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The truth about Koch Industries

This is a massive, and massively reported, book. But what's most impressive is its refreshing balance. Mr Leonard does not judge the Kochs; he explains them

Bryan Burrough | NYT 

Cover of Kochland: The Secret History of Koch Industries and Corporate Power in America
Cover of Kochland: The Secret History of Koch Industries and Corporate Power in America. Credits:

With the notable exception of our president, probably no individuals in the last decade of politics have attracted as much dismay and fury as the billionaire Koch brothers, Charles and David, who have leveraged control of their family’s gargantuan, Kansas-based Koch Industries to create a political-influence machine of rare scope — all in the service of pushing back against government regulations, especially those dealing with climate change, pollution and energy policy.

The attention lavished on the Kochs’ in­f­l­uence, however, has tended to oversha­d­ow what made that influence possible in the first place: Charles Koch’s eye-opening pro­wess in business. While David Koch em­erged as a Fifth Avenue philanthropist and bon vivant, it was Charles — calm, modest and analytical — who over the last 50 years transformed an obscure Wichita oil company into a $110 billion colossus. In a different world, he might be celebrated along the lines of Steve Jobs, Bill Gates or Warren Buffett. The story of how he did it is told in Christopher Leonard’s superb Kochland.

Mr Leonard, who has written for The Washington Post and Bloomberg Busine­s­s­week, devoted nearly a decade to researchi­n­g Kochland. This is a massive, and massively reported, book. But what’s most impressive is its refreshing balance. Mr Leonard does not judge the Kochs; he explains them.

Almost as notable, from a journalist’s point of view, is the degree to which Mr Leonard succeeds without the kind of cooperation all authors seek. He appears to have had only limited access to Koch executives, including, it appears, a single interview with Charles Koch. Tackling the biography of a secretive private company like Koch, which has little need to open itself to scrutiny, is a task of herculean difficulty.

But to a degree I’ve rarely seen, Mr Leonard actually turns this lack of access into a strength. He does it by unspooling a series of granular set pieces and micronarratives, telling the stories of dozens of men and women inside and outside the company, from a middle manager struggling to schedule barges in Louisiana to the frazzled, overworked forklift drivers pushed to their limits inside a sprawling Koch paper warehouse in Portland, Ore.

Each story illustrates one corner of a vast corporate empire. Mr Leonard writes: “The profits from Koch’s activities are stunning. … Together the two men are worth $120 billion. Their fortune is larger than that of Amazon CEO Jeff Bezos or Microsoft founder Bill Gates. Yet David and Charles Koch did not invent a major new product or revolutionize any industry. The Koch brothers derived their wealth through a patient, long-term strategy of seizing opportunities in complex and often opaque corners of the economic system.”

The story begins in 1967, when the bellicose archconservative who founded Koch Industries, Charles and David’s father, Fred Koch, fell dead in a Utah duck blind. The second of Fred’s four sons, a 1957 graduate of MIT, 32-year-old Charles had been trained since childhood to run the company. The oldest son, also named Fred, had no interest in business and would devote his life to the arts. The fourth, David’s quarrelsome twin brother, Bill, would join the company a decade later and rebel, igniting a feud with Charles that would span the next 15 years. David would fall in line as Charles’s reliable boardroom ally.

Kochland, then, is mainly Charles’s story. His ambitions were enormous. In 1967 the company was a tangle of middling energy businesses, including oil refining, engineering and a few pipelines. Two years later, after streamlining it into a single entity, Charles unveiled his masterstroke, buying control of Minnesota’s Pine Bend oil refinery. Because of an Eisenhower-era loophole, Pine Bend was one of only four American refineries able to import an unlimited amount of foreign oil — in its case, Canadian oil.

The company’s phenomenal growth rested on three pillars. The first was culture: Charles was a thinker, a devotee of the Austrian free-market economists Friedrich Hayek and Ludwig von Mises, and in time he codified his philosophy into something he calls Market-Based Management, or MBM, which is drilled into every Koch employee. The unity of thought inside the company, some may sense, carries the faint whiff of a cult.

The second pillar was market intelligence. Over time Charles would build a network of trading desks in Houston, Moscow, Geneva, Wichita and elsewhere that dealt in every imaginable commodity. While they were profitable, their real value lay in gathering intelligence on every market Koch was in or considered getting into.

The third and most important pillar underlying Koch’s growth was the simple fact that it was private, meaning it wasn’t beholden to masses of shareholders and their nattering demands for rising quarterly profits. This freed it in dozens of ways. Because he refrained from paying steep dividends, he reinvested 90 percent of Koch’s profits into the business, further fuelling its ability to make acquisitions. This has taken Koch far afield from its origins in oil, into fertilisers, lumber, feed lots, even greeting cards.

If Charles couldn’t evade nettlesome regulations and laws, he decided to try to change those he disliked, part of the reasoning behind his push into the realm of politics. Mr Leonard aptly traces how the company’s Washington lobbying machine mushroomed in size and efficacy during the Obama-era fight over so-called cap-and-trade limits on emissions, a victory that emboldened Charles to influence regulations and Congressional races across the country.

Kochland delivers on its seemingly facile subtitle: A reader does learn not just about the growth of the power of Koch Industries, but also about that of corporate America’s as well. Not since Andrew Ross Sorkin’s landmark Too Big to Fail (2009) have I said this about a book, but Kochland warrants it: If you’re in business, this is something you need to read.

Kochland: The Secret History of Koch Industries and Corporate Power in America

Christopher Leonard

Simon & Schuster; $35; 687 pages

©2019 The New York TimesNews Service

First Published: Mon, August 26 2019. 00:14 IST