not have an opportunity to present its case or cross-examine witnesses, a one-sided presentation was possible.”
At the time, it might still have been accurate to call Koch Industries “politically unimportant.” The company didn’t have a major lobbying operation in Washington and kept away from the spotlight. Charles Koch spent most of his time funding think tanks, university professors, and litigation in an effort to quietly shift American political culture.
But when faced with the threat of criminal charges, Charles Koch redirected his political efforts. Rather than simply hire lawyers and lobbyists, Koch used a network of front groups,