Kochland: Koch Industries, Corporate Power, and Strategy

Introduction

With annual revenues of more than $110 billion and a consistent track record of success, privately owned Koch Industries is well poised to take advantage of new opportunities in the energy industry today. In order to learn more about how this company succeeded where many others have failed, this paper provides a review of the basic ideas presented in Kochland: The Secret History of Koch Industries and Corporate Power in the United States, followed by an assessment of why this book is useful for business students. A summary of the research and important findings concerning the basic ideas and issues presented in the book is provided in the conclusion.

Overview of Kochland's Structure and Content

The book is organized into three parts — with ten, seven, and eight chapters each, respectively — titled "The Koch Method," "The Black Box Economy," and "Goliath." The first part, "The Koch Method," begins with the ominous-sounding chapter "Under Surveillance" and ends with "The Failure," and both chapter titles are highly accurate. The opening chapters describe the legal trouble Charles Koch found himself in after it was discovered that Koch field employees (known as "gaugers") were routinely pressured to provide inaccurate reports in the company's favor, resulting in millions of dollars in extra profits each year. These practices attracted the attention of other stakeholders and the U.S. government — hence the chapter title "Under Surveillance" — but the implications of the subsequent lawsuit were the focus of the next several chapters.

The actual history of the company, and the role played by Charles Koch in its success, began much earlier, when Fred Koch, Sr. founded the company in Wichita, Kansas in 1940. Those events, however, are only mentioned in passing. The real story described by Leonard begins in 1967 in the preface, where Fred Koch, Sr. passed away unexpectedly on a family hunting trip, leaving the company's reins to his 32-year-old son, Charles.

Ambitious and not content to continue his father's more conservative traditions, Charles Koch leveraged this burgeoning energy company from "a mere multimillionaire into the behemoth it is today. Fossil fuels, commodities trading, chemicals, paper products, fertilizer: Koch Industries has inserted itself into nearly every aspect of daily life, raking in billions along the way" (Singer, 2019, p. B8). Indeed, Charles did not lose any time in forging the Koch energy empire.

Charles Koch's Business Philosophy and Controversies

Several episodes depicted in the book illustrate Koch's philosophy with particular clarity. In chapter 4, "The Age of Volatility Intensifies (1974–1975)," the author reports that in 1974, Charles Koch delivered a speech to the Institute for Humane Studies in which he emphasized that "to date, business has attempted to defend itself by taking a conciliatory attitude rather than exposing the fallacies in the anti-capitalistic arguments" (p. 95). From Koch's perspective, business leaders were being too conciliatory to their critics and were even ashamed of making money. Koch stressed that there was no such thing as "too much money" when he argued: "When the oil industry and others are criticized for having 'excess profits,' businessmen should argue that in a free market, there is no such thing as excess profit — that without high profits, there would be no signal to invest more capital in order to increase production to meet the consumer demand that created the profits" (p. 95).

Charles Koch also refused to back down from legal and political challenges. In chapter 7, "The Enemies Circle (1985–1992)," Leonard points out that when confronted with legal opposition, "Charles Koch did more than circle the wagons. He helped coordinate a broad counterattack aimed not just at his brother but also the U.S. Attorney's Office. This marked a turning point in Koch's history and its efforts to influence U.S. politics and public policy" (p. 135).

Although this episode represented a turning point, Koch's efforts to sway public policy and public opinion were seriously hampered by the high-profile litigation his company was embroiled in, as well as his negative portrayal in the mainstream press. In chapter 10, "Failure (2000)," Leonard reports that for Charles Koch, "the previous decade had been a public embarrassment. To the degree that Koch Industries was written about in the popular press, the stories tended to focus on Koch's lawbreaking and litigation. To the degree that Charles Koch himself was written about, he was described as a character in a pathetic family feud that showed just how crazy billionaires could be" (p. 215).

Conclusion

In Kochland: The Secret History of Koch Industries and Corporate Power in the United States, Christopher Leonard provides an in-depth analysis of the life and career of Charles Koch, a multibillionaire who has managed to keep his company privately held for the past 80 years. Over the course of that time, Charles Koch weathered a serious lawsuit, a major economic downturn, and waves of negative publicity to emerge as one of the wealthiest people in the world — completely unapologetic about his success. The main takeaway from Kochland is the importance of a long-term perspective and the confidence needed to stay the course.

References

Javed, T. (2018, January 1). Employee ownership and financial performance of state owned entities: Mediating role of motivation. Journal of Management Information and Decision Sciences, 21(1), 1.

Leonard, C. (2019). Kochland: The secret history of Koch Industries and corporate power in the United States. New York: Simon & Schuster.

Szalai, J. (2019, August 13). 'Kochland' measures the reach of a politically influential corporate giant. The New York Times. Retrieved from https://www.nytimes.com/2019/08/13/books/review-kochland-secret-history-koch-industries.html

Singer, D. (2019, August 18). 'Kochland' explains powerful company and how it had a rare failure in St. Louis. St. Louis Post-Dispatch, B8.