as one of the largest, most flagrant violators of environmental laws in the United States during the 1990s.
But the judgments and indictments did not slow Koch down. This was a period when Charles Koch was focused more than ever on expanding, and expanding rapidly. The problems exposed at Pine Bend and elsewhere were not being isolated and contained. They were being exported.
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I. Other nonprofit groups included accountants, the human resources team, lobbyists, and lawyers.
II. In regulatory parlance, releases with enough pollution are called a reportable quantity, or an RQ.
III. While the area in question was referred to as a “wetland” and was near the Mississippi River, the area was not on a list of state-designated wetlands.
IV. Burgess left Koch after these events, and in 2002 he won an election to become a state district court judge in Sedgwick County, Kansas, where Wichita is located. He remained a state judge in 2015.
CHAPTER 9
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Off the Rails
(1995–2000)
Koch Industries executives gathered for a secret meeting at an offsite corporate conference room in Wichita. They were gathered to be told about a new strategic initiative. It is safe to say that this meeting is where the problems started.
The business leaders heard a presentation from a young Koch employee named John C. Pittenger. He was a new breed of Koch employee. He didn’t graduate from Kansas State University or the University of Oklahoma; he went to Princeton University for his undergrad and to Harvard for his master’s degree in business. Koch hired him from a consulting firm called Monitor Group, which was run by Michael Porter, the Harvard management guru who’d given some of the earliest seminars on competition strategy at Koch Industries in the 1980s.
Pittenger moved easily in the world of East Coast money. He knew the latest management theories, consulting trends, and buzzwords being handed down by the Ivy League. He could have easily worked for any firm on Wall Street, but he decided to leave that world and work for Koch. He did this after seeing firsthand how the company operated when Koch had hired him as a contract consultant.
Lots of other business school graduates were following in Pittenger’s footsteps. Koch was hiring more Ivy Leaguers and MBAs than ever before. The educated business class was finally catching on to what was happening inside the Tower in Wichita.
During the offsite meeting with Koch’s top executives, Pittenger helped explain how they’d be running their business over the next decade. They learned that growth would be more important than ever. It was time to expand. Time to take advantage of the economic conditions encouraging bigness in corporate America. In typical Koch fashion, the company developed a specific strategy to grow, one that came complete with its own vocabulary. The framework was called the Value Creation Strategy, or VCS.
Every Koch business leader was expected to create their own Value Creation Strategy. They needed to look for new companies to buy, new plants to build, and expansion projects for existing plants. This wasn’t exactly new—growth was ingrained in Koch’s DNA from the beginning, when Sterling Varner encouraged his employees to keep their eyes peeled for investment opportunities. But the VCS regimen was different. Business leaders knew that Charles Koch would cut or increase their bonus pay based on the Value Creation Strategies they delivered. Expansion was once applauded; now it would be required.
This change rippled out through the ranks. Deals were proposed and sent to Wichita—everybody wanted a big acquisition under their belt. Charles Koch had historically been merciless when it came to assessing these deals, but a certain bias toward acquisitions crept into Koch Industries’ decision-making by 1995. Koch’s own track record fostered this bias. Koch Industries’ sales were roughly $24 billion a year, more than 135 times what they had been when Charles Koch assumed control in 1967. The profits and the cash flowing in the door seemed to be proof that Koch’s philosophies worked. The company knew how to grow—the market itself had delivered its verdict. Charles Koch listened to that verdict. He pushed the company forward even more aggressively.
“There’s a tremendous focus on growth, okay, from Charles. . . . The whole thing is growth,” recalled Brad Hall, the Wichita State graduate who joined the company in 1975. Hall rose through the ranks to become a business leader by 1995, allowing him to work closely with Charles Koch as more and more acquisitions were being made.
As it turned out, Hall would spend many years of his life helping clean