Koch Industries

"As senators fought against the findings of their own committee, Koch put another piece of its plan into place. The biggest threat wasn’t emanating from the Senate but from the courts and the US Attorney’s office, two institutions that could not be influenced by campaign donations or lobbyists. In response, Koch initiated a long-term plan to reshape America’s judiciary system. Ron Howell founded an obscure nonprofit group called Oklahomans for Judicial Excellence. It did something unheard of: it started grading local judges based on their fealty to free-market economic theory. The group created scorecards for state judges, measuring how well their verdicts conformed with the teachings of Hayek and von Mises. The group publicized these rankings with public opinion articles published in places like the Daily Oklahoman. The grading system created a way to embarrass judges in the local press by publicizing their low scores. Koch Industries also offered them a way to escape this embarrassment: the company sponsored a series of free seminars that judges could attend if they received poor grades from Koch’s rating system. The seminars were not held in stuffy classrooms. Koch Industries paid for judges to travel to a ski resort in Utah or a beachfront condominium, among other locations, relaxing places where the judges might be more open to Koch’s message. The company held lectures that emphasized the importance of market forces in society, and warned against the consideration of things like “junk science” that plaintiffs often used to prove corporate malfeasance. The seminars were well attended, sometimes by more than sixty judges at a time. A Kansas state district court judge named Michael Corrigan attended a Koch-sponsored seminar at the Sundial Beach Resort in Sanibel, Florida, and another at the University of Kansas; in between these seminars he handled two cases involving Koch Industries without disclosing the potential conflict of interest, according to an account later published in the Wall Street Journal. The junkets that it organized might have been disclosed or even regulated if they were enjoyed by other public officials, such as members of Congress. But there were no such restraints on treating judges to all-paid vacations, perhaps because no one had thought to organize such events on such a large scale before. Koch’s efforts to sway judges evolved over many years. By 2016, it had transformed into a new program that offered free seminars to judges called the Law & Economics Center, which was housed at George Mason University in Fairfax, Virginia, along with Koch’s free-market think tank, the Mercatus Center. The Law & Economics Center claimed to have hosted more than four thousand state and federal judges from all fifty states at its seminars."

"What should they name the new company? Charles and Sterling had successfully fused the many companies Fred Koch ran into one firm, but now they needed to name it. Why not call the company Koch Industries? The name would honor Charles’s late father, and it was an easy enough catchall title for a group of businesses that were already very diverse. Charles Koch wasn’t wild about the idea. He seemed embarrassed by the thought of having his last name stamped on the entire company. His name would be embossed on the letterhead, emblazoned on the sign outside the company headquarters, spoken on the lips of everyone who worked for him. There was a vanity about this that seemed at odds with Charles Koch’s nature. But Williams argued in favor of naming the company Koch. In his mind, the benefit of the name was that it was neutral, in the way Exxon was neutral. For many industries, neutrality was the enemy. Companies like Coca-Cola spent millions to ensure that their names weren’t neutral and forgettable. But the oil industry was different because Big Oil was cast as the villain in so many economic stories. For this reason, “Koch” was the perfect moniker for the firm. It was slippery, hard to grasp. Everybody mispronounced it when they read the name, and when they heard the name, they confused it with the much better known soft-drink maker. Koch was the perfect flag to fly for a firm that sought to grow, and grow exponentially, while simultaneously remaining invisible."

"Koch Industries would grow in a way that reflected Sterling Varner’s approach to business. Varner was “opportunistic,” in a way that Koch employees used the word, meaning that he was always looking for new deals that were connected to businesses in which he already operated."

"the numbers that the company focused upon were telling. Charles Koch didn’t care much about sales or costs—he cared about profits. He wanted to know how profitable any line of business was and how profitable it could be under the right management. He steered all of his managers to think this way. The key thing they needed to focus on was the return on investment, or ROI—what was the best use of Koch Industries’ money?"

"In the early 1980s, after he was unfettered from his dissident brothers, Charles Koch began to reveal just what his management dreams would look like. There was an auditorium at Koch Industries headquarters, and Charles Koch began to hold events there, filling the seats with between four hundred and five hundred of his most senior managers. Lynn Markel, Brad Hall, Bernard Paulson, and others would file into the room and take their seats. The events were not the typical corporate presentation; Charles didn’t use the forum to talk about business operations or to hold some kind of pep rally. Instead, Charles Koch often sat in the audience himself, taking notes. The executives sitting near Charles Koch saw that this wasn’t a business meeting—class was in session. In fact, they were attending the first seminars in a decades-long curriculum that would become the central work of Charles Koch’s life."

"Soon each division was writing a profit goal for the quarter, rather than a budget. Sales, costs, and prices could veer wildly, but what mattered was whether a division hit its profit goal for the year. And Charles Koch was thinking in terms of years, not quarters. This was critical for a company in a highly volatile business. A graph showing Koch’s sales and costs and the price of oil might spike and dip violently from week to week. But Charles Koch was only interested in whether the return on investment climbed steadily over the years. “You didn’t know what the exact trajectory was going to be. But you knew it was up, and to the right,” Markel recalled."

"Bill Koch was made vice president of a new division called Koch Carbon, which was typical of the kinds of businesses that Charles Koch and Sterling Varner liked to pursue: it pushed the company into new territory and new markets by building on what Koch already knew. Koch Carbon was branching out into the coal mining and processing industries, which built on Koch’s knowledge of the fossil fuel business."

"Koch Industries sold a lot of crude oil to a refinery owned by Sun Oil in Corpus Christi. But Koch didn’t just collect money when it sold crude to Sun Oil. It also collected intelligence. Bernard Paulson’s team knew how much oil Sun was purchasing, and what kind of oil. Then he learned who Sun’s customers were, and what those customers paid for Sun’s product. Paulson began using his computer models to study the market that surrounded Sun Oil’s refinery. He studied what equipment was inside the refinery and at what volume that equipment could process oil. He learned what products Sun was making and at what volumes. He learned where Sun was selling its products and at what price. The Sun Oil refinery in Corpus Christi processed the same kind of “light crude” that most other refineries used.I Sun Oil did not have the type of coker towers that processed the heavy, sulfur-rich crudes refined at Pine Bend."

"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,"

"Koch Industries learned a lot with its fertilizer business. Among other things, the company learned that American agriculture had slowly and quietly turned into a fossil fuel business. This strange fact would launch the largest expansion effort in Koch’s history. It was nothing less than a play to take over a vast portion of America’s food system."

"This strategy traced back to Koch Industries’ earliest days, but with the new business development board in place, it reached the level of a fine art. Koch’s newly designed companies, like Koch Minerals, each had their own mini development teams that became like searchlights, trained on the various industries in which they operated. Whatever they saw and learned was transmitted to the central development board, which synthesized the information with knowledge that was flowing in from Koch’s other companies. The development board also undertook studies of its own, looking for new opportunities beyond the existing Koch universe. The development board ran blue-sky studies in which it teased out economic trends going out ten to twenty years, considering how Koch could make bets that would yield big returns in the future. When the development board saw a deal it liked, it moved with stunning speed."

"Koch appeared to have structured the deal in a way that protected it from the bankers’ claims. Koch used debt that was called “non-recourse” debt, meaning that lenders could not collect the debt from Koch Industries itself—they had no recourse against the parent company. They could only collect debt against the assets of Purina Mills."

"debt. This was not a particularly hard case to prove. Dean Watson, for example, had been Purina’s CEO. But had he ever truly been independent from Koch Industries? When Watson was in trouble, he called Wichita. Purina’s payroll was processed in Wichita, along with other administrative functions. One of Purina’s most vital business activities—buying the grain to make its feed—had been shifted to Koch Industries’ trading floor. It was impossible to make the argument that Koch was not fundamentally involved in Purina’s daily operations. The banks would sue Koch in order to pierce the veil, and going to court was a risky proposition for Koch Industries. Piercing the veil was a “binary” proposition: either the bankers pierced the veil, or they did not. With a single verdict, a bankruptcy judge could expose Koch to enormous liabilities. If Koch lost the court battle, it could also affect the entire system that Charles Koch built over thirty years. By the late 1990s, the company was an impossibly dense interlocking set of supposedly independent subsidiaries and joint ventures. This arrangement allowed Koch to become enormous by swallowing up dozens of smaller companies while shielding it from the full liability of owning each of those companies."

"Koch Industries, the central holding company, institutionalized this drive to expand. The company created a new team of top executives called the business development board, whose sole job was to look for other companies to buy. This group was essentially a reincarnation of the central development group that Brad Hall had overseen in the late 1990s, but it was restructured in a way that made it larger, more influential, and capable of closing deals that were larger by an order of magnitude than anything Koch had done before. The new development group rivaled any deal-making entity on Wall Street. The team had a steady river of cash to work with thanks to the steady flow of money generated at Pine Bend and other assets. The team also made use of Koch Industries’ nearly pristine credit rating,I which made it cheap and easy to get big loans. Even this new strategy—to push for growth and limit risk with a corporate veil—rested on a deeper, more important idea. This idea was the centerpiece of Koch’s new game plan, which relied on one competitive advantage more than any other: Koch’s superior information."

"In fact, while the world was looking elsewhere, Koch Industries built a financial trading desk that rivaled anything operated by Goldman Sachs or Lehman Brothers. Koch Industries, known for crude oil and natural gas, became a world leader in making and trading some of the most complex financial instruments in the world. Koch’s trading business was a strategic"

"The training began with a stringent hiring process that selected only a certain kind of employee. Koch Industries developed a four-part interview process that revolved around Charles Koch’s Ten Guiding Principles. Job candidates, many of them fresh out of college, were led through lengthy lists of questions that sought to determine if they would adhere to Koch’s principles. Only the select few were chosen. “You need diversity in certain ways,” explained Randy Pohlman, who directed Koch’s human resources division until the mid-1990s. “But if you’re Koch Industries, you don’t want people who don’t believe in free markets. They’re not going to be successful there. That’s not the kind of diversity you want. . . . If you’re going to start hiring every other person as a Socialist to have nice diversity—it’s not going to work,” Pohlman said. Once the free-market adherents were hired, Koch began training them immediately. The new hires were collected in groups and led down a long hallway in the basement of the Tower, to a large conference room where round tables were set up to accommodate them. Their training session began with a video address from Charles Koch, projected on a large screen. He laid out the central tenants of MBM, and emphasized the importance of learning the code. And after the video was finished, employees learned the specific codes and rules of this new way of thinking. They broke into small groups and ran through simulations where they put the principles into practice. The training sessions lasted roughly two days. Once employees were on the job, the culture and the vocabulary were reinforced daily in every meeting and conversation, to create a kind of deep muscle memory of the culture."

"Koch Industries, an industrial conglomerate based in Kansas, seemed particularly unsuited to thrive in this environment. The company seemed confined to the business of making things and processing raw materials in complex, expensive facilities. A Koch engineer in Texas didn’t seem to have anything in common with a banker in New York. In fact, while the world was looking elsewhere, Koch Industries built a financial trading desk that rivaled anything operated by Goldman Sachs or Lehman Brothers. Koch Industries, known for crude oil and natural gas, became a world leader in making and trading some of the most complex financial instruments in the world. Koch’s trading business was a strategic centerpiece of the company’s growth strategy over the next decade. It was also the most striking example of Koch’s ability to amass and exploit information asymmetries, learning more than everyone else and turning huge profits from this advantage."

"Under the new structure, Koch Industries became little more than a holding company, a big investment firm that owned a lot of smaller, nominally independent firms. And those companies would be strictly segregated from one another, and from Koch central, by a thick wall designed to be legally impenetrable."

"When each employee is hired, he or she undergoes a multiday training session to learn the tenets of Charles Koch’s philosophy, Market-Based Management, or MBM as they call it. Charles Koch says the philosophy is a blueprint for achieving prosperity and freedom. It is equally applicable to business ventures, personal habits, and national government. Adherence to the creed is nonnegotiable for anyone who remains at Koch Industries. Charles Koch, in one of his books, writes that an “act of conversion” is necessary for MBM to be effective. It cannot be adopted in bits and pieces. The Ten Guiding Principles of MBM are printed and hung above cubicles throughout company headquarters. When employees get free coffee in the break room, the Guiding Principles are printed on their disposable cups. The employees learn MBM’s vocabulary and speak a language among themselves that only they truly understand. They drop phrases like “mental models,” “experimental discovery,” and “decision rights,” that instantly convey deep meaning to insiders. The employees become more than employees; they become citizens of an institution with its own vocabulary, its own incentives, and its own goals in the world."

"What should they name the new company? Charles and Sterling had successfully fused the many companies Fred Koch ran into one firm, but now they needed to name it. Why not call the company Koch Industries? The name would honor Charles’s late father, and it was an easy enough catchall title for a group of businesses that were already very diverse. Charles Koch wasn’t wild about the idea. He seemed embarrassed by the thought of having his last name stamped on the entire company. His name would be embossed on the letterhead, emblazoned on the sign outside the company headquarters, spoken on the lips of everyone who worked for him. There was a vanity about this that seemed at odds with Charles Koch’s nature. But Williams argued in favor of naming the company Koch. In his mind, the benefit of the name was that it was neutral, in the way Exxon was neutral. For many industries, neutrality was the enemy. Companies like Coca-Cola spent millions to ensure that their names weren’t neutral and forgettable. But the oil industry was different because Big Oil was cast as the villain in so many economic stories. For this reason, “Koch” was the perfect moniker for the firm. It was slippery, hard to grasp. Everybody mispronounced it when they read the name, and when they heard the name, they confused it with the much better known soft-drink maker. Koch was the perfect flag to fly for a firm that sought to grow, and grow exponentially, while simultaneously remaining invisible."

"As senators fought against the findings of their own committee, Koch put another piece of its plan into place. The biggest threat wasn’t emanating from the Senate but from the courts and the US Attorney’s office, two institutions that could not be influenced by campaign donations or lobbyists. In response, Koch initiated a long-term plan to reshape America’s judiciary system. Ron Howell founded an obscure nonprofit group called Oklahomans for Judicial Excellence. It did something unheard of: it started grading local judges based on their fealty to free-market economic theory. The group created scorecards for state judges, measuring how well their verdicts conformed with the teachings of Hayek and von Mises. The group publicized these rankings with public opinion articles published in places like the Daily Oklahoman. The grading system created a way to embarrass judges in the local press by publicizing their low scores. Koch Industries also offered them a way to escape this embarrassment: the company sponsored a series of free seminars that judges could attend if they received poor grades from Koch’s rating system. The seminars were not held in stuffy classrooms. Koch Industries paid for judges to travel to a ski resort in Utah or a beachfront condominium, among other locations, relaxing places where the judges might be more open to Koch’s message. The company held lectures that emphasized the importance of market forces in society, and warned against the consideration of things like “junk science” that plaintiffs often used to prove corporate malfeasance. The seminars were well attended, sometimes by more than sixty judges at a time. A Kansas state district court judge named Michael Corrigan attended a Koch-sponsored seminar at the Sundial Beach Resort in Sanibel, Florida, and another at the University of Kansas; in between these seminars he handled two cases involving Koch Industries without disclosing the potential conflict of interest, according to an account later published in the Wall Street Journal. The junkets that it organized might have been disclosed or even regulated if they were enjoyed by other public officials, such as members of Congress. But there were no such restraints on treating judges to all-paid vacations, perhaps because no one had thought to organize such events on such a large scale before. Koch’s efforts to sway judges evolved over many years. By 2016, it had transformed into a new program that offered free seminars to judges called the Law & Economics Center, which was housed at George Mason University in Fairfax, Virginia, along with Koch’s free-market think tank, the Mercatus Center. The Law & Economics Center claimed to have hosted more than four thousand state and federal judges from all fifty states at its seminars."

"Koch Industries didn’t have to think quarter to quarter. The company thinks year to year. An internal think tank and deal-making committee, called the development group, will sometimes think through a business deal on a timeline measured in decades."

"Koch Industries expanded continuously by purchasing other companies and branching out into new industries. It specialized in the kind of businesses that are indispensable to modern civilization but which most consumers never directly encounter. The company is embedded in the hidden infrastructure of everyday"

"Koch Industries expands, almost exclusively, into businesses that are uncompetitive, dominated by monopolistic firms, and deeply intertwined with government subsidies and regulation."

"the numbers that the company focused upon were telling. Charles Koch didn’t care much about sales or costs—he cared about profits. He wanted to know how profitable any line of business was and how profitable it could be under the right management. He steered all of his managers to think this way. The key thing they needed to focus on was the return on investment, or ROI—what was the best use of Koch Industries’ money?"

"Koch Industries would grow in a way that reflected Sterling Varner’s approach to business. Varner was “opportunistic,” in a way that Koch employees used the word, meaning that he was always looking for new deals that were connected to businesses in which he already operated."

"Bill Koch was made vice president of a new division called Koch Carbon, which was typical of the kinds of businesses that Charles Koch and Sterling Varner liked to pursue: it pushed the company into new territory and new markets by building on what Koch already knew. Koch Carbon was branching out into the coal mining and processing industries, which built on Koch’s knowledge of the fossil fuel business."

"In the early 1980s, after he was unfettered from his dissident brothers, Charles Koch began to reveal just what his management dreams would look like. There was an auditorium at Koch Industries headquarters, and Charles Koch began to hold events there, filling the seats with between four hundred and five hundred of his most senior managers. Lynn Markel, Brad Hall, Bernard Paulson, and others would file into the room and take their seats. The events were not the typical corporate presentation; Charles didn’t use the forum to talk about business operations or to hold some kind of pep rally. Instead, Charles Koch often sat in the audience himself, taking notes. The executives sitting near Charles Koch saw that this wasn’t a business meeting—class was in session. In fact, they were attending the first seminars in a decades-long curriculum that would become the central work of Charles Koch’s life."

"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.”"

"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,"

"Charles Koch invited one of the brightest young business consultants in the nation to speak in Wichita, a Harvard professor named Michael Porter. Porter published a book in 1980 called Competitive Strategy that offered a new framework for how to run a business. The book provided a detailed plan for companies to analyze the market in which they operated. Porter visited Koch Industries multiple times, accompanied by a team of consultants. The team helped Koch’s managers look into their own business lines and apply Porter’s ideas, using good data to figure out the best path toward boosting profits and growing. Porter helped Koch executives learn how to analyze their competitive advantage, analyze their competitors, and come up with the best plan to capitalize on the company’s market position."

"Koch Industries sold a lot of crude oil to a refinery owned by Sun Oil in Corpus Christi. But Koch didn’t just collect money when it sold crude to Sun Oil. It also collected intelligence. Bernard Paulson’s team knew how much oil Sun was purchasing, and what kind of oil. Then he learned who Sun’s customers were, and what those customers paid for Sun’s product. Paulson began using his computer models to study the market that surrounded Sun Oil’s refinery. He studied what equipment was inside the refinery and at what volume that equipment could process oil. He learned what products Sun was making and at what volumes. He learned where Sun was selling its products and at what price. The Sun Oil refinery in Corpus Christi processed the same kind of “light crude” that most other refineries used.I Sun Oil did not have the type of coker towers that processed the heavy, sulfur-rich crudes refined at Pine Bend."

"In 1993, the team produced a glossy booklet, sixty-three pages long, called Introduction to Market-Based Management. The booklet was an operator’s manual; the rulebook for working at Koch Industries."

"Faragher and her new colleagues were told that they were being let in on a secret. They were about to learn the Koch way of doing business. And Charles Koch, the CEO himself, would arrive to reveal the secrets in person. Even decades later, Faragher would vividly remember seeing Charles Koch walk out onto the stage to address the crowd. He had bone-deep confidence, the kind that expresses itself in the weird way of making a man simultaneously humble and also completely certain of his beliefs. During such meetings, Charles Koch explained that there were fundamental laws guiding the natural world: the law of inertia, the law of gravity. These were immutable forces that dictated events. And there were also immutable laws that governed human affairs. History showed, inarguably, that the laws protecting individual liberty and free-market capitalism were the only principles that could form the bedrock of a healthy society. The same held true for creating a healthy company. Individual liberty and free-market capitalism were the cornerstones. These principles would guide every action of every employee inside the company. Commitment to these laws was a precondition to employment at Koch Industries. It was also the surest path to a virtuous and prosperous life."

"Under the new structure, Koch Industries became little more than a holding company, a big investment firm that owned a lot of smaller, nominally independent firms. And those companies would be strictly segregated from one another, and from Koch central, by a thick wall designed to be legally impenetrable."

"Koch Industries learned a lot with its fertilizer business. Among other things, the company learned that American agriculture had slowly and quietly turned into a fossil fuel business. This strange fact would launch the largest expansion effort in Koch’s history. It was nothing less than a play to take over a vast portion of America’s food system."

"Koch appeared to have structured the deal in a way that protected it from the bankers’ claims. Koch used debt that was called “non-recourse” debt, meaning that lenders could not collect the debt from Koch Industries itself—they had no recourse against the parent company. They could only collect debt against the assets of Purina Mills."

"Koch Industries, the central holding company, institutionalized this drive to expand. The company created a new team of top executives called the business development board, whose sole job was to look for other companies to buy. This group was essentially a reincarnation of the central development group that Brad Hall had overseen in the late 1990s, but it was restructured in a way that made it larger, more influential, and capable of closing deals that were larger by an order of magnitude than anything Koch had done before. The new development group rivaled any deal-making entity on Wall Street. The team had a steady river of cash to work with thanks to the steady flow of money generated at Pine Bend and other assets. The team also made use of Koch Industries’ nearly pristine credit rating,I which made it cheap and easy to get big loans. Even this new strategy—to push for growth and limit risk with a corporate veil—rested on a deeper, more important idea. This idea was the centerpiece of Koch’s new game plan, which relied on one competitive advantage more than any other: Koch’s superior information."

"This strategy traced back to Koch Industries’ earliest days, but with the new business development board in place, it reached the level of a fine art. Koch’s newly designed companies, like Koch Minerals, each had their own mini development teams that became like searchlights, trained on the various industries in which they operated. Whatever they saw and learned was transmitted to the central development board, which synthesized the information with knowledge that was flowing in from Koch’s other companies. The development board also undertook studies of its own, looking for new opportunities beyond the existing Koch universe. The development board ran blue-sky studies in which it teased out economic trends going out ten to twenty years, considering how Koch could make bets that would yield big returns in the future. When the development board saw a deal it liked, it moved with stunning speed."

"The training began with a stringent hiring process that selected only a certain kind of employee. Koch Industries developed a four-part interview process that revolved around Charles Koch’s Ten Guiding Principles. Job candidates, many of them fresh out of college, were led through lengthy lists of questions that sought to determine if they would adhere to Koch’s principles. Only the select few were chosen. “You need diversity in certain ways,” explained Randy Pohlman, who directed Koch’s human resources division until the mid-1990s. “But if you’re Koch Industries, you don’t want people who don’t believe in free markets. They’re not going to be successful there. That’s not the kind of diversity you want. . . . If you’re going to start hiring every other person as a Socialist to have nice diversity—it’s not going to work,” Pohlman said. Once the free-market adherents were hired, Koch began training them immediately. The new hires were collected in groups and led down a long hallway in the basement of the Tower, to a large conference room where round tables were set up to accommodate them. Their training session began with a video address from Charles Koch, projected on a large screen. He laid out the central tenants of MBM, and emphasized the importance of learning the code. And after the video was finished, employees learned the specific codes and rules of this new way of thinking. They broke into small groups and ran through simulations where they put the principles into practice. The training sessions lasted roughly two days. Once employees were on the job, the culture and the vocabulary were reinforced daily in every meeting and conversation, to create a kind of deep muscle memory of the culture."

"Koch Industries, an industrial conglomerate based in Kansas, seemed particularly unsuited to thrive in this environment. The company seemed confined to the business of making things and processing raw materials in complex, expensive facilities. A Koch engineer in Texas didn’t seem to have anything in common with a banker in New York. In fact, while the world was looking elsewhere, Koch Industries built a financial trading desk that rivaled anything operated by Goldman Sachs or Lehman Brothers. Koch Industries, known for crude oil and natural gas, became a world leader in making and trading some of the most complex financial instruments in the world. Koch’s trading business was a strategic centerpiece of the company’s growth strategy over the next decade. It was also the most striking example of Koch’s ability to amass and exploit information asymmetries, learning more than everyone else and turning huge profits from this advantage."

"Charles Koch made it abundantly clear to his team that they would work toward one goal: to maximize Koch’s long-term return on investment. The firm wasn’t looking for quick returns. Koch would press the advantage of Charles Koch’s patience, looking for deals that other investors might avoid because the payouts wouldn’t come for years. Charles Koch institutionalized the company’s “trading mentality” by embedding it in a new, secretive group that was formed on the third floor of the Tower, near Charles Koch’s office. This group rivaled any private equity firm in the nation. It was called the Corporate Development Board."

"When a group of bankers tried to convince Charles Koch to take Koch Industries public, he told them he was worried that doing so might let the world learn just how much money Koch’s commodities traders earned. Koch’s trading profits were so high that Charles Koch worried that counterparties might stop doing business with the company (presumably out of fear that Koch traders made so much money that it must come at the expense of anyone on the other side of a trade)."